Thursday, January 28, 2010

1/28/10 Midday Report: Global economy still more fragile than faberge egg wrapped in Donald Trump's ego

The market is down again today thanks to Qualcomm giving a subdued forecast and something again about people not having jobs.  Luckily, according to the Fed, the recession may be over which has left many of the 10% of unemployed people loudly cheering from their urine stained cardboard boxes.  The Fed upgraded its economic outlook, reaffirmed it will end liquidity backstops and a $1.25T program to buy mortgage-backed securities, and then shook their magic wand over the grave of Benjamin Strong while singing an incantantion from the Atharva Veda.  While they pledged to keep the benchmark rate low for an "extended period" (and remember by low they mean zero, and by zero they mean free money for banks), they did question how long inflation will remain "subdued" citing the fact that they just printed enough money to deplete the rain forest or for PacMan Jones to make it rain for six consecutive hours at his local Rick's cabaret.

Despite the Fed's modestly upbeat statement, weekly claims for unemployment came out today and while they were slightly better than last week (in the same way that Paris Hilton is only slightly dumber than a centipede), they were still worse than expectations as there were 470k new filers and expectations were for 450k.  Additionally, durable goods orders were well below expectations growing .3% in December vs. expectations of 1.7% growth.  This was driven by a 38% decline in orders for civilian aircraft, a 5% decline in orders for computers, and a 10% decline in things that "cost money."  However, if transportation is excluded, durable goods orders grew .9% which was above the .5% median estimate.  So as always, you show me some data and I'll make it look good or bad, depending on what you want to hear (she was fat, she had a good personality.  Potato, puhtaato).  Those analysts who have used Excel have a word for it, it's called "solver."


In international news, George Soros is now looking for a seat on the "China is a bubble" bandwagon joining Jim Chanos and everyone else looking at the market on a daily basis.  I'm not saying China is moving too fast, but it shunned foreplay and offers of lube and then demanded to receive immediate insertion in to it's Shanghai.  Also Greece continues to worry economists but at least they are being honest about their problems as their finance minister, George Papanotgonnaworkhereanymore, has denied reaching out to other governments for help.  Despite needing to raise an estimated 54B in euros, the finance minister said they can solve their budget crisis themselves and currently "have no plan B,"  which puts him with Joseph Hazelwood, Tischman Speyer Properties, and John McCain.

As for earnings today, Ford posted a $2.7B profit for 2009 which was their first profit since 2005 and they now expect to also be profitable in 2010.  When asked how he did it, Ford CEO Alan Mulally said "two words: vibrating seats."  NetFlix also put up a huge quarter earning $.59 per share vs. analyst estimates of $.49 per share.  The company citied that 48% of users had watched streaming videos up from 41% in Q3 and 28% in Q4 2008 which should help deflate some business model concerns that people will stop using DVDs and shift to the on demand delivery model because NetFlix is showing it can also sucessfully provide movies on demand (unless you demand adult movies because NetFlix is prude).

In small cap news today CRUS is trading down heavily after they had their quarterly release which was exactly inline with their pre-announcement and included guidance above the street.  Guidance was for next Q to have $55MM-$59MM in revenue, 54% to 56% gross margins, and $24MM-$26MM in operating costs with $1.5MM being non-gaap.  Remember, this company is barely paying taxes right now so you can get to about $.11 of non-gaap earnings for next Q which is above the $.09 of the street.  Now the stock could be trading down with AAPL being down since they provide an IC for audio in the iPhone and there could be concerns that the iPad will cannibalize iPhone sales and thus hurt CRUS's revenue, but I have no idea if they are providing any ICs for the iPad so that is just conjecture for why they may be down today.  Money McBags laid out his case for CRUS after their pre-announcement on 1/12/10 and said this: "Money McBags would hold off on buying today, but there is still probably $2-$4 of upside (15x FY 2011 $.60 estimates + $2ish in cash per share) and that is if the energy market does not have a big comeback.  It is worth tuning into their 1/28/10 call to see what they have to say, so put this on your watch list and be ready to buy the dip."  So he is now going to listen to their call and may buy this dip (though he hasn't yet so as always, do your own research).

