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).

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