4/12/10 Midday Report: S&P approaches 1,200, asks if it can come up and see it sometime

Earnings season is about to begin and Money McBags is more excited than Thomas Malthus at a pro-abstinence conference or Tiger Woods at a sleepover in Charlie Sheen's house.  The Street is going in to this earnings seasons with expectations higher than those of Elin Nordegren in October of 2004 so a few slip-ups could cause the market to sell off faster than the career of a VH1 reality show contestant.  Alcoa opens earnings season tonight with financial firms due to follow this week so keep your eyes on net interest margins, credit costs, and Lucy Pinder.

In international news, Europe has unified to bail out Greece with a line of aid in events less surprising than Michael Jackson dying of unnatural causes or a family values republican liking a little ding-a-ling.  It is the most unified Europe has been since Charlemagne took Italy or since the Keeley Hazell sex tape was released.  European leaders are offering Greece up to $40B at 5% interest which is a discount to market rates and will allow Greece to help cut their deficit and perhaps even improve their public works by adding more fire hydrants.  Along with the EU, the IMF is offering Greece $20B of assistance while NAMBLA is offering them a mature shoulder on which to cry.  Greek finance minister, George Papaconstantinou, and Greek Prime Minister George Papandreou, still think Greece can make it through this crisis without needing the capital infusion, while Greek cultural leader George Papasmurf couldn't be reached as he was busy hiding from Gargamel.

In stock news UBS is out saying they will earn $2.35B in profits this quarter as apparently they started selling tickets to the fountain of youth and hired Bernie Madoff's auditors.  UBS has been hit hard by the financial meltdown and it's nice to see they learned from it by not elaborating on how they swung to profitability.  So good on you UBS for continuing to not provide shareholders with information.  Also PALM continues to soar on takeout rumors.  Money McBags addressed this a bit on Friday but he doesn't understand why a PC company would want to buy the #6 player in the smartphone market, especially one whose estimates for the quarter were 50% below analyts guesses.  Sure they have decent technology, but going after AAPL and Blackberry is a bit like taking on Visa and Mastercard, Coke and Pepsi, or getting ass implants and going after Coco or Kim Kardashian.  Money McBags is guessing whoever buys PALM pays way too much for them unless they can somehow use PALM's operating system in their PCs.

In small cap news, most companies are getting ready for earnings so Money McBags will address a  reader named Richard who posted some thoughts on JOEZ in the comments section of Friday's post.  Money McBags will answer those questions here since the comment section handles long replies like the Meaghan Cheung handles ponzi scheme investigations.  In Friday's post, Money McBags broke down JOEZ quarter of strong growth but infinitesimal profitability and questioned whether they would earn more than $.07 this year.  Richard responded by questioning Money McBags' assumptions saying that 40% sales growth is too low due to an improving economy and operating leverage should drop to 36% with those improving sales and thus JOEZ could earn $.13.  Now look, Money McBags has no position in JOEZ but would like to pursue this because it could be a great long or short and he is happy to collect all information in what right now is strictly an intellectual pursuit, like debating the existence of God or pondering why people drive on parkways and park on driveways.

So let Money McBags test those numbers out a little and see if they are possible.  First of all, cost of goods sold in the last quarter rose to 51% as JOEZ either picked up their discounting to shed inventory or sold lower margin items.  Anyway, let's assume that doesn't degrade further even as competition increases when fashions potentially change which would cause further discounting (and remember, consumers of fashionable items are more fickle than Hugh Hefner at a casting call).  So call COGS 51% leaving gross margin at 49%.  Then we'll take Richard's assumption that they can get their operating margins down to 36% and assume interest and any other charges are non-existent as Money McBags wants to keep this simpler than a Texas high school science class (you know, because the answer to everything is "God did it").  So before taxes, JOEZ has an at best 13% pre-tax margin (51% COGS + 36% operating costs).  Now their tax rate is more inflated than Oprah Winfrey's ego (and her gut) as the earnout from the acquisition of Joe's is going to cause them to be taxed ~45% this year.  So that brings their net margin down to ~7.2%.  They have 63MM diluted shares so in order to hit $.13 eps for this calendar year (and remember, Money McBags thinks they will earn $.07), they need to earn $8.2MM in net income which means they need to earn $.12 or $7.6MM over the next 3 quarters.  Now it doesn't take Norman Einstein to see that in order to get to $7.6MM in net income over the next 3Qs with 7.2% net margins, they need to do >$100MM of revenue (~$105MM to be more exact).  In the last 3 calendar Qs of last year they had $63MM of revenue, so in order to hit $105MM of revenue, they need to grow sales by 66%.  To put that in perspective, these are the annual growth rates starting with 2006: 30%, 35%, 10%, 16%.  So sure, there was a recession and sales sucked donkey dick through it (though to JOEZ credit they were still able to grow when most retail stores were taking it deeper in the yingus than Alexis Texas in Ass Titans 3) but 66% growth is above anything they have done in the past 4 years and there is something called the law of large fucking numbers which tends to hinder growth rates.  While they grew 40% this last Q, Money McBags doesn't get how that growth accelerates even more unless they open a fuckload more stores and institute blumpkin Wednesdays or just discount the shit out of everything, which would kill their gross margins.  So it is doubtful that this year they earn $.13 even with an extrememly generous 36% operating cost assumption.

