Wednesday, June 30, 2010

6/30/10 Midday Report: Technical levels blown, now they just want to cuddle

The market was flattish for most of the day until the last hour as some of the fears about Europe abated in the morning thanks to their banking system remaining open for at least another three months (so long enough for depositors to carve out space in their mattresses and pull their funds before the next bank run).  The big news is that european banks didn't seek as much capital from the ECB as people feared they would with the ECB's 442B Euro line about to expire like the late great Diaperman.  Banks only needed an additional 131B Euro 3 month loan which was below the 210B Euro estimate and only 131B Euro above being healthy.  In other international news, German unemployment was down for the 12th straight month as German workers have to put in overtime to make sure their Spanish counterparts can take their proper siestas.  Ahhh, to be young and in the Euro.

In US macro news, private employers added 13k jobs in the US in June according to ADP which makes a huge dent in the 20MM unemployed/underemployed/already given up people in the US (and by huge dent, Money McBags means the opposite of that).  Really, 13k out of 20MM is as significant as a null hypothesis with a p-value of 1 trillion or as likely to change the current atmosphere as a stink bug crawling in to Lady Gaga's underwear changes her cuntosis.  Analysts had guessed that 60k jobs would be added in June so they were only ~250% too high which for them is good enough to win Institutional Investor's golden shovel as analysts of the year which can then be used clear out all the crap they have been spewing.  One has to remember that analysts have confidence intervals wider than the divergent opinions on global warming or Taylor Rain's rectum.  The report should quell hopes of Friday's Labor Department jobs number release being positive so the government may need to hire Melissa Archer to deliver the release in order to keep investors from paying attention to the actual numbers.  In other US news, the FCIC is beginning their two day hearings on AIG and Goldman's relationship to understand how those firms exacerbated the financial meltdown through their selling of derivatives and then how Goldman profited when AIG was bailed out as AIG used the bail out money to repay their mortgage partners of which Goldman was one (Goldman was repaid to the tune of $12B and Money McBags is told that tune is a mash up of Flight of the Bumblebees and Don't Worry Be Happy).  While Money McBags doesn't believe anything will come from this inquiry, if it just puts the FCIC's Heather Murren in the spotlight for a few minutes, he will at least be moderately titillated (and yes, that is Heather on the left).

In market news, S&P is cutting their ratings of Moody's which is a bit like Jeffrey Skilling calling Dennis Kozlowski a fraud, Attila the Hun calling Ivan the Terrible a bit mean-spirited, or Lindsay Lohan calling Paris Hilton a whore.  S&P cited that with new financial regulation investors now may be able to sue (and rightfully so Money McBags will vociferously add) rating agencies for sucking at their jobs (and as a reminder, their only job is to recognize when bad debt exists, and they missed the entire subprime/Alt-A fiasco like an anorexic misses dinner), there could be reduced demand for ratings if regulation removes the need for companies to be rated by nationally recognized organizations (here here), and Moody's sucks at their job.  It is only a matter of time before Moody's lowers their ratings of S&P on the same concerns and we get a tit-for-tat ratings agency cock-off.  In other news, Playboy announced a restructuring where they will become even thinner by eliminating low level workers but will keep senior executives to remain properly top heavy and Ford was rising after paying down $4B of debt and telling people they changed their name to Tesla.

In small cap news, ISLE continues to get shellacked and was doing so even when the market was slightly up today.  Two day ago Money McBags told you all shorting ISLE would be a good trade and now you should be up 8% to 15% on it depending at what price you were able to short.  A healthy company with a ton of debt doesn't just dilute shareholders by ~23% unless bad shit is happening.  That said, this was purely a trade so if you want to lock in your profits and go home, Money McBags would applaud that move like he applauds charitable donations, rags to riches stories, and rainbow parties.  Also, old friend COOL has dropped below $.70 and remember Money McBags broke them down after their last Q and said the $1 they were trading at was much too high and he would be short if the stock were more liquid.  Well if you were able to short it, congratulations but you might want to start covering because the easy money has been made.  The point is, Money McBags has been hitting some good names for you all and providing you with enough dick jokes to make even Bob Saget shudder so tell a friend, tell an enemy, and follow WGP on twitter and facebook because the revolution has begun.

Tuesday, June 29, 2010

6/29/10 Midevening Report: Market searches for a bottom, hopefully it's Brooklyn Decker's

It was ugly out there today, real ugly, like a Lady Gaga- Alan Greenspan love child with a bad case of facial neurofibromatosis.  Investors are worried that China is slowing down (they are), that Europe won't be able to roll their debt (eventually they won't), and that US consumer spend will shrivel up like Khagendra Thapa Magar's muchkin in a cold shower (it will).  Leading the the market down was a sell off in China after the dynamically named research group The Conference Board (which apparently researches everything but how to market a business) said they had recalculated the leading economic index for China to show a 0.3% gain in April which is much lower than the 1.7% gain they reported two weeks ago and they blamed it on a calculation error (no really they did, but Money McBags doesn't believe that for a second because aren't asians supposed to be the good ones at math?  Oh right, The Conference Board isn't asian).  Anyway, with the people calculating the economic data unable to actually calculate it properly, we are once again left guessing at what is really going on and all we have to go by is what we see and that is a lot of closed retail stores, packed job fairs, and blurry objects as our health care ran out and we can't afford new glasses.  As China is the engine that is fueling the global recovery (the lobster in the bisque, the plutonium in the flux capacitor, or the extra F in the MFF, if you will) any slow down in their economy will certainly put a damper on economic growth and thus reduce all of us to subsisting off of Ramen Noodles and our tears of despair.  Also, with Spain having to roll over debt on Thursday, the same day the whole European banking sector will have their one year 442B Euro line of credit from the ECB expire, Europe is jitterier than Michael J. Fox going through the DTs.  Thursday could be a momentous day in the market as Spanish banks are hinting that the ECB's line of credit is crucial to their viability so we may see a financial crash so bad one would think Ted Kennedy were driving it over a bridge.

Unfortunately, US macro news wasn't any better with consumers only confident that the economy sucks.  The Conference Board (the research group who miscalculated China's leading indicators, so take the following with a grain of salt, though if you're feeling really adventurous, take it with several grains of salt firmly planted around the rim of a shot glass containing tequila) reported the US consumer confidence index fell to 52.9 from 62.7, a number which was also downwardly revised (likely due to a goal seek input error in Excel).  Basically every metric measured by The Conference Board fell except for belief that things will get worse, belief that there will be fewer jobs, and belief that Keynesian economics is a farce.  Not helping matters was that the Case-Shiller index posted only a .8% gain despite government tax credits still juicing the system like a Lance Armstrong steroid cocktail.  Sure a gain is better than a loss, but the gain should have been higher even with 18 out of 20 cities showing increases.  Of course with that tax credit now expiring, there is certain to be a pull back next month so large that it will make even Kenny Rogers shudder.  If there were ever going to be a double dip recession, now is the time, so sit back and cross your fingers that the government will re-stimulate the economy and push the second dip off for another few years when you'll be too old to care.

In stock news, shares of C were halted at one point today because the market couldn't believe the company hasn't hit zero yet.  The stock traded down 17% thanks to what is being reported as a fat finger trading error (and again, we call that the Portia Di Rossi because someone who looks like this must have some hella fat fingers to keep the lovely Ms. Di Rossi satisfied) though it was likely just the run of the mill high frequency trading stock manipulation.  New circuit breakers were put to work for the second day in a row and trading in C stock was shut down for five minutes until it had time to cool down and think about what it had done before re-opening down only 5%.  In other news Barnes and Noble dropped 20% as with the advent of TV, the internet, and the NSFW people no longer read books.  The CEO announced the company will be investing $140MM in to their digital book business and their digital book reader, the absurdly named NOOKie (and if Money McBags were running BKS the first thing he would do would be to change the name of the NOOK to something more catchy like "iPhone" or more honest like the "not going to be around for long" since the market is going to be dominated by the Kindle and iPad).  Anyway, 2011 guidance was for break even to a $.40 loss per share due to falling margins and investment, and as analysts had guessed the company would be profitable, shares sank faster than General McChrystal's chance at winning a Medal of Honor this year.  Finally Verizon was break even in a down market as they are rumored to be signing a deal with Apple and Tesla Motors (TSLA) shot up 40% on its first day of trading despite never earnings a profit, having $300MM of lifetime losses, not forecasting a profit until 2012, and having their business revolve around selling an electric car when we all know eletric cars only exist in the land of make believe where it rains gumdrops and every Friday is free blumpkin day at the local Rick's Cabaret.