In other small cap news, EBIX pre-annonuced that they had $10.3MM cash from operations in the Q, $19.3MM cash on the balance sheet, will be resuming buybacks, and are in fact a real business.  The CEO, Robin Raina, also gave this statement: “In recent times, I have been asked about the decline in stock price and the rather high shorting numbers on our stock. As the CEO of Ebix and one of the largest stakeholders, I continue to believe in Ebix and the opportunity to make Ebix the largest insurance player globally. The Company continues to do well on all fronts and we expect Q4 results to be in line with our expectations. We have always believed in letting our numbers speak for themselves and towards that extent we will continue our efforts to create new benchmarks in terms of revenues, cash growth, earnings, and net margins for Ebix.”   Money McBags has mentioned it here before, EBIX has a ridiculously good business from a numbers perspective, but there are concerns as to how real those numbers are given their predilection for firing auditors, complexity of business model and tax domiciles, and a CEO who thinks he is god's greatest gift to the planet (when we all know that Hanna Hilton is god's greatest gift, with duck confit and spankwire.com being a close second and third).  The point is, this is either a ridiculously great buying opportunity for EBIX or you are just going to be giving your money away.  As Money McBags can't say which with any certainty, he is happy to sit on the sidelines as a spectator, though he'd be happier to be sitting on the sidelines as a spectator for the upcoming Brooklyn Decker photo shoot or the live reunion of the cast from the Facts of Life.

3 comments:

JT said...

Money-

If Ebix was not on the up and up wouldn't the CEO be selling shares at a brisk clip? From what I can tell he's sold about 70,000 shares out of 1.3M in the past few years.

Thanks, JT

Full disclosure - long ebix

Money McBags said...

JT,

Welcome to When Genius Prevailed and sorry for the delay in getting back to you. It’s the weekend and I have been busy spending my gains at my local Rick’s Cabaret where they call me Sy Sperling because not only am I an owner (shareholder), but I am also a client.

Also, let me be clear again on my stance towards EBIX. I have absolutely no ability to properly gauge what is really going on there and thus have no position either way. Their business is complex enough that I’ll give you 10 shares of ZAGG (as opposed to my usual 1 share offer, and heck I might even throw in a share of MAIL too) if you can explain it in fewer than 10k words. Their actual numbers look terrific and if they are on the up and up, they should easily be trading at $23-$24. No joke. I was even long EBIX off and on for the past two years until a few weeks ago (you can read my long assessment of EBIX from < 1/6/2010 and my selling of EBIX on 1/13/10 ). The problem is that their management team treats the street like they are a bunch of 2 year olds with communicable AIDS. They shun the street and prefer to “focus on the business” which makes it seem like they don’t want something known (of course they did have their first full fledged analyst day last month, so perhaps they are getting the fact that they need to treat investors like people and not anal warts). Either way, they fire their auditors like Robin Williams tells jokes (that is frequently and with squirrelly reasons), their growth is hidden by their acquisitions and accounting for those acquisitions, and their tax rate is extraordinarily low as they are domiciled in many countries. There are so many red flags with this company that Money McBags just can’t get any confidence and when you add that to a CEO who thinks he is so great that he shits golden stripper poles (when we all know only Carmen Kinsley has the ability to do that) and a cult-like shareholder base, it is not worth the risk.

continued below....

Money McBags said...

But to answer your question, Robin Raina’s ownership/selling whatever is irrelevant to whether the company is on the up and up. Was B. Ramalinga Raju of Satyam selling shares? How about Ken Lay of Enron? Fuck was Bernie Madoff taking his money and running (ok maybe a bad example because he was taking the money, and asking for more, just not running). Alternatively, there are tons of good CEOs with great businesses who sell shares and are on the up and up. Yeah, you want your CEO to be a big shareholder and increasing his/her position, but people have different financial situations and different diversification needs. The point is, whether EBIX’s CEO is selling or buying shares doesn’t matter. If someone is hiding something or being aggressive with accounting, they obviously think they can get away with it and thus will act as if everything is fine. Do you think McDonald’s meat inspector isn’t eating the burgers there (and for the record, Money McBags is long MCD, though he would never eat their food)? If someone is manipulating numbers, whether they buy or sell, they still face the same penalties once caught and selling may actually tip people off. Now look, I have no idea what is going on at EBIX, and I have followed them for two fucking years, but there are red flags as to their accounting and the shorts are having a field day with them and for that reason right now Money McBags is staying further away from EBIX than he is Dane Cook’s stand-up comedy special (which would likely give him diarrhea of the cochlea). Even if the shorts are wrong (which is as likely as them being right in Money McBags’ estimation) why be involved in trying to swim up river on them when you could own MLNK or RICK? Heck, if you want to catch a falling knife, buy CRUS and if you want to own a bizarre little company that has no idea how to handle the street and has probably two fewer red flags than EBIX, buy WILC. Money McBags is long all four of those companies so has no problem taking risk, but prefers that risk to be quantifiable. Right now, Money McBags just can’t quantify EBIX’s business, but if everything is as they say, the stock should be worth at least 75% more than it is trading at today. So good luck, you may hit a nice pay day.

But welcome to the best market analysis and dick joke site on the planet. Hope you enjoy the views .

Money McBags