Of course it is possible Richard was talking about fiscal 2011 since he mentions an assumption of $30MM sales for Fiscal Q1 2011 (Q ending in November 2010), but he also mentions 12 month earnings, so it's not quite clear which 12 months he was talkng about.  As a result, Money McBags will go through this as if Richard were talking about fiscal 2011 and not calendar 2010.  If so, to hit $30MM in revenue in fiscal Q1, they would need sales to just increase by 20%, which seems infinitely reasonable and would earn them ~$.03 (at 51% COGS and 36% op costs) which would annualize to ~.12 eps, which is exactly where we started.  Of course if they keep growing that top line and keep margins at least flat, that $.12 could turn in to $.15-$.16 for fiscal 2011.  The big question is, is the 36% SG&A reasonable or is that way too low?  As companies grow, they should be able to get leverage out of their infrastructure since they don't need to buy new computers porportional to sales and they don't need to add another administrative assistant just because revenue was up (though sometimes two admin assistants are preferable).  Since 2005, as a % of sales, SG&A has been running at 51%, 46%, 37%, 38%, and 39%. So is it reasonable to think 36% margins are achievable?  Maybe.  Though if they are launching new stores and promoting new products, margins will have trouble dropping as we saw in this last Q where there was a $700k "one-time" charge for promotional spend which led to a 43% all inclusive operating cost margin.  Now Richard argues that the changing sales channels should help drop margins because JOEZ' own stores somehow have a lower cost structure than pushing their product through department stores, but Money McBags does not know the difference in margin between the channels nor how many stores they plan to open (it may be public, but fuck if Money McBags is going to dig for it, so if you know the answer, kindly post it in the comments section).  The point is, there has been no proof that JOEZ can hit 36% oparting cost margins and if that number stays in the 38% range, they will struggle to earn $.13 for fiscal 2011.

To wrap this all up, even taking aggressive margin assumptions, JOEZ would need to grow 66% in the remaining 9 months of this calendar year to earn $.13.  That said, if they can get margins down to the 36% level as Richard suggests, with moderate growth $.15 looks possible for fiscal 2011.  So best case scenario, JOEZ is now trading at about 20x that number which isn't a horrible multiple for the growth rate, but to get there, you have to bet that management can lower the cost structure (something they haven't done in 3 years despite top line growth) and that fashion trends continue.  Money McBags prefers to stay on the sideline here (though he would prefer it more if Alice Eve joined him on the sideline) until a management team that thought a 7 year earnout causing a 40%+ income tax rate and a management team that has created more negative leverage than Emmanuel Lewis trapped under an avalanche, can start showing they can manage a business and not just grow revenue.

7/16/10 Midnight Report: A load of Bears hit

The market tumbled today like a broke Boy George on a floor covered with dong as consumer confidence continues to fade like LeBron James' Q score or Haiti.  Consumer sentiment fell to 66.5 which is the lowest since August and below the most pessimistic guesses of those not paying attention (also known as economists).  The drop in sentiment from June's made up reading of 76 was the biggest drop in two years and was well below the 75 guessed at by economists who eventually will understand that the old data they used to calibrate their regression models no longer holds in our fat tailed society.  Newsflash economists:  The world has fucking changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips.  Basically everything in the consumer sentiment survey got worse and that is as bad of a sign for future consumer spend as a "You must be 18 to enter" sign is at a NAMBLA convention.

According to a Bloomberg poll, seven out of ten Americans believe we are in a recession, but then again, four in ten believe in alien abductions and six in ten believe that Kathy Griffin is a woman, so whatever.  The economic data has gone from marginal to whatever is worse than marginal and it's not clear what is going to stimulate the economy out of this except for maybe a Bobbi Eden promise to take care of businesses if they hire.  In other macro news, inflation continues to be modest as consumer prices were down .1% spurring louder whispers about deflation where cash will be king, and not some lame ass king like George III, but a cool one like Henry VIII or Kong.

In other US news, the SEC pulled themselves away from their tranny porn just long enough to settle with Goldman for $550MM as related to GS's shady dealings with their Abacus mortgage CDO.  The settlement will be among the largest in the history of the SEC with $15MM a result of the money GS made on the deal and $535MM as a punishment for GS being a bunch of asshats for the past 140 years.  Of the fine, $300MM will go directly to the US Treasury where they can either buy 3 new planes for congress, help Timothey Geithner pay his back taxes, or hire Cintia Dicker to massage their data before they stick it in to a GDP model.

Along with a consumer nudging closer to life support (and unfortunately with a pre-existing spending condition, the consumer is no longer eligible for insurance to help them survive), earnings reports were marginally bad at best.  BAC plummeted 9% and C dropped 6% after they released decent earnings but showed revenues to be more lacking than rhythm at a Republican convention or diction in an NBA lockerroom.  BAC's revenues were down 11% and C's were flat but most worrisome was that the earnings beats were a result of reserving less for credit issues with BAC reserving $5B fewer than last year because apparently they developed retrograde amnesia sometime in June.  Ugh.  This is going to get uglier than an Amy Winehouse-Michael Berryman love child.

In other stock news, GOOG revenue beat guesses but EPS fell short by $.06 as they earned $6.45 per share vs. analyst guesses of $6.51.   That <1% miss of made up numbers was enough to drop the stock 7% and the company has said the are going back in to investment mode which spooked investors as if investment mode were a book and investors were Dexter Manley.  Even though the 24% rate of growth was a bit lower than last Q's, this company is still the dominant player in one of the biggest and growing industries on the planet (right after hand set makers, gold mines, and porn) so while Money McBags is scratching his head a bit at GOOG's continued fourth mover push in to things like handsets and social media, he is still a long term owner because if the consumer dies, they are still going to spend time online guessing muffs as a way for cheap entertainment, so online advertising is only going to get stronger.