In small cap news everything was down except for ZAGG which Money McBags exhaustively broke down for all of you earlier today (so check it out, really).  A name Money McBags told you about last week, KIRK, continues to get hammered but it is getting to the point where one may have to actually step in, put some gloves on, and catch the falling knife as it's now at 8x Money McBags' high end earnings estimates with ~20% of its market cap in cash.  Also ISLE was down 6% after Money McBags said yesterday it would make a good short trade.  Of course Money McBags isn't bragging about that call because everything went down faster than a call girl working for tips only, so any short call from yesterday looks prescient.  There may be a short term rally tomorrow but Money McBags is warier of this market than Thomas Hoenig is wary of keeping rates too low for too long, so he is staying on the sidelines for now.

And don't forget WGP is on Facebook, even though it goes against everything in which Money McBags believes.

Small Company Update: ZAGGing off

Money McBags will get his daily market update out later today, but he got a bit verbose with a small cap name this morning so will pump that out here in a separate post.  The company he is talking about is ZAGG and it has caught Money McBags' attention again as it has been moving up over the last few days despite a market more pissawful than a halitosis sufferer's breath after a "shower" with R. Kelly.  Money McBags told you ZAGG was a short way back in January and it has done nothing but fall until recently.  The company was up 10% yesterday on news that their new Zagg InvisibleShield Dry will be available at all AT&T stores for customers to walk past and not buy.  Here's the deal, this company sells an overpriced commodity product that takes way too fucking long to apply and they don't even own the patent on the materials that go in to it.  What they sell is a plastic wrap that goes over your iPhone, blackberry, Xbox, nutsack, to keep it from getting scratched or damaged.  It's a nice product to have but it takes a day to fully adhere to your device and one needs to be a PhD in putting shit together to apply the Shield.  And it's not just that, but the company is selling these things for $25 a pop when there are cheaper and easier to apply alternatives out there ranging from fewer than $10 for this kind of stuff  to free for simply not being a dipshit and putting your iPhone in a different fucking pocket from your keys.  And let me touch on one point Money McBags previously mentioned, they don't actually own the patent on the materials that go in to the Shields, they merely have exclusive marketing rights and Money Mcbags is pretty sure that if this were a real business opportunuty, Apple would out negotiate Zagg for those exclusive marketing rights and sell the product themselves.

Anyway, ZAGG's new dry product is supposed to be easier to apply unless you google it and find that it is still the same pain in the ass for people to put on their PDAs (and Money McBags would love to put on some PDA with Sara Underwood who would certainly look delightful under his wood).  Some of the recent stock movement up was the company being moved to the Russell Microcap Index last week and the rest is purely a way for shorts to once again make money.  Not only is this company a one product company whose other ventures have yet to really add anything (this was their big new idea business venture a few Qs ago whose failure is as surprising as findng out that Chris Henry had brain dammage or Robert Byrd died), but their earnings keep getting worse.  While revenue in Q1 grew 8%, net income fell from $1MM to $800k dropping eps from $.05 to $0.03 because gross margins sunk by 800bps as they had to move in to the more expensive whoesale channel from the cheaper internet channel where their margins are obviously lower on the overpriced commodity product they sell.  Oh yeah, there's also this which is the one fucking thing about this company which Money McBags doesn't understand (other than who would buy their product) and would love for someone to explain to him (though if you could use small words and lots of pictures, he'd be happy), their invoiced shipping costs were $267k and the actual cost to them for shipping was ~$1MM.  So they lost $750k on shipping?  Pardonnez-moi, s'il vous fucking plait?  How the fuck does that happen?  Is this an industry norm (and really it may be) as it seems more bizarre than sell side economics or the popularity of that Twilight thing.

The company earned $.14 per share last year but in the past 2 quarters, despite revenue growth, has only earned $.04 and that includes their supposedly biggest Q that ends in December which saw costs ramp up faster than Nouriel Roubini's heartbeat when spelling "double dip recession".  So one could annualize the $.03 from Q1 and say the company will earn $.12 (even though Q4 should not perform like the other Qs), but that is sort of the easy way out.  The problem is, there are three huge unknowns with this company:

1.  How low will gross margins fall?  Last Q1 they were 64% with the wholesale channel accounting for 45% of sales and the internet channel accountng for 45% of sales.  This Q1 they were 56% with wholesale accounting for 62% of sales and the internet accounting for only 22% of sales.  So how much more does this mix skew?

2.  Is this really a growth company anymore?  Revenue grew 8% last q.  Excuse me while I yawn myself to fucking death.  The growth story is that as iPhones grow, so will ZAGG, and while Money McBags may not be as smart as Stephen Hawking (though he is certainly far more mobile and verbally melodic), it doesn't take a nuclear scientist to realize the iPhone has been growing like a fucking steroidal weed while ZAGG's sales only grew 8%.  iPhone sales were up more than 100% last Q and all smart phone sales were up 50% and yet ZAGG grew by fewer than 10%.  Growth story, de-mythed.

3.  What the fuck are they going to fail at next?  First it was the ear buds that no one cared about, then it was the appstore which has revolutionized the app business like the Edsel revoutionized the car market, and next the CEO has been talking about ZAGG stores which are not just likely to be expensive, but complete busts as selling dinky plastic coverings for PDAs are not enough to pay the rent (unless the store is located in Detroit where businesses can operate rent free, though they are also sales free).

The Merriman Curhan Ford analyst somehow thinks this stock is worth $5 to $6 but there's a reason that analyst works for Merriman and not a reputable organization like WGP.  Seriously, to get to a $5 valuation, you have to think this company can earn $.25 a share and trade at 20x and the company can do that if they grow revenue by 25% while keeping margins flat (and as mentioned, margins have been falling faster than Larry Craig's shorts at a gay pride parade), so Money McBags guesses it is possible, but if anything, that growth will take until 2011 and why would you put a 20x multiple on a company that will take 2 years to grow revenues 25%?  What is more likely is that this one product company continues on with single digit growth and decreasing margins and maybe, maybe, squeaks out $.10 to $.15 in eps this year and Money McBags wouldn't pay anything more than 14x for that which gives us a target price of $1.40 to $2.10.  The company may be too small to short or to even give a fuck about, but Money McBags would rather be long Afghanistan than long ZAGG.

Monday, June 28, 2010

6/28/10 Midevening Report: Finance ministers come together as G-20 hits the spot

Stocks were bouncing around today as macro data came out, courts made some rulings, and the Unicorn meat industry took a hit.  Consumer spending numbers were reported and shockingly, income grew faster than spending which means that either the numbers are going to be adjusted later, consumers had their credit card lines lowered significantly, or common sense has crept back in to the US consumer after a 30 year Dionysian spending orgy (and Money McBags will vote for 1 or 2 before he votes for 3).  Spending was up .2% which beat the median guess, while incomes were up .4%, pushing the savings rate to its highest level in 8 months since back when people were snowed in and couldn't overconsume.

The bigger news on the day though was a couple of court rulings which brought slightly positive news to the markets.  First of all, the Supreme Court decided not to listen to the federal racketeering case against the tobacco industry because it would have interferred with their daily viewing of Judge Judy (and Money McBags is told Justice John Paul Stevens would like to drop his case load onto Judy Sheindlin's thin docket).  The decision is a positive for both the tobacco industry and the health care industry as tobacco companies are now unlikely to face large industry crippling fines and instead will be free to continue bringing cancer to people everywhere while also helping the top line growth of health care companies.

The other big news of the day of which Money McBags could give a fuck about (right up there with the World Cup, General McChrystal's dismissal, and anything having to do with Miley Cyrus), the Supreme Court upheld the Sarbanes-Oxley law except it allowed the SEC to now fire members of the Public Company Accounting Oversight Board (known better as the acronymly challenged PCAOB).  So now the SEC, an institution that was so fuck awful that they promoted the person who ignored Bernie Madoff's machinations despite evidence gift wrapped for them, and an institution so incompetent that they spent their days investigating tranny porn instead of securities fraud (when we all know the night time is for tranny porn, the day time is for NSFW guessing muffs which thankfully is back up and running and its return has truly made Money McBags understand how Pamela Smart's family felt when they found her alive), has the ability to fire the members of some board that supposedly does something to track public auditors.  Well thank you for that Supreme fucking Court, really.  Money McBags is glad you are wasting your time on shit like this instead of abortion, gun control laws, and banning Ray Romano from network TV.  But hey, it's great that the SEC can now fire any of the five board members of PCAOB for any reason and not just incompetence, especially as THERE ARE ONLY 4 CURRENT MEMBERS of the PCOAB board.  So hoo-fucking-ray that a board which does absolutely nothing based on the fact that no one has ever heard of them and is not even at a fully staffed level, can now be better regulated.  Perhaps if we got our panties out of a bunch and stopped regulating regulators (especially ones as irrelevant as PCOAB) and instead tried to stop fraudulent activity, the economy would be a wee bit less fucked.

Internationally, world leaders are still coming down from the G-20 summit which likely featured as much excitement as a summer theatre production of Pride and Prejudice.  Finance leaders seem to have come to an agreement to cut deficits by 2013 yet made it clear the deficit reduction is an "expectation" and not a firm or binding deadline.  In a similar vein, Money McBags has agreed to marry Brooke D Williams by 2012 but that is also just an "expectation" and not a firm deadline (he'll give her until 2095 if she really wants).  So basically, all that happened at the G-20 summit is that no one fucked anything new up and everyone agreed to keep the staus quo until the the status quo causes the next major downturn, whew.  Not only were fiscal policies less changed than Michael Vick after a prison sentence and rehab, but banks avoided new regulations as policy makers said any regulations won't be finished until the next G-20 summit in November, will take longer than two years to institute, and will be just as bad as current regulation but in a different way.  So now we wait until Basel  III for new regulation which will likely be the worst performing sequel since Karate Kid III: The Puberty Years or Speed III: Runaway Segway.

In stock news, tobacco companies were up due to the previously mentioned supreme court ruling and BA dropped 44% before the markets opened  in trades that were cancelled and were either the result of a fat finger (as always, known on WGP as the Portia De Rossi) or the fact that the market structure is more broken than John Edwards' wedding vows.  The market continues to ponder circuit breakers to avoid manipulated fluctuations like BA had before hours (even though only 1k shares were traded).  The fact that 50% of volume is made by non-fundamental investors should make fixing the market structure a priority for all 1,800 regulatory groups looking in to Wall Street, including the now can be fired board of the PCAOB where four out of five members exist.

In small cap news, ISLE dropped 14% today as they announced their intention of issuing 9MM shares to raise $100MM (or at this rate, $75MM by the time of actual issuance).  The shares should lead to ~22% dilution and Money McBags broke the company down after their last Q in which they put together a marginal quarter and yet were still burning cash.  The problem with this company is that their balance sheet makes Greece look like a fucking miser and they have run down casinos that need to be upgraded because even though gambling is essentially inelastic, it's not inelastic in shitty casinos with 1970s carpeting that smell of old men and despair.  So ISLE needs more cash to modernize their real estate and yet is already almost as highly levered as a Bernie Madoff fund (and his leverage was $50B to $1).  So there is room for this company to fall even more since the drop today didn't equal the dilution (32MM shares going to 41MM shares so owners now own ~22% less) and thus if you want a short term short trade, what better way to do it than jumping in on a shitty company with bad things happening?

Friday, June 25, 2010

6/25/10 Midafternoon Report: New finance legislation may cause banks to find different ways to screw customers

The market is up today after congress reached an agreement on legislation to better regulate the financial services industry after only two short years of debate and an economy that people have less faith in than Scientology.  The legislation, being called the Dodd-Frank bill (and Money McBags only laments that Senator Tim Johnson did not sponsor the bill instead of Senator Dodd and thus we could have had the Johnson-Frank bill), was watered down though as politicians were worried it might actually accomplish something so they unanimously decided take out anything that might cause someone to change anything meaningful that they do.  If passed, the new laws will include the creation of a Consumer Financial Protection Bureau (whose first rule of action will be to tell people to stop borrowing so much fucking money), a requirement for banks to segregate their derivatives portfolios by doing more than just creating separate water fountains for them on the trading floor (though banks are still allowed to use derivatives to hedge, still allowed to trade currency and interest rate swaps, and still allowed have a few years to move their CDS into capitalized subsidiaries, so suck on that Blanche Lincoln), and a monthly reminder to be delivered by Timothy Geithner to stop fucking so much shit up.  What the legislation doesn't do is restrict the size of banks and thus banks still have ability to grow too big to fail (which is the only way banks won't fail).  The most controversial act though was the Volcker Rule which was supposed to limit banks from proprietary trading through bank owned investment vehicles for the near future until banks could find loopholes around it.  Luckily, they won't have to waste their valuable time finding loopholes as the rule now merely limits banks' ability to invest in these kind of investment funds to no more than 3% of a bank's tangible equity or 3% of a fund's capital, so bankers can go back to spending their time dreaming of AnnaLynne Mccord and new products to be used for predatory lending.

While agreement on legislation that may or may not turn in to law and may or may not be affective (and Money McBags will bet on the "may not" if anyone wants to take the other side) dominated the news today like the winner of a NSFW Ultimate Surrender match dominates her conquered foe (though the news domination involved many fewer dildos), the government managed to sneak in a downward revision of GDP.  Due to consumers spending less than the Commerce Department previously guessed, GDP for Q1 was lowered from 3% growth to 2.7% growth which wouldn't be a terrible number if the economy weren't coming back from nearly going to 0.  Finally, consumer sentiment rose according to the University of Michigan's survey thanks to the one employed person in the state of Michigan the University found to answer their questions.

Internationally, not a lot was going on today as world financial leaders spent their day trying to get through customs in Toronto and exchange their currency for singles to prepare for this weekend's G-20 summitt and group outing to the NSFW Brass RailChinese currency hit a new high as China's central bank set its key daily reference rate for the renminbi at 6.7896 per dollar meaning you now need ~350 renminbi to be loved for a very long time in Shanghai.

As for the market, with the Dodd-Frank bill more toothless than the perfect hummer, financial stocks are getting a short term boost.  Investors were expecting worse so there is a bit of a short squeeze going on today since capital raises for derivatives books will be lower than previously thought and banks will still be allowed to partially invest in hedge funds, private equity funds, and any other type of SPE, SPV, or BBW to which they desire.  While the market is mostly up, Ontario based RIMM is taking it in their arse ("arse" of course being Canadian for "badonkadonk") as they once again missed analyst guesses of revenues which is becoming more of a trend than twitter, bros icing bros, and condoms.  For those of you who don't know RIMM, they are the company that produces the blackberry, you know, the thing people used to use for communicating before the iPhone came out.  The company reported revenue of $4.24B which was up 24% but below analyst guesses of $4.36B while EPS was also up 24% to $1.38 and bested analyst guesses of $1.34 and yet featured no earnings leverage.  The average blackberry price fell as did new subscribers but guidance was basically inline.  RIMM maintains that their new product releases at the end of the year will help boost revenue growth but this company needs to start beating estimates as competition is only going to get more difficult.

In small cap news, QCOR is up 6% for no reason and even noted piece of shit MLNK is up 4% which means today's rally is likely on light volume and just short term trading.  Money McBags broke down MLNK after their last Q (just use the search box if you're so inclined) and concluded that the company is cheap as balls in the Castro, yet is that way for a reason.  Their performance has been worse than a Rich Little stand-up routine without the impressions and nothing about their business should turn around in the short term.  Long term it could be a great value if you're willing to stick with it, but there are probably better ways to not make money between now and a couple of years from now (like keeping your money under your mattress or joining the Peace Corp).  Money McBags mentioned SPRT as a potential trade earlier this week but he hasn't been able to get to a full break down yet but he will try to next week.  That said, you should also keep your eyes on EPAY as they have traded down, yet have an interesting little niche business where they are building a payments network for banks as well as continuing to help automate bank cash management and business payment functions.  The stock is trading at ~11x guidance with ~$2 of cash on the balance sheet and should continue to grow revenue at 20%+ while also having nice recurring revenue streams.  So while you're lounging around tomorrow trying to shake off your hangover, check out EPAY and do some due dilligence.  Money McBags will try to get to it and SPRT next week, but until then, enjoy the weekend.

Oh yeah, Money McBags is trying to figure out this facebook thing so feel free to be his friend (just don't ask him to hold hands, unless your hand hand is well manicured and is attached to this body).