In small cap news, everything was down today.  JOEZ was out with their quarter and it was mostly inline with analyst guesses of $.01 eps but 50% below Money McBags guess of $.02 eps (and see how Money McBags used 50%, instead of $.01 to make it sound much worse than it was?).  Anyway, JOEZ put up a nice topline number, growing revenue by 51% to $26MM but once again had earnings leverage more negative than the reviews for an M. Night Shyamalan movie.  That's right, despite growing revenue 51%, net income dropped by greater than 50% from $1.3MM to $500k defying the laws of common sense and business savvy.  With that kind of inverse operating performance, it's a good thing JOEZ didn't grow their business 75% because then they might have lost money.

It would be easy to blame the drop in net income on the tax rate which grew to 48% over last year's 14% thanks to a shareholder unfriendly earnout struck by management when they acquired Joes, so thanks for that guys, really (oh wait, Money McBags isn't a shareholder, so he doesn't really give a fuck that JOEZ management treated their stock owners like second class citizens in a third world country when structuring the acquisition), but operating income BEFORE TAXES was down 25% from $1.6MM to $1.2MM.  So on the extra $8.7MM of revenue JOEZ brought in this Q compared to Q2 2009, they lost $400K before taxes.  Wow.  Now look, Money McBags is no Jack Welch (though he did manipulate his earnings this morning to Brooklyn Decker), but losing money on incremental revenue is so obviously bad that even business school professors know it is a failing strategy.  It's ok to have a loss leader, but when your whole business is a loss leader, you may have a problem.

Anyway, the reason for the operating earnings decline was threefold:  1.  Gross margins declined worse than Louis XVI's power in 1792 France or Yasmine Bleeth's career after Baywatch.  2.  Operating costs jumped up as if they had seen a mouse, or Kevin Federline, scurry across their kitchen floor.  3.  Their core denim business is witnessing a second derivative decline in growth.

As for gross margins, which continued their descent, this time from 51% to 44%, the company said that the drop resulted from the addition of new lower margin product categories such as the T, the Pant, and the Top.  CEO Marc Crossman did say that as volume grows for these products, margins should go back up as they can take better advantage of the factories and thus he expects meaningful margin expansion.

As for the increase in operating costs, that is a bit more troubling as costs jumped up to ~$10MM from ~$7MM which they said was the result of new worker salaries, rent costs, and a big night out at their local Rick's Cabaret (ok, maybe not the third one, but whatever).  The confusing thing though is that costs were up $400k sequentially when last Q JOEZ said operating costs were artificially higher due to $850k of one-time advertising  expenses and the moving of their headquarters.  If we strip out those numbers, operating costs were up by ~$1.2MM from Q1 or ~15% while sequential revenue was up only ~12%.  So basically this company manages their cost structure about as well as Alan Greenspan managed interest rates, Bernie Madoff managed money, or Magic Johnson managed a condom.  The company said with their new lines built out they don't expect operating costs to rise, but again, last Q they pretty much said the same thing and blamed the higher costs on one-time charges which either became two-time charges or were filled in by new costs.

And finally, they said their denim is now a single digit grower (though Money McBags wasn't sure if they just meant in department stores, or overall) so they are going to increasingly need to rely on new products to spur growth and to date, the new products have killed their margins.  In a trendy business, continuing to hit on new products is more difficult than solving the Poincare Conjecture or listening to a Ray Romano stand-up routine and not wanting to cut out your ear drums, so this is getting to be a tricky proposition.

In terms of their balance sheet, cash is now down from $13MM at the beginning of the year to $8.5MM, driven by a $3.5MM burn from operations due to rising inventories and helped out by growing accounts payable (which sounds about as healthy as a cock sandwich with extra VD).  While they aren't in imminent danger (though at the rate of their cash burn from operations they only have 12 months of leeway), Money McBags would not be shocked by some kind of secondary offering because unless they can get their operations in order and start GENERATING cash, their growth plans are going to have to be put on hold.

So how the fuck does one forecast a company whose growth rate over the past 4 years was 30%, 35%, 10%, and 16%, who sells an expensive discretionary good in the midst of GLOBAL RECESSION, whose management team has grown revenue 46% this year and yet had earnings decline because they understand costs like Donald Rumsfeld understands war strategy or Sheyla Hershey understands when enough is enough, who burned cash in both quarters this year and is getting to the point where the may need to reload faster than Peter North on a day he is filming a double feature, who is in a market that is all about fads and their biggest product is starting to have its growth slow, and who has been so shareholder unfriendly that they stuck shareholders with a 48% tax rate so the management could get a better earnout and thus order a second helping of caviar when they were done screwing equity owners?

One could annualize the $.02 they have made in the first half of the year and call their earnings run rate $.04 and slap some growth on that, but that would be the easy way out.    Money McBags is in a good mood today (mostly because he recently discovered Sofia Vergara) so he'll assume JOEZ can kind of keep this up and grow revenue 35% for the rest of the year and 30% next year (assuming they don't run out of cash or can raise cash to continue to expand).  He'll call gross margin 51%, operating margin 38%, and the tax rate 45% (though they say it will wind up closer to 40% sometime around the year infinity).  Doing that, Money McBags gets to $.16 eps for next year at the high end because every single one of those estimates is giving them a fuckload more credit than they have earned.  So next year the company should earn somewhere between their current $.04 run rate and $.16 assuming they don't have to issue more shares to help quell their cash burn.  JOEZ is now trading at between 13x and a bazillion x those numbers.

So in short, Money McBags is glad not to be involved in this company as they have been able to deliver profits about as well as George Will delivers a punchline but if one believes what management says and not what they have actually done (like you know, lose money, mismanage costs, fuck over shareholders, and burn in cash), one could make an argument that 13x for a 40% grower is cheap, of course one could also make an argument that Tori Spelling is hot, so be careful to whom you listen.  Money McBags remains fascinated by this little stock though as it's not often you find 40%+ topline growers who manage to consistetly shrink their profits.

Have a good weekend, and remember WGP is on facebook and twitter.