Thursday, June 24, 2010

6/24/10 Midnight Report: Market dials up LifeCall as it has fallen and can't get up

The market tanked at the end of the session like Money McBags' day which has caused today's column to be late, short, and in need of one more read through, but it is what it is.  You see, Money McBags was cranking away at his terminal, busily breaking down the news, perusing 10Ks for cheap stocks, and most importantly scouring the interweb for just the right picture of Kelly Brook, when life got in the way and he was called out to the cruel cruel world to fix some dumb shit.  With dumb shit marginally fixed, Money McBags is drained of his energy and thus will be publishing his halfway done column today.  It ain't Shakespeare or Fante, but luckily it also isn't Santelli, Colmes, or Bartiromo, and so it goes...

New claims for unemployment came out today and they were down 19k, or 15k, depending on if you want to use the number reported last week as your baseline or the "revised/manipulated" number released today.  Last week new claims were 472k and this week claims were supposedly down 19k to 457k.  Once again, if you do the math you get an equal sign more confused than Helen Keller's dogs (because how the fuck would they know to sit, stay, or roll over when every command sounded like "arhgahgaha.").  Analysts guessed new claims would come in at 460k, so they were close enough that one might be deluded in to thinking their regression models actually regress to something believable and that this week's close call was not just luck caused by a random fluctuation, but Money McBags knows better and knows that those models have no clothes (though he is usually in favor of clothes-less models).  Either way, the job market remains more challenged than a bus driver in El Salvador or a color blind synesthiac.  4.55MM people remain on traditional unemployment, another 5.3MM remain on extended unemployment, and another 10MM remain on no employment and must subsist off the heat generated from their dying hopes and dreams.  Luckily there was news out today that was portrayed as slightly positive with durable goods orders excluding transportation (and durable goods are anything expected to last for 3+ years like cars, machinery, and Savannah Stern's chest) rising by .9% after a .8% decrease in April bringing orders slightly above where they were in March.  So in honor of tonight's NBA Draft and the great Derrick Coleman, "whoop-de-dam-do."  Additionally, orders for non-defense capital goods excluding aircraft, rose by 2.1% which gives a bit of confidence to the markets that businesses will still be operating in a month.

Internationally, Greek default swaps reached record highs as common sense creeps back in to the market.  Eventually Greece isn't going to be able to roll over their debt so we can either make like math doesn't exist and time doesn't move linearly (Einstein's relativity be damned) and live in a happy world where Greece can function in perpetuity despite a debt level so fuck awful that even Stephen Baldwin laughs at it, or we can just buy the fuck out of Greek CDS and get our fiddles ready so we can pull a Nero when Athens burns.  In other international news, Australia elected their first female prime minister in Julia Gillard who was born in Wales, is a lawyer by trade, and though never married, dates a male hairdresser which I believe makes him a well trimmed beard.  Gillard promises to work with mining companies and be tough on spending to keep Australia's economy from going down under (eat your heart out on that one Jay Leno).

In earnings news, Nike just did it, well that is if "it" is missing analyst guesses of revenues.  NKE profit was up 53% which was inline with guesses but revenues of $5.08B were up only 4% (ex. currency flucutations) and missed analyst guesses of $5.15B.  Orders were up 9% though and the company did earn $1.04 per share so while the stock sold off ~4% today, it's not like they totally shit the bed or perhaps more appropriately, it's not like they shit on the cold floor in the corner of the room where 20 sweat shop workers sleep on the hour they have off in between shifts of sewing fucking swooshes on canvas sneakers.  In other earnings news, Discover found their way to a strong quarter with profit up 14% thanks to improving credit trends, increased customer spend, and the House financial reform bill not having been passed yet.  Charge-offs were up year over year to 8% from 7.5% but down sequentially from 8.5% so depending on what trend you want to use, card users are acting better or worse.

In small cap news today KIRK was down ~7% today and as Money McBags said yesterday, he thinks this is a good entry point (though not as good of an entry point as the gap in Jessica Hart's teef).  That said, Money McBags refuses to catch falling knives and this stock is clearly falling as investors take profits on shit that has gone up as the market now falls, so wait for this to settle before jumping in as fundamentally it remains as strong as Money McBags' belief in truth, honesty, and Hayley Atwell.

Wednesday, June 23, 2010

6/23/10 Midafternoon Report: Economy of Stale

The market was only marginally down today despite terrible macro data and a Fed statement about as optimistic as Nouriel Roubini at a funeral (the funeral of course would be for the US economy).  New home sales dropped 33% to a record low as once again, and for all of you keeping score at home, THE GOVERNMENT TAX CREDIT EXPIRED (caps and exasperation intentional).  According to the New York Times, analysts guessed home sales would drop to 400k from April's previously reported 504k, while according to CNBC, analysts guessed home sales would drop to 410k, and finally according to the WSJ analysts guessed home sales would drop to 430k, so no matter what news source you used, analyst guesses were still fuck awful and worse than Manute Bol's skin.  On average, analysts predicted a ~19% drop in new home sales but the number being reported is a drop to 300k, so analysts' guesses of a 19% drop were off by ~25%.  Wow.  Money McBags wonders if their regression models suffer from colinearity, heteroskedasticty, or just stupid fucking dependent variables.  To be that wrong about something and yet still be called professionals stretches the definition of the word "credibility" in ways that would make even Noah Webster's dictionary flaccid.  And as usual, making the numbers seem slightly better is that last month's new home sales number was manipulated (Money Mcbags means readjusted) downward to 446k from 504k.  So the drop being reported is 33%, or 446k to the all-time record low measurement of 300k when in actuality, the number fell 40% from 504k (which was the reported fucking number last month) to 300k.  Readjusting the number downward before the awful report left 7% of "down" out of the reaction of investors who weren't paying attention and instead were busy trying to figure out who they have to fuck to get a job at CNN (And now we finally have a delightful answer to that).  Making matters worse is that the supply of homes on the market was up 47% leaving an 8.5 month inventory (though the denominator in that equation, which Money McBags believes is the current annualized sales rate, is creeping towards zero which means we are getting closer to an undefined supply of homes on the market at which point Money McBags believes they should all logically be free and thus homelessness in this country will cease to exist, so perhaps that is the admirable goal of all of this).  The point is, home sales/employment/Heidi Montag were all manipulated up over the past few months by tax breaks, stimulus plans, and plastic surgeons, but now that that is over, they are starting to turn back down and that could be worse than eating a shit sandwich with extra E. coli.

In addition to the drop in new home sales, the Fed came out today with their statement from their June meeting which was about as uplifting as the Diary of Anne Frank or nut cancer.  According to the statement:

1.  Housing starts remain at a depressed level
2.  Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad
3.  Bank lending has continued to contract in recent months
4.  Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
5.  Investment in nonresidential structures continues to be weak
6.  Employers remain reluctant to add to payrolls 
7.  Hanna Hilton remains retired from porn

Honestly, all of that was taken verbatim from the Fed's statement (well, except for maybe the last one, but they were all thiking it).  The Fed's statement paints a bleaker picture of the US economy than what Picasso would have done in his blue period.  The Fed then went on to say the rates would stay between 0 bps and 25 bps for an extended period and at least we're not fucking Greece, yet.  Money McBags doesn't see how anyone can get excited about the markets after reading that, but then again, he can't understand how anyone can get excited over soccer, so what does he know?  But as an aside, congrats to the US soccer team for beating a country with 1/10th of the population of the US on a last minute goal.  Truly impressive.  For their next feat, Money McBags hears the US soccer team will challenge Michael J. Fox to a game of Jenga.

In Europe, data was just as bleak as in the US although it was reported with one of those foreign accents so it sounded much more charming.  The Eurozone PMI is having a bit of PMS as it cramped up and fell to 55.4 from 56.2 while Germany's Ifo was stronger than expectations but future sentiment eroded and stunk like month old sauerkraut left out in hot sun.

In stock news, JBL rocketed up after beating estimates, announcing above the street guidance, and promising to body slam the competition as if the competition were the lovely Meredith Whitney.   Also CarMax's earnings took off and beat expectations thanks to selling cheap ass cars in an recessionary environment.  The company earned $.44 per share, up from $.13 and easily beating analyst guesses of $.33 while growing revenue by 23%.

In small cap news, there isn't a lot going on but Money McBags wanted to spend some time talking about KIRK today as it has been selling off and is now getting to be cheap enough that you all should consider adding it to your portfolios.  KIRK basically sells cheap shitty trinkets that midwestern housewives love to put on their mantels, on their side tables, or over their walls to cover up the beer stains.  In yiddish, they're called tchotchkes and in english they're called garbage.  That said, the company has been selling a lot of this shit as people are staying home more often and not travelling and thus they are looking for cheap ways to spruce up their houses with a nice Elephant Mother/Baby statue, a Drama Queen plaque, or (and I am not making this up) book boxes to give the illusion that they have some of that fancy learning while keeping the practicality of having somewhere to store their spare teeth and can of wintergreen Skoal.  The point is, the company sells goods that are perfect for a recession as they are inexpensive and can brighten up the place where people spend most of their time.

Not only should there be demand for their products, but management has done a fantastic job of turning this company around.  Basically a few years ago a PE firm had taken over and the management team was smart enough to saddle themselves with expensive mall based real estate, add too many product skus, and try to bring their products up market and sell their customers gold plated mirrors when all they really wanted were some monogrammed candles and a fucking amber wall sconce or two.  The point is, the management team had misread their customers, killed their margins through higher operating expenses, and basically performed worse than a John Meriwether investment vehicle.  Of course this was all happening as the recession was starting so it made everything much worse, but luckily Carl Kirkland got fed up with the dumb shit and took over his company again and brought in a management team to turn things around.  Since then they have cut the skus, pared expensive real estate (they are now ~75% off mall), and focused the strategy back on selling cheap tasteless crap, and that has worked phenomenally.  The company's revenue was flat in 2008 and grew in 2009 and last Q revenue was up 12% despite having 15 fewer stores (they now have ~280 stores).  The plan is to open ~20 net new stores in the second half of the year and thus grow for the first time since the recession hit.

But here's the best reason to like this company, it is fucking cheap.  They earned $1.71 last year and estimates for this year are ~$1.60 due to an increasing tax rate.  That said, top line guidance is for 5% to 8% growth with 3% increase in operating margins so if you take the best case scenario, the company could actually earn ~$1.85 to $1.90 for the year.  The stock has sold off recently and is now ~$18 which is <10x best case scenario and ~11x analyst guesses but they have ~$3.50 cash per share on the balance sheet and no debt which makes this almost as attractive as Nicole Trunfio.  At a minimum this company should have a 14x market type multiple and throwing that on analyst guesses (which could be low) yields a $22.50 price and if you add the $3.50 in cash to that and you get to ~$26 target price which is ~40% upside to today.  Also, they had ~$52MM of EBITDA last year ($47MM op. income + $~$15MM depreciation) and have a current EV of ~$300MM so are trading at <6x forward EBITDA since EBITDA should grow with growing top line and slightly improving margins.  The negatives are that margins have pretty much topped out, they now have to show they can profitably grow new stores, and like all retailers they need to keep their merchandise relevant.   That said, the stock has traded off for no reason so it's a good time to start a position (and if the position is a reverse eiffel tower, even better) because it's cheap and they seem to have a solid grasp of their target market.

Tuesday, June 22, 2010

6/22/10 Midafternoon Report: Home Un-Improvement

The market had trouble finding a direction for most of the day as news is thin and the summer is beginning so most volume is moving to the Hamptons where portfolio managers can sip on lemonade, listen to yacht rock, and denigrate the poor all while ignoring the economic data which has been so lackluster that it is in line for its own NBC prime time sitcom (tentatively titled:  Just Dilute Me!).  There was one bit of macro data released today which was about as encouraging as the letter "L" is to Jackie Chan on a read through script and helped send the market tumbling end of day.  Purchases of existing homes fell last month and somehow analysts are surprised about that since reading comprehension is not one of their strong suits and thus they missed the part about the government tax credit running out and sales being pulled forward like Eddy Curry's pay check.  Home sales dropped 2.2% from last month despite near record low mortgage rates and falling prices and are now starting to roll over and play dead like a trained circus dog or Brittany Murphy.  The best part is that the National Association of Realtors is blaming part of the drop on a processing delay which is holding up 180k mortgages as apparently the red "Rejected" stamp has run out of ink.  Analysts guessed sales would be up 5.5% to 6.12MM homes which was such a close guess that it only missed by a nut hair, that is if the nut hair belonged to a brontosaurus, and not any brontosaurus, but a brontosauros with elephantitis of the nuts.  But hey, maybe the 180k "processing" hold up was real (though something smells fishier about it than Paris Hilton's penis flytrap after pissing out a Long John Silver's fish taco platter with extra tartar sauce because Money McBags doesn't remember hearing about any processing holdups when 7MM+ mortgages, or 25%+ more than last month, were being processed monthly in 2005, but whatever).  Anyway, if we assume the hold up was real and add the 180k home sales that were delayed due to "processing" to the monthly figures, exisiting home sales would have been up .8% which is still way fucking short of the 5.5% increase analysts guessed.  And making it even worse is that analysts used a lower number to build their forecasts as last month's sales were just readjusted upwards to the 579k number so analysts were actually forecasting greater than 6% growth.  Money McBags hasn't seen a miss this bad since Men Who Stare at Goats (and really, that movie was so fucking awful Money McBags wanted to stare in to the fucking sun so his retinas would burn and thus he wouldn't have to watch the whole movie) or any economics paper released by Art Laffer.  With the expiration of the government tax credit, the real question is if home sales are merely taking a breather after an artifically pulled forward sales surge or if the housing market is about to take another dip and send the economy back to it's bad place. 

In international news, Britain released a new emergency budget which includes an additional 17B Euro of budget cuts (25B Euro in total, or about what Money McBags would pay Britain for a chance to have Lucy Pinder and Nikkala Stott star in his personal home movie "The Mystery of Bonehenge").  The cuts are aimed at stricter rules for what qualifies someone to get disability pay (simply listening to Madonna's music will no longer be considered a disability, though listening to it and liking it will remain a sign of real impairment as only the auditorily challenged can bear that shit), a freezing of welfare benefits, an increase in the value added tax from 17.5% to 20%, a new tax on banks, and the biggest revenue generator will be a fine levied on those with crooked teeth.  In other international news, the yuan fell back a bit after yesterday's rise as the Chinese government is determined not to let it appreciate too quickly for fear of losing a large part of their manipulated competitive advantage.  Chinese state owned banks are now buying up dollars to either prevent a rapid yuan appreciation or to have more worthless paper to burn to keep warm when fiat currencies fail and the world reinstitutes the barter system.

In stock news, Walgreens announced a crappier than expected quarter and is trading down as if it spilled 1B tons of oil in to the Gulf.  The stock was down 7% after revenues rose 6% and earnings came in at ~$.53 taking out one-time charges which was $.04 below analyst estimates.  Speaking of Gulf oil spills, BP was down another ~3% today because it still has not hit zero (and yes, Money McBags is going to use that same joke every day until BP is actually at zero which will be sometime between tomorrow and when investors get their heads out of their asses).  And finally, AAPL is up today because in direct opposition to BP, it hasn't reached infinity yet.  AAPL's price target was raised by Deutsche Bank to $375 based on their new iPhone 4 release, the continued strong sales of the iPad, and a need to publish research to get portfolio managers to trade with Deutsche Bank.

In small cap news, WGO sold off hard on no news that Money McBags could find other than perhaps people realizing that paying more than 30x for a company in a declining industry with an expensive discretionary consumer product and a fleet of cheaper alternatives, is probably not the best thing to own.  Shit, Money McBags would rather own NTZ which might be the worst idea for a business right now (high end furniture in Europe), worse than even selling ice to eskimos, unfunny jokes to Jay Leno, or panties to Britney Spears.  The difference between NTZ and WGO of course is that NTZ is trading like it is a stupid fucking business while WGO is trading like it is selling super powered iPhones which give off pheremones to attract Aubrey O'Day rather than $100k gas guzzling unnecessary RVs.  After last Q, Money McBags hesitantly raised his WGO top end target to $9 from $7.50, so there is still plenty of room for the stock to go down.  In other small cap news NTRI has continued to try to make a run.  Money McBags wrote about them after thier last Q and they remain a very interesting watch list name as the company has a ton of earnings power, trades like a momentum name, and just put up a quarter of positive new customer growth which fuels their sales.  It's still a bit early for this company as they keep fucking up their ad spend and their affiliate program sucked a donkey dick (which was certainly pleasurable for Eeyore, yet did nothing for investors) to the tune of a $3MM charge last Q, so management clearly needs to figure out how to better execute (perhaps they should ask the state of Utah for ideas) but it's trading inline-ish with peers, has a nice dividend, and if they can put up a good next Q should have significant upside.  The only problem is Money McBags doesn't have a lot of faith that next Q will be good and he doesn't gamble (unless he is in Las Vegas, Atlantic City, his apartment, the car, etc..), so he is not going to buy.  Money McBags prefers more certainty than he has for NTRI right now so while it has a number of things going right, Money McBags would still just be guessing at their next Q.  One data point is good, two are better, three is a trend, and four is time to think about selling.  We're at the first data point now, so do your due dilligence.