4/13/10 Midafternoon Report: Alcoa opens earnings season not with a bang but a whimper

The market sold off at the open today but is climbing back like a Phoenix from the ashes or Paul Volcker's economic reputation.  Alcoa's earnings initially brought the market down as they were a bit disappointing and Alcoa is considered to be the first bellweather company to report in this critical earnings season where baked in expectations are greater than they were for Ulysses S. Grant's presidency, the launch of the Space Shuttle Challenger, or Jay Leno's 10pm time slot.  Alcoa missed on revenues earning only $4.9B instead of analyst guesses of $5.2B while putting up an inline earnings per share number.  The company blamed the top line miss on the fact that they sell a fucking commodity and on Canada.  Interestingly, even though they were short of analyst guesses on revenue, they still grew the topline by 18% thanks to a 49% surge in the price of aluminum off of the depressed levels of last year (apparently aluminum was depressed because it found copper cheating on him with silver.  It's his own fault though, as steel tried to warn aluminum that copper was a whore and would smelt anything, but he didn't want to listen).  That said, shipments of aluminum slid 3% so demand still has quite a way to go.  In other macro news, the US trade deficit widened in February like a hooker's purse when seeing Eliot Spitzer walk by her after he has hit the ATM.  The trade deficit was up 7.4% to $39B and signaled that US consumers are getting stronger as they once again pass up American made goods for shit produced overseas.  Imports surged 1.7% with the majority of that coming from electronics, aparrel, and Laetitia Casta posters.

In international news, Greece had a bond offering to raise capital to help ease their budget deficit and the bonds are seeing stronger demand than Sarah Palin at a tea bag convention, potatoes during the great Irish famine, or Ann Darrow on Skull Island.  The latest bond offering was more than 6x oversubscribed which is more oversubscribed than a New Century subprime mortgage B tranche in 2004, the theory of intelligent design in Texas, or the rumored Jessica Simpson Juggs magazine photo shoot.  With the EU and IMF backing up Greece (and we all know the Greeks love getting backed-up), investors should have faith that the country won't go bankrupt and thus the incremental yield being offered by these Greek bonds should be solid investments.

In other stock news, the markets eagerly await the earnings of large cap banks tomorrow while UBS's regional bank anlayst is getting in front of those numbers by downgrading mid-sized banks.  The analyst thinks banks' earnings and valuations are unsustainable and they are due for a "meaningful pullback" as investors somehow forgot that normalized bank earnings no longer exist thanks to something called banks not lending any fucking money and reserving the shit out of their balance sheets.  Ford announced revenues are tracking ahead of last year, though that is like being smarter than Carrie Prejean, creepier than Larry Craig, or less herpe-ridden than Paris Hilton.  Ford has done a solid job of managing through the downturn and thinks the economy continues to get marginally better, like day old chinese food and the Winter Olympics.  The market is not only anticipating bank earnings, but GOOG is trading up into their earnings release on Thursday after hours.  Money McBags is long GOOG as the online advertising market isn't going anywhere and they dominate it like Tony Danza dominated Judith Light in showing her who was the boss.

In small cap news, PALM is tumbling because potential buyers must be coming to their senses or must have read When Genius Prevailed yesterday to realize that buying the #6 player (and likely dropping with Microsoft introducing the Kin) in a competitive and near commodity market is about as good of a business decision as investing with Bernie Madoff or letting Dexter Manley write your presentations.  In other small cap news, JOEZ is apparently still not fitting investors well despite offering a nice booty fit as it trades down another 4% to $2.60.  Money McBags has put some analysis behind JOEZ numbers over the past couple of days and thinks it is getting to a more reasonable valuation (of course being down almost 30% in 4 days will do that to you).  What is interesting is that the analyst from Roth Capital came out with an upgrade of JOEZ yesterday and had close to the same numbers as Money McBags with ~$.07 eps for 2010 and $.13 for fiscal 2011.  The key difference being that Money McBags thinks $.13 is a bit of a stretch, though possible (In fact $.15 wouldn't be out of the realm of possibilties), and that even if they were to hit $.13, they shouldn't trade at 28x that which is where the Roth analyst's price target is.  The stock is now trading at 20x the fiscal 2011 $.13 estimate which is a reasonable valuation for JOEZ growth if you think $.13 is attainable.  If Money McBags were a betting man, he'd bet that the butler did it, but he'd also bet that JOEZ will earn somewhere between $.10 and $.15 per share in fiscal 2011 which is actually not a very small range but he just doesn't have a good feel for management's ability to execute a business since their margins have yet to show the leverage associated with scale.  Either way, the valuation is becoming more reasonable and if it were to drop a bit more, Money McBags might think about buying some.  Until then, he's going to wait for the institutions to finish puking this thing out and see where it is when the smoke clears as volume over the past few days has been higher than Lindsay Lohan on a Columbian vacation as people just want to get the fuck out of this stock right now.

5/24/10 Midafternoon Report: American xenophobes shout "I told you so!" as european fears send US markets tumbling

Stocks were mostly flat today like they had no gaussian curvature or had Heidi Montag's singing voice until they took a nosedive over the final 30 minutes of trading.  Existing home sales in the US rose by 7.6% and bested analyst guesses thanks to the first time home buyers tax credit, foreclosure auctions, and promises by Sabrina Soto to intervene with buyers' real estate and show them where to properly lay their pipes.  While home sales were up, prices also rose 4% with the median home price now $173k, or three times the cost of Detroit.  Treasuries continued to gain in this uncertain market as investors sell out of their equity holdings and seek safety in bonds, even if those bonds are issued by a country whose debt is 2/3 of their GDP and a country who somehow thought naming a town Bumpass was a bright idea.  In other US news, the financial services industry is still trying to figure out how they will be affected by the financial reform bill which was recently passed by the Senate thanks to a collective dose of extracorporeal shock wave lithotripsy.  Many analysts think the bill will reduce profits but leave industry size and power intact, which is basically like castrating Lexington Steele.  While profits could be cut by 20%, financial service companies will no doubt find new ways to exploit loopholes and the cornholes of average workers in order to extract maximum profits for doing nothing other than hitting buttons and passing paper.  Fear not though, Money McBags has a solution for America's impending debt problem that doesn't involve Faye Reagan offering to service said debt.  In an auction this weekend, the first US silver dollar which was minted in 1794 sold for  $7.5MM.  So all we need Bernanke to do is just mint a fuckload more silver dollars and fudge the dates on them.  Problem solved

In international news, the Bank of Spain bailed out a regional bank named Cajasur which of course is Spanish for "We suck at lending."  The bank is apparently largely controlled by the Catholic church whose strategy was to make up for losses by turning water into wine, unfortunately, they were less successful at that than Martin Luther was at keeping his complaints succinct (seriously, 95 fucking theses?  I mean we know the benches were too hard and chapped your ass cheeks, but couldn't you have left that one out and just made it 94?).  This marks the second time since 2009 that a regional bank has been bailed out by Spain and the also the second time since 2009 the Bank of Spain has put in longer than a two hour work day.  In other international news, Britain announced 6B euro in spending cuts.  They hope these cuts work out better than their spending cuts of 1932 which took dental care off of public health plans.  Among the cuts in the legislation are tighter restrictions on first class travel by public employees, advertising cuts for public projects, and less material to be used for the uniforms of the national soccer team.

In stock news, C was upgraded by Goldman Sachs to buy, most likely due to a typo or Goldman trying to pump C shares so GS's majority partner, the US government, can dump them.  C remains more full of shit than someone with Prader-Willi Syndrome and no anus.  The company is too big not to fail and has seen a talent drain similar to the third season of Flavor of Love.  Goldman analysts were busy today though as they also raised Sprint to a buy sending the stock up nearly 10%.  The reason for the upgrade was a potential lower churn as Sprint has likely already lost every customer they are going to lose.  Also, savings and loans banks reported their highest profit since 2007 when they were actively taking careless risks by lending money to people who couldn't afford to pay for haircuts, much less pay loans back.  Of course not even Thrift banks can screw up getting free money and lending it for more than free with the government ready to bail them out should anything go wrong (well, that is all Thrift banks except for maybe IndyMac).  Thus record profits aren't really anything to applaud as it is like applauding a hefty stripper in a Reno gentleman's club for convincing a patron to pay for a lap dance (and for those of you who have never been to a Reno strip club, they're all fucking hefty).

In small cap news, JOEZ was somehow up 8% despite small cap stocks being tossed off like a 21 year old virgin's wanker while guess 1629's NSFW muff.  Money McBags broke JOEZ down after their last Q and thinks they could earn between $.10 and $.15 per share in 2011 whic means the stock is now trading at 13x to 20x that but the concern is obviously that with Europe going to 0, people may not have money to spend and thus JOEZ's growth may slow.  While their jeans sales aren't directly related to Europe, the global economy is and the last time Money McBags checked, the US was part of the global economy.  Given the current market fear and dislocation, Money McBags has no interest in stepping in to JOEZ here, even if he'd be stepping in to the overpriced and stylish Outsider, but he is keeping abreast of the stock (though he wishes he were keeping stock of Brooklyn Decker's breasts instead).  In other small cap news, WGO continues their drop to $7.50 as high beta shit companies that rose for no reason are now becoming less in vogue than banana hammocks and Keynesian economics.  Money McBags has said this before but WGO is not going to make money this year and next year will be lucky to earn $.50 per share much less $1.20 and it is trading at 10x $1.20.  As long as the market continues to sink like all of Money McBags' hopes and dreams, WGO should be more than a big short (as opposed to these small shorts).  Finally, Money McBags dumped his DFZ today.  He loves the company and thinks they earn around $1.05 pretty easily next fiscal year with an accretive acquisition on the way.  That said, the stock is less liquid than a hefty corn shit and with the market structure broken, Money McBags doesn't want to get caught holding anything with no way to get out.  So he took his 25% profit and went home.

4/9/10 Midafternoon Report: Greek bail out back on causing market to fly like Icarus (though hopefully not quite as close to the sun)

The markets are higher today as fears of a Greek blow up subside for about the 69th time which is one more time than Ben Bernanke has taken an "accomodative stance" for the market in the past two months (and Money McBags isn't quite sure what that means).  In macro news, Retail sales were out yesterday and they posted their strongest monthly gains since the data started being collected in 2000 and since the introduction of the Snuggie.  Sales were up 9.1% over March 2009 as people are feeling safe in their jobs and are now willing to once again run up their credit card debt and buy those Joe's jeans that fit so snugly (and Money McBags will get to JOEZ later with their 40% revenue growth that avoided falling to the bottom line like Gabrielle Sidibie avoided salads).  Easter falling a week earlier this year helped boost sales a bit so retailers aren't quite ready to pop open the beluga and take the Dom off ice, but the number was much stronger than analyst guesses and bodes well for the recovery.  A number of retailers including Target, Macy's, Ross Stores, and Vivid Video (ok, Money McBags is just speculating on the last one based on his consumer spend) said their results beat expectations which is more positive news on the strength of the consumer.  In other macro news, US wholesale inventories rose .6% in February which was apparently well above guesses, while wholesale sales were up .8%.  What is interesting is that wholesalers still only have 1.16 months of inventory on hand which means there is still a fuckload of restocking potential (or un-destocking potential for those who want to nit pick).  Money McBags has doubted the path of the economy for quite some time because the labor market is still weaker than a sand in the face Charles Atlas (shout out to the over 70 crowd.  All the ladies in the house yell "Arthritis."), but things look like they are legitimately getting better.  Sure there could be more issues in Europe, and sure the S&P isn't hella cheap, and sure with earnings season kicking off next week companies are going to have to put up better results than GE when they used to manage earnings or Tiger Woods in a full of shit contest, but things seem like they have a worst plateaued.  Money Mcbags got longer the market today, at least for the short run.