Monday, June 21, 2010

6/21/10 Midafternoon Report: China drops its peg, exposes its growing yuan

The market rallied today in the morning like a chubby chaser with a bottle of crisco on his way to a Peter Paul Rubens exhibit until it faded in the afternoon thanks to common sense and volume.  Rallying the market in the morning was news that China is going to unpeg their currency from the dollar thanks to pressure from global leaders who felt that the currency peg gave China an unfair trade advantage in selling their cheap shit even cheaper.  The announcement comes ahead of the G-20 summit in Toronto this weekend where finance ministers and central bankers from around the world will no doubt descend upon the NSFW Brass Rail and flaunt their ability to negotiate currency while manipulating bottoming assets (of course after the EU's latest bailout, finance ministers will certainly wonder if that is a printing press in EU central bank governor Jean Claude-Trichet's pants or if he is just happy to see them).   While it's good that China is willing to let the renminbi/yuan float (and if anyone can explain to Money McBags the difference between "renminbi" and "yuan," other than several letters, he'll send you a free autographed poster of Gong Li), China has stated that they will do it gradually so as to avoid a potential destabilization bubble like what happened in Japan when the yen was unpegged from the dollar in the mid-1980s or like what happened in Britney Spears' pants after she was unpegged from Justin Timberlake.  With the return of a "managed floating rate," the yuan/renmindbi/johnson rod was up ~40 bps against the dollar to its highest level in five years which means happy endings just got a little less happy for all of us.

In US macro news, less is happening today than on a Bernie Madoff trading desk in 2006 or in a eunuch's pants.  The SEC is going after a firm called ICP Asset Management for manipulating CDOs in ways that would have made even Meggan Mallone blush.   ICP is accused of pumpng up CDO prices to increase the value of their funds, pushing profits to their owners rather than their investors, and being what I believe the SEC called "a bunch of dicks."  In other news, the proposed Durbin Bill which is supposed to keep credit card companies from charging merchants exorbitant interchange fees as a way for those credit card companies to have adequate reserves when their customers charge off due to the high prices the customers have to pay for goods which of course are partly caused by merchants raising prices to make up for high credit card interchange fees (it is the least fun daisy chain Money McBags has ever encountered), is rumored to be losing steam.  News today is that the bill will take out "network fees" from interchange and thus credit card companies will still be able to charge retailers the fuck out of transactions due to a semantics loophole.  The result of all of this is that V and MA shot up at midday while politicians once again do their best to to take the bite out of their bark or the steam out of their cleveland steamer if you will.

In stock news Alcoa ran up today as high frequency algorithmic traders have stumbled on to the phonebook approach and are just buying the first company listed alphabetically (though a smiliar strategy worked for Malachi Constant).  Actually, AA is up as over the weekend their CEO said he expects demand to grow 10% with half of that coming from China and with China releasing their yuan today, demand for imports in China should improve.  In other stocks, BP is down again today because the stock hasn't reached zero yet and Goldman Sachs cut their earnings forecast for banks causing banks to rally as investors realize trading against GS' recommendations and thus WITH GS' ACTUAL BOOK is the best way to make money.  GS front runs and ditches shit to clients once it has appreciated more often than marginal celebrities come out as bisexual (and today it was some singer named Vanessa Carlton who claimed she is bisexual which would have made Money McBags excited if he knew who Vanessa Carlton was and if she didn't look like the man in the relationship).  Anyway, the short GS recommendation, long their actual book trade wins again.

In small cap news a Money McBags favorite KITD was down 9% on no news that Money McBags could find though he wouldn't be shocked if they were getting ready to dilute shareholders another 25% just because they can.  This company is more frustrating than a one-armed man trying to solve a rubik's cube.  That said, Money McBags still believes in the long term growth story so is not sweating their huge Euro exposure and their predilection to raise equity as a daily operating procedure.  Money McBags is short on time today, so no detailed analysis of any small cap names but if the market has topped out here with the sell off in the afternoon (and Money McBags is no chartist, though he will technically analyze Hilary Rhoda's bollinger bands if need be), then he would be selling his illiquid names in to the downturn.

Friday, June 18, 2010

6/18/10 Midday Report: Gold hits new highs, silver plans an intervention

It's quadruple witching Friday today in the market which is unfortunately just the day where stock index futures, stock index options, stock options, and single stock futures all expire and not the day where the market finally gets a 5-some with Elizabeth Montgomery, Barbara Eden, Melissa Joan Hart, and Omarrosa.  While this is usually a volatile day, the market has been quieter than the Clinton's bedroom as there has been little macro or company news released today.  That said, owners of gold are being showered with rewards as gold has reached a record high today thanks to investors betting against the current fiat system remaining viable.  While it's likely we'll hit a deflationary period before inflation takes off like Shawn Kemp from a delivery room, holding gold as part of your portfolio right now as a hedge against volatility and the potential crash of the Euro makes more sense than pairing Suaterenes with a nice foie gras.  In other US news, Tim Geithner is apparently getting new and more power which he has easily earned given how he has revived this economy from dead to about to die again and helped to bail out the firms who caused this mess.  Geithner is set to lead a new council run by the Treasury Department to identify companies that might be shut down because they pose a risk to the financial system.  So does that mean the government is going to shut down the SEC, FCIC, FINRA, FDIC, and NAMBLA?  Don't they all do the same fucking thing?  Hey, I know how to solve a problem, let's just create other fucking groups to do the same thing that current groups do but hope they do it better.  Unbelievable.  Money McBags just wants to know when more bureaucracy has ever fixed anything other than creating meaningless jobs.  Somewhere Josef K. is scratching his head.

Internationally, the Eurozone added Estonia as the lastest member in their global ponzi scheme.  Estonia now has to pay $1B to Greece, and then Greece will pay 80% of that up to Spain, who will then pay 80% of that up to Germany.  Funding problems solved.  While it is certainly odd timing for a country to be joining the eurozone, Estonia said they had no choice after the University of Texas decided to stay in the Big 12 and and Utah beat them out for the last spot in the Pac 10.  “It’s a great day for Estonia,” remarked Estonian prime minister Andrus Ansip, who was perhaps (an)sipping on a little too much Saku Originaal as getting in to the Eurozone right now is about as desirable as joining a tv show co-starring Ted McGinley or being drafted by the Washington Generals.  Anyway, for those of you unfamiliar with Estonia, here are some quick facts:  They were 4th out of 173 countries in the Worldwide Press Freedom Index narrowly being edged out by Canada and their NSFW Naked News, they've previously been occupied by more countries than Zsa Zsa Gabor's vagina, and the person they most admire is Yosemite Sam.  They've been independent since 1991 and are finally looking to settle down after 20 years of hard drinking and nordic flirtations in order to raise their favorite offspring Tiiu Kuik in a stronger family environment.  So welcome to the Euro Estonia, just don't burn all those Kroons quite yet.  In other international news, the IMF backed Spain's austerity measures after downing one sangria too many and learning about imaginary numbers.

In stock news, C is planning on raising $3B because they haven't lost enough investor capital already.  Just remember, this bank is so poorly run and has such bad judgment that they fired someone for being too hot, and she's not even really that hot, I mean we're not talking about Sara Carbonero for fucksake.  And the best part about this is that they are raising money for their private equity and hedge fund groups right before Paul Volcker slaps his rule on the table and bans banks from owning those type of funds.  Wow.  Good for the funds but that makes about as much sense for C as it did for Saddam Hussein to build a new palace in Baghdad in March of 2003 or Simona Halep to go bra shopping right before the summer of 2009.  Money McBags is sure C's CEO Vikram Pandit will retain some type of personal interest in these funds when the Volcker Rule takes effect so I guess it makes sense for him but for C shareholders it seems like a whole lot of wasted time and energy (though if you're a C shareholder, you have bigger problems to worry about than the company raising money for funds they are going to have to give up soon).  In other news, CVS and WAG decided to end their snit over prescription drug benefit reimbursement and just go back to screwing Medicare and the American health care system together.  Finally Moody's lowered their ratings of BP by 3 notches from the unintelligible Aa2 to the just as unintelligible A2 (or maybe it was the other way around, who the fuck knows).  It's nice to see that weeks in to one of the biggest environmental disasters in history, Moody's is still on the ball.  Good job guys, Money McBags eagerly awaits your downgrade of daguerreotype companies within the next 6 months.  Though to be honest, any investor who needs Moody's to tell them BP is more fucked than a cupcake in Kirstie Alley's house probably shouldn't be investing.

In small cap news CRUS continues to rocket up.  Money McBags believes $24 (20x his $1.20 estimates) is a plenty fair price but at $20 he'd start to think about trimming to take some of the hella sweet profits you've made off the table (and rememeber Money McBags first brought CRUS to your attention when they were trading under $8 and he told you he bought them shortly thereafter.  The fact that he dumped them after the "Flash crash" for liquidity reasons doesn't change his valuation, it only makes him angrier that he believes the market structure is so broken that fundamentals may not matter).  And if any of you are interested in a high flying small volatile momentum name, check out SPRT.  Money McBags will try to break them down next week but they are basically outsourced and remote computer repair.  It's like Geek Squad only you don't have to have a fat smelly skeevy fuck show up at your house and stink the place up while he wipes all of the porn off your computer to clean up whatever virus you downloaded while searching for that Miley Cyrus upskirt pic (and Money McBags will not be linking to the pic since he believes in the legal system).  It's certainly an interesting and potential low cost business model and the company is currently scaling up their technicians faster than a young hollywood starlet scales up her ambitions.  It is doubtful that in this market Money McBags would ever own this stock because a lot has to go right for it to be valued even near what it is trading today, but it has a nice story has some real opportunity, and more than anything it has strong momentum and a rapidly accelerating business.  If you have money you don't care about, send it to Money McBags for a night out at Rick's, otherwise, do some research here as this might be a good trade.

Thursday, June 17, 2010

6/17/10 Midafternoon Report: New claims for unemployment claim the economy still sucks

The market didn't do much today as it tries to come down off its volatility high which was fueled by mass uncertainty, broken technical barriers, and a fuckload of pixie sticks.  In macro news, new claims for unemployment were much worse than analyst guesses and also once again tested the (No) Labor Department's ability to do simple math.  Claims were up by 12k, bringing total claims to 472k which would make sense if last week claims weren't 456k.  You see, once again we're left with an equal sign that has to be more confused than Chastity Bono's bikini waxer because 456k +12k = 472k only in the land of make believe where it rains gum drops, pants are optional, and everyone looks like Diora Baird.  Once again the (No) Labor Department (though the parentheses may drop from the No if claims keep up at these levels) revised last week's number upwards by 4k which only gives initial false optimism and then leads people to believe any of these results about as much as they believe in the existence of the Loch Ness monster, vampires, or Abe Vigoda.  All one can glean from things is that directionally things remain bad no matter what made up number is given by Hilda Solis' henchmen and henchwomen and that when the number is released next week, this week's 472k new claims will have been revised up to somewhere between 475k and "we're all fucked."  With the federal government now paying 73 weeks of unemployment on top of the 26 weeks people already receive from the states, 10MM Americans are being paid to fix up their resumes for the one current job opening in this country which is for a ticket taker at the Regal Cinemas in Topeka, Kansas (and if you're interested, just leave your resume in the box).  Job growth remains more stunted than He Ping Ping with a bad case of whiskey dick.  In other macro news, the Philly Fed announced today that business activity for manufacturers in the Mid-Atlantic region declined which was most surprising because everyone assumed the Philly Fed had been robbed and burned down like everything else in Philadelphia.  The Philly Fed's index of business activity fell to 8.0, from 21.4 in May, and was well below analyst guesses of 21.0 since analysts are clueless and no one in Philly can afford shit.  Finally the CPI was out today and was up 2.2% from last year but basically flat with last month which is a good sign for those worried about inflation but a bad sign that the Fed is going to continue to keep rates at a level where the next bubble is only a financially engineered instrument away.

Internationally, the EU says they will release the results of their bank stress tests but will release them only in the ancient and dead language of Yola.  Of course the language is irrelevant because Money McBags is 100% sure that the results will show European banks are in better shape than a young Jack LaLanne and he is also 100% sure he won't believe any of those results.  It serves Europe, the US, and the whole global financial system no good to be honest about the banking problems in Europe unless we really want to try to fix the problems rather than sweeping them under the rug for another few years as we bask in our own delusions and continue to fight windmills for the love of Dulcinea (though if she looks anything like Elizabeth Canalis, it will certainly be worth it).  Also, a Spanish bond offering went off without a hitch as Spain saw strong demand for their 10 and 30 year bonds thanks to raising the premiums by 80bps and 110bps and promising that Nereida Gallardo would personally service all of the debt.

In stock news, AAPL is reaching record highs as they announced they sold more than 600k of their new 4G iPhones in one day (though they failed to disclose that the iPhones were laced with heroin and MSG).  Apple's news is also pushing up a Money McBags' favorite small cap name CRUS.  Goldman was up despite Credit Suisse cutting their price target on GS from $235 to $225 once again proving that Credit Suisse moves the market about as much as Stephen Hawking moves his trachea.  And finally the great Dick "Don't call me Richard" Bove cut his price target on USB from $29.50 to $27 continuing his run of cutting bank price targets to only 40% above their current prices making him as bearish (though still as deluded) as he has ever been.

In small cap news, WGO came out with earnings today and Money McBags told all of you to keep your eyes on it as the company has run way ahead of actually putting up any kind of numbers.  Those who have owned the company got in earlier than a NAMBLA member gets in to the dating pool.  While Money McBags has hated the stock and still thinks it remains overvalued, he will give them credit for putting up a decent quarter, though not as decent as the headlines would lead you to believe.  The good news for the company is that sales grew 165%, they were profitable, had positive ~$8.5MM EBITDA, prices were up 20% for an average of $98k per unit (because they've now infused their motor homes with the scent of Diane Kruger's vagina which I am told smells like talcum powder, fresh rose petals, and rich people), and apparently people will still buy expensive shit that they don't need.  Honestly, Money McBags is flummoxed by this one.  He understands why people would be dropping $100k for new motor homes when they are on sale for a fuckload less than that at maybe a year old on the used market as much as he understands Naked Lunch or country fucking music (and if it's not clear, that is "not at all").  Now the bad news for the company is that the earnings headline number was 2x what it really was thanks to a tax benefit, the sales growth rate slowed down from last quarter, gross margins are still fuck awful and below 10%, accounts payable jumped, they are trading at a ridonkulous multiple, and the economy still sucks like Nikki Dial on the set of White Men Can't Hump.

Ok, so let's just look at the quarter a little bit.  Revenue was ~$135MM, up 165% year over year but up only ~20% sequentially.  Alternatively, last year in this sequential Q revenue was up 60% while last Q year over year revenue was up 247%.  So sure, it sounds stupid to call 165% growth bad, but contextually sales are slowing down after a big ramp up post stimulus.  More importantly, headlines say the company earned $.21 per share but that number is phonier than Jack Nicholson's accent in The Departed or a married woman who says she likes giving hummers.  WGO had $.21 in earnings per share thanks to a $2.4MM tax benefit.  If we take out the tax benefit, they had $3.4MM in operating earnings for ~$.11-$.12 in EPS.  But hey, Money McBags will give them credit for making money, good on them, really, too bad their unrecognized tax benefit is only going to last another couple of quarters.  Anyway, Money McBags' big concern is that they can't keep up this pace and have reached a new near equilibrium level and at that new equilibrium level they are still more expensive than bald eagle foie gras (and nowhere near as tasty).  The market cap is $357MM after today's run up and they have ~$77MM in cash so an enterpirse value of $280MM.  This Q EBITDA was ~$8.5MM so if we annualize that, WGO is trading at ~8x-9x EV/EBITDA.  Also, they just earned ~$.115 per share so annualizing that yields ~$.46 eps and they are trading at ~27x that.  Obviously those who own the stock think that they are not at run rate earnings levels and can continue to grow even though the economy is stagnating, even though inventories have already been rebuilt, even though input prices are rising for WGO, and even though someone spending $100k on a completely discretionary item in this economy is more confusing than Schrodinger's cat (and newsflash, it wasn't the poison that killed or didn't kill Schrodinger's cat, it was fucking curiousity as he tried to figure out why the fuck he was in a box).  Anyway, it could happen, really, sales could somehow keep growing but this industry was in a sector decline BEFORE the recession hit and there is no way one can call this a growth company over the long run.  Money McBags would never put more than a market multiple on WGO and thus to justify the current $12.30 price WGO would have to earn $.82 next year to have a more likely 15x multiple and that just doesn't seem reasonable.  So look, Money McBags was expecting worse than what WGO has done and it's been a crappy short, but he still thinks the stock is overvalued.  Let the short squeeze die down today and monitor this company for another quarter to see if they can replicate this success before making any big calls.  Money McBags previous downside price was $7.50 and now it's probably closer to $9 (15x ~$40).  WGO was at ~$11 when Money McBags posted his initial short thesis and the market has been flat since then, so it hasn't been a good trade, it happens.  If Money McBags were right about everything he'd currently be in the Bahamas about to share a cleveland steamer with Hannah Hilton and not writing this, so it is what it is.