In international news, the Greek bailout plan is on again today which is less surprising than when Ricky Martin came out of the closet, when Colin Powell admitted there were no WMDs in Iraq, or when Jennifer Aniston's latest movie flopped.  Greece still needs to raise around 15B euros by the end of next month which means they have to sell a whole lot of gyros and Julia Alexandratou sex tapes, but the rest of Europe will be buyers.  The EU, IMF, and NAMBLA will not let Greece default and will issue them bilateral loans (which have all the benefits of lateral loans, only I am told the interest goes both ways).  Look, Greece has been around for roughly 5k years since the Cyclades in the Bronze Age and has been through wars, revolutions, and prodigal son Yanni's musical career, and none of that was enough to bring them down so a few poorly written CDOs/subprime mortgages/bad loans are not going to be the demise of this once great country.  It's not happening.  There is more chance of Michelle Hunziker stopping by the When Genius Prevailed offices and handing out free ice cream sundaes than there is of Greece going bankrupt so buy anytime the market gets freaked out by Greek bond premiums shooting through the roof.  In other Greek news,  Fitch downgraded Greece's credit rating today just in time for the latest bail out, so again great timing by credit rating agencies who continue to have less credibility than Amy Winehouse's stylist and Greta Van Susteren's plastic surgeon.

In stock news, despite yesterday's strong retail sales report WMT announced a plan to lower prices in furthering their quest for world domination.  With slowing same store sales, WMT is hoping lower prices will win back middle class customers, make them more competitive with grocery stores, and allow their shoppers to upgrade their wardrobes.  In other stock news, PALM is mimicking their phones and flying through the roof (of course the roof their phones fly through is a sun roof as users forcibly and angrily chuck them out of their cars when the Pre's operating system crashes on them for like the 42nd time) on rumors of being acquired.  A large scale PC maker is said to be interested in buying Palm's phone and technology because rather than being in just one ultra-competitive commodity business, they'd apparently like to be in two.  A PC maker buying Palm makes a bit of strategic sense if there were no iPhone and blackberry, but given that the market is already saturated and with better products, a deal seems a bit implausible unless it is at bargain prices.

In small cap news, Money McBags bought more KITD today and is probably done buying for now unless it gets stupid cheap again.  The stock is simply worth a fuckload more than it is trading for today so Money McBags is a bit less price sensitive than Richard Branson at a McDonalds.   As discussed earlier, JOEZ announced their quarter last night and is selling off like their quarter created AIDS (and not regular AIDS, but AIDS of the anus).  The stock is down 16% despite 40% top line growth because bottom line growth was non-existent (though showing a picture of Alice Eve would have caused Money McBags' bottom line to grow).  JOEZ exhibited less leverage than the immortal He Ping Ping on a see saw with Kirstie Alley (and that's not just because He Ping Ping was only 29 inches tall, but because he's dead).  JOEZ margins were essentially unchanged with gross margins coming in a bit worse at 49% from 50% and operating margins improving by less than 100bps.  What hurt them most was their tax rate jumping from 15% to 47% as a result of NOLs running out and having to accont for an earnout from their acquisition of the Joe's business.  Plus, they said they had an extra $700k in advertising expenses and a $150k expense from moving their headquarters, but even taking out that $850k in "one-time" expenses, that would have barely added back another penny.  This business simply needs to figure out how to grow while managing expenses.  As a quick exercise, do 25 jumping jacks. As a quicker exercise, assume the company grows sales 40% to $111MM for calendar 2010 (which is very aggressive, but work with me here).  Then hit them with 50% gross margins (even though those might actually be getting worse as they are moving downstream in their pricing and products), 39% operating margins (which is what they were this Q absent the $850k "one-time" costs), hold interest and depreciation constant (though depreciation should grow as they open more stores), tax them at 46% (they said over time that should drop to 40%, but the earnout is over 7 years), and keep their diluted share count at 63MM.  If you do all that and say Beetlejuice 3 times quickly, you get to earnings for the year of about $.07 per share.    You see, that's the problem with running a low margin no leverage business, you're kind of fucked unless you can get scale quickly by ramping up sales faster than Lindsay Lohan snorts a dime bag.  So if they can't get any leverage and earn $.07 per share in 2010, they are now trading at 40x that which is way too expensive for anything not involving Hannah Hilton putting her musical skills to use and playing Money McBags' rusty trombone.  And remember, the exercise we just walked through assumes 40% topline growth which is huge.  Now look, the company is doing a very good job of growing the top line and despite burning through $2MM of cash from operations, still has a decent balance sheet with $10MM cash and no debt, so it is possible they start figuring out how to manage the bottom line, that said, Money McBags is going to continue to take a pass on this until they fire the the Underpants Gnomes and figure out how to turn revenue into profit.  Obviously a business growing top line at 40% has some good qualities, so it is worth monitoring, but unless Money McBags' math was wrong in the analysis he laid out above (and while Money McBags has an MBA in Finance and a BA in Economics, he is not a maffamatecian so often has to work it out with a pencil), the numbers don't make sense.  If any of you have a better grip on the numbers, let Money McBags know because he wants to like this stock, but with crappy and unimproving margins, it's not clear he can.

And don't forget to enjoy your weekend.

6/3/10 Midevening Report: BP apologizes for oil spill while investors await market's apology for recent 12% drop

The market held steady today like the Universe according to Fred Hoyle or the unemployment rate over the past several months.  Speaking of unemployment, jobs data came out in advance of tomorrow's already leaked positive government non farm payrolls report which will no doubt feature a birth/death model plug so large that it will be able to stop up even Jennifer Lopez's ample backside.  Today's release by ADP showed that private firms added 55k jobs in May which was below the 70k guessed by economists.  That said, 55k new jobs out of 20MM unemployed workers is so irrelevant it's like the Octomom and her likely cavernous hoohah getting any pleasure out of being boned by the late great He Ping Ping and his little ding ding.  It's called a hot dog down a hallway my friends.  Also, new claims for unemployment fell by 10k from 460k to 453k as the Labor Department apparently hired Dostoevsky's Underground Man as their accountant and he finally got his wishes of 2 x 2 not equalling 4.  Last week Money McBags reported on the 14k drop in new claims to bring the number down to 460k, but the Labor Department went to work (pun intended) and recounted their made up estimates and have revised last week's new claims upwards to get to 463k which means claims dropped by 11k and not 14k last week.  So that is how 460k - 10k = 453k.  Money McBags eagerly awaits next week's made up number that will also test the limits of believability and mathematics like claiming Josie Maran isn't hot or trying to divide her awesomeness by zero.  In other macro news, the ISM’s index of non-manufacturing businesses came in at 55.4 for the third month in a row which was below the median guess of 55.6 but still showed some expansion with the service sector going from flacid to half mast.

Internationally, markets in Europe rose before the open as economic data showed that Europe has yet to adopt the barter system even with the Euro on life support (though hopefully better life support than what Rue McClanahan was on).  Markit's UK services purchasing managers index (and Money McBags dares you to say that 3 times quickly) rose to 55.4 in May which is strangely the same ordinal number that the ISM's US service sector index showed, so it's good to see that the US and UK are both goalseeking for the same numbers.  Now Money McBags doesn't want to tell the governments how to collude, but perhaps they should use different fucking numbers when making shit up and make us at least attempt to use Benford's law to call BS.  While the Markit number showed expansion, digging deeper showed a slow down of new business growth and employment which is as positive of a sign for the UK as the "narrow bridge, use caution"" sign was for Ted Kennedy.  Finally, Japan's finance minister Naoto Kan, is said to be in the lead to become the new Prime Minister and who could be a better choice to run the world's second biggest economy than a guy who has twice had to resign positions for failing to make his pension fund payments (no really, he did).  With judgment and ethics like that, Kan is said to be in discussions with the US to extradite Bernie Madoff and appoint him to the now vacant finance minister role.

In stock news, Moody's and Fitch cut their ratings on BP because apparently it wasn't obvious to the whole world that BP is fucked.  Rumor is tomorrow the ratings agencies will be cutting ratings on Enron, New Century Financial, and Jimmie Walker's career.  Also, retailers reported their monthly sales numbers and results were mixed and came in at 2.5% growth, .1% below guesses with weakness seen in the West. Surprisingly, Costco had one of the biggest misses, though they still grew 5%, as people are still buying cheap shit but apparently not as fast as expected, perhaps because they bumped into the top of their credit lines.

In small cap news today, JOEZ shot up 6% today on average volume and no news that Money McBags could find other than that they opened up a new store in Cincinatti last week.  Wow.  Really?  You're selling premium priced fashionable jeans and the place you find to open your 13th store is Cincifuckingnatti?  Really?  What's wrong, was Des Moines?  Too upscale?  Opening up a Joe's Jeans in Cincinatti makes as much sense as Simona Halep's decision to become less top heavy (listen Simona, you're ranked 166th in the fucking world by the WTA, so here's a little hint:  It's not the fucking boobs that are holding you back, it's that you're just not that good at tennis.  So as long as your ground game blows, why not continue to highlight your volleys?).  Now look, if Money McBags were in charge of strategy at JOEZ, first of all, he would strategize the operations guy out the fucking door since they have controlled costs as well as Al Gore controlled his son, or his marriage.  Secondly, he wouldn't be opening any damn stores in Cincinatti or the entire state of Ohio until he had penetrated the entire East Coast, West Coast, and Amanda Seyfried.  Heck, Money McBags would open a store in the deliciously named Butte, Montana before Cincinatti because where better to have a jeans store than Butte?  That's some free marketing and strategy right there.  Anyway, Money McBags is sticking with his $.13 to $.15 high end range for JOEZ' eps so he doesn't think it is terribly cheap in an environment where uncertainty is dominating which makes small growth stocks that are highly levered to consumer spend and fashion trends riskier than playing grab ass with a person suffering from a bad case of irritable bowel syndrome.

2/19/10 Midafternoon Report: Core inflation tame, good news for those who don't eat or use energy

The market hung in there today despite Ben Bernanke's surprising discount rate raise after the market closed yesterday.  Bernanke continues to think outside of the box in managing the economy (and as long as it isn't Hannah Hilton's box, then Money McBags is fully on board because one should only think inside her box, never outside of it).  There is no telling what Bernanke will do next as a Federal Reserve Chairman hasn't done anything as radical as he has since Marriner S. Eccles wore black shoes with a brown belt on day back in 1937.  Money McBags is all in favor of the proactivity of the Fed and anxiously awaits their next move, whether it be reducing their balance sheet, paying interest on bank loans, or having the head of the Cleveland branch of the Fed, Sandra Pianalto, man the kissing booth at the Fed's next holiday party (what, you'd prefer Janet Yellen?).

The Dollar is now at its nine month high against the Euro, reaching $1.35 to the Euro, thanks to the Fed actions which means that all of the unemployed people who couldn't afford to book vacations to see the leaning tower of Pisa this winter can now hypothetically be able to at least afford to check a bag.  CPI data also came out today and showed inflation to be less than expected except for a couple of small things called energy and food.  Excluding food and fuel costs, prices fell .1% which was the first decline in over 25 years.  So as long as you don't eat or go anywhere in the fucking car which you probably have to sell anyway to make the mortgage payments on the house you couldn't afford but were able to get a loan for so the endowment fund at the University of My Left Nut (go fighting Ballhawks!) could get a little extra yield on their fixed income portfolio by having bankers slice up pools of those mortgages which enabled those same bankers to buy even more coke and purchase hookers with fewer diseases, everything should be ok.  For fucksake, we're not hunter-gatherers anymore (though if we were, I would hunt and gather me some Amanda Seyfried) and thus excluding food and fuel costs from the CPI is like excluding money shots from bukakke films or excluding General Winfield Scott from a list of greatest guys with the first name Winfield (and a big shout out to Old Fuss and Feathers, all the Whigs in the house give me a "hell yeah!").

In stock news today, DELL apparently has been spending way too much time trying to find the Erin Andrews peephole video and apparently downloaded a virus in the process as they are down 6% on last night's disappointing quarter.  Revenue grew 11% while profit dropped 4.8%.  We have a word for that on When Genius Prevailed, it's called "bad fucking business" (and yes Money McBags knows that is actually three words but like DELL, he is giving you 200% more for the same price).  Dell's continued reliance on discounting is good for consumers (assuming they wanted a shitty Dell computer with customer service so bad that it that makes Britney Spears teaching you bernouilli distributions seem helpful), but not good for shareholders.  Granted all PCs not starting with an "i" are essentially commodities so price competition is inherrent to the market, but negative operating leverage for a business is like a female with a hairy ass, it's uninteresting, unbecoming, and frankly unnatural.  In other large cap news FSLR reported a decent quarter, beating analyst estimates but then guided to increased margin pressure in the second half of the year as apparently their main source of energy, the sun, is free.  Solar stocks are being eclipsed by the market today as a result.

In small cap news, JOEZ continues to rally (and Money McBags broke down JOEZ quarter a couple of weeks ago) while for some reason HIL continues to crumble like poorly installed dry wall (and that is punny because HIL oversees commercial construction).  Money McBags has been a fan of HIL as they are diversified globally, have had solid performance, and don't take on any building risk.  They are hired to litigate and to manage the building process.  The company is now trading at 10x estimates, around 1.5x book value, and close to 8.5x EV/EBITDA.  They have been acquiring companies in geographies they are not in and think their claims business should start coming back.  The stock is down by close to 1/3 in he past four months and now it seems to be fairly cheap.  Money McBags is unsure why it has been hit so badly as it offers a nice way to diversify into real estate without taking the building balance sheet risk.  So your homework for the weekend, other than taking out the trash, is to figure out what is going on with HIL.  Money McBags will dig into it a bit more next week and see if he can't find a reason for the four month sell off because if there is nothing nefarious going on (like a Goldman Sachs Greek bond placement and currency swap or a Heidi Montag record promotion) then this could be a good entry point.

So enjoy the weekend and Money McBags will be back on Monday.

2/4/10 Midday Report: Market shows Paris Hilton isn't the only thing that can go down

Tim-motherfucking-ber.  The market is nosediving today like a Biggest Loser contestant going after the last gravy covered deep fried twinkie at an all you can eat "stuff that's bad" for you bar (and no offense to you weight-challenged people out there, but did you really need to go on a TV show to figure out you need to eat a fucking salad every once in a while?  I mean for fucksake, it's not like you need to decipher M-Theory or particle physics, you just need to stop eating crap and walk a little.  Jeesh.)  Driving the market down is what we here at When Genius Prevailed call serial unemployment (as opposed to Quisp's cereal unemployment, which we hear has caused Quisp to resort to tickling Franken's berries to pay the rent).  New claims for unemployment came out and they were higher than last week and above analyst estimates.  Claims rose 8k to 480k while expectations were for a drop to 460k.  10MM people continue to receive unemployment benefits or extended benefits and to give you an idea of how large of a group that is, it is is roughly equivalent to the population of Portugal, Belgium, or people who will show someone their tits on Bourbon Street should the Saints win the Super Bowl (and Money McBags fully supports Saints fans).  So the economy may be getting a bit better but as long as there are so many displaced workers, full recovery will be difficult (to put it mildly) which is why the S&P is probably a wee bit overvalued, like long walks on the beach, Alan Greenspan, or Michael Chabon novels.  Alternatively, labor productivity increased in January above analyst estimates as those with jobs have to work a fuckload harder to keep them (so instead of slacking off and looking at Miranda Kerr pictures for 6 hours a day like workers in a healthy economy like Australia, US worker now only slack off for 4 hours a day and are forced to look at internet pictures of Shirley Hemphill).  Also positive news is out today on factory orders which gained again in December as businesses build back and try to maintain inventory.

In international economic news, investors are getting more skittish on Europe as they deal with the Greek budget crisis which will likely cause the EU to revive their hit doin da butt in making Greece their submissive (though luckily, and not to overgeneralize, but the Greeks seem to enjoy that).  Fears are now spreading to Portugal, Spain, and any other country where two hour midday siesta's are followed by 3 hour midafternoon siestas.  Also, China is gettng a bit frisky with the US, objecting to claims that they are keeping down their currency in order to help exports.  The Chinese Foreign Ministry spokesman said they will stop artificially deflating their currency when the US stops artificially inflating the value of free speech.

In stock news Cisco put up a nice quarter (and for the record Money McBags