Wednesday, June 16, 2010

6/16/10 Midday Report: BP sets aside $20B to be used on an oily day

First of all, Money McBags would like to thank all of you for your feedback yesterday.  His inbox is currently overflowing like Whitezilla's urethra after downing three cases of Mountain Dew in ten minutes (and feel free to google "Whitezilla" on your own time, Money McBags refuses to link to it due to good taste) but he promises to try to get back to each and everyone of you.  The feedback was helpful as Money McBags learned that he does both too much analysis and not enough, the posts are both too long and too short, and the jokes both add to the analysis and detract from it.  The only thing that was universal was that his readers love the pics so Money McBags is thinking of dropping all subject matter, words, and rational thought and turning WGP into another NSFW photo site.  Anyway, Money McBags is still just short of his goal of 1MM visitors so if you all could spread the word, he will be able to continue to provide you with what you like best.

In macro news today, US housing starts declined by 10% to their lowest level since December (driven by a 17% drop in single family home building ) as the government tax credit finally disappeared like poor old Yorick did from the Danish royal court back in the day or America's global domination.  Not only did housing starts drop but they were way below analyst guesses as data and common sense apparently don't figure in to analysts' regression models (and Money McBags is anxiously awaiting the day analyst guesses regress to some fucking mean where the mean isn't "dead wrong" or "not even fucking close").  Analysts guessed housing starts would come in at 650k, which would have been down 22k from last month's 672k or down only 9k from the Commerce department's newly manipulated number from last month of 659k (though the Commerce department uses the less pointed word: "readjusted").  In actuality, new housing starts were 593k, which is the 10% drop that is being reported, but since analysts used the 672k number released last month in their models (and not the newly made up 659k number), the drop was really 13% which shows that analyst models work as well as a union member in Greece or a Rush Limbaugh marriage (but hey, maybe the 4th time will be the charm).  So by "readjusting" last month's number, the market got the bump from a better than expected number in April and now doesn't feel as bad about the drop since it's being reported as 10% and not 13%.  That is mind fucking boggling.  Money McBags has less faith in any of these numbers than Elin Nordegren has faith that Tiger Woods wasn't "sinking his putts" in only grassy holes.

But the most mind numbing thing about it all is that analysts were expecting only a 3% fucking drop.  Really?  I guess the government PUBLICLY announcing that the first time home buyers' tax credit was going away didn't make it up to the top of the ivory fucking towers on Wall Street where analysts dance their fat tails around pictures of Carl Freidrich Gauss while discussing their homoskedasticity and ignoring common fucking sense.  Look, last month was a record month for new home starts and featured a 6% increase which was the most since October 2008, so the rational person would probably start with saying this month will probably feature a 6% decline, you know, the amount of the ARTIFICIALLY INFLATED (as opposed to artificially fellated) increase last month.  And since the economy has improved by at most a Herve Vellachaize nut hair since then, why don't we start by knocking some shit off the 6%, I don't know lets call the baseline a fucking 8% decrease and then based on which way the wind is blowing, we'll move it a couple % from there.  Is that so fucking hard?  While it's an out of the ordinary least squares regression and the coefficient of determination may be less determinable than Caster Semenya's gender, it makes a fuck load more sense than whatever analysts are doing.  So here's the deal.  Money McBags isn't going to open up his excel, he isn't going to look at any data or any trends, and he's going to spend fewer than 10 seconds on this guess but he'll say next month's new housing starts will come in a 585k, a slight downtick from this month as the economy remains stagnant and those people who rushed to get the tax break the other month will still have a negative effect on the absolute number of housing starts.  Anyone want to bet if that guess is better than the econometrically arrived at bullshit spewed by the economists on the street whose PhDs are less practical than a bridge to Gravina Island?  Rant fucking over, but Wall Street analysts, it's on like Donkey Kong and this fucking Mario is going to save the princess.

In other macro news, manufacturing expanded by 1.2%, building on its .7% gain last month, and setting everyone up for a bigger drop when no one buys rebuilt inventories because they don't have fucking jobs.  Capacity utilization at manufacturing plants was up slightly and companies like Deere are seeing improvement as they said sales of utility tractors rose in the “double digits”  last month, largely due to the need to shovel all of the shit economists have been spewing about the economy.  Also, Producer prices fell .3%, or rose .2% if one uses the ridiculously derived core PPI that excludes food, energy, and intelligence.  These low prices give the Fed a longer time frame to hold rates flat and reinflate the bubble (I mean economy).

Internationally, France and Spain are increasing their austerity plans.  France has pledged to raise the retirement age by 2 years from 60 to 62 (though since they use the metric system, Money McBags believes that really translates to 29 years old), wants to raise income taxes on the rich, and will start charging fees based on the amount of armpit hair their women are sporting.  Leaks of the proposed actions have somehow caused the French to once again surrender to the Germans while praying to the great Jerry Lewis that he'll dump the MDA and adopt them as the new enfants de Jerry.  C'est dommage bitches!   Spain is also getting frisky with their workers again (though if those workers include Helen Lindes, who can blame them?).  The Spanish prime minister Jose Luis Rodriguez Zapata, who never saw a spanish name he couldn't add to his own, is seeking to spur full time hiring by employers while easing their layoff burden in order to get unemployment to drop from 20% to Spain's historic unemployment rate of 19%.  Money McBags isn't sayng the people of Spain don't work, well, actually, that's exactly what he is saying.

In stock news, Fannie Mae and Freddie Mac have been told to delist from the stock exchange though the FHFA's acting director Edward J. DeMarco (and the J apparently stands for "just kidding") said that the action "does not constitute any reflection on either enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of F.H.F.A. as regulator or conservator.”  Really?  The performance of those two shitawful enterprises which has led their stock prices to drop below $1 because no one wants to fucking own them is not a "reflection of current or future performance?"  Fuck, if that's the case then markets are terribly inefficient (which they are thanks to high frequency traders) and Mr. DeMarco should sink his entire life savings into those shitrags (and Money McBags says shitrags with all due respect).  In other company news,  BP's credit default swaps are now showing a 40% chance of default which means the market is only mispricing them by 60% so if you can, there is money to be made here despite BP agreeing to put $20B in escrow to pay claims from the oil spill while somehow also creating enough new water to drain the entire Gulf and refill the whole fucking thing since they've basically ruined that natural habitat like Robin Williams ruined comedy or Simona Halep ruined her post tennis marketability (and ask Soleil Moon-Frye what losing one's Punky Brewsters can do to one's career).  In other stock news, Fed Ex is down despite a good Q thanks to a disappointing outlook casued by growing pension liabilites and increased maintenace spend needed for their aircrafts.  Now Money Mcbags doesn't want to sound overly morbid here, but why not just not fix the planes and have the older workers fly them and thus kill two birds with one stone (figuratively and literally).

In small cap news, QCOR is up another 10% despite getting the Heisman from the FDA on Friday, pushing back the decision on approving Achtar for IS for the 9 billionth time.  Money McBags has talked about this ad nauseum (though not as nauseum as Lady Gaga's face, or her music) and he likes the company, especially with the potential for the NS market, but the stock is starting to get overvalued here.  Money McBags only has them earning $.60 next year and their gross sales were actually a bit disappointing this last Q.  Net sales had been running at ~68% of gross sales and this last Q they were 78% and Money McBags still hasn't heard why that was other than perhaps their reimbursement issues with Tricare were fixed.  The point is, Money McBags thinks this Q coming up will disappoint and you will get a better opportunity to buy this in a couple of months.  That said, the CEO has done a nice job turning this company around and pointing them in the right direction.  Finally, keep your eyes open for WGO's earnings report tomorrow to see if their core business can break even and how much cash from operations they burn.  They might have one more decent manipulatedly good quarter, but this stock is looking at a bigger uphill climb than Stedman Graham has to take on "couples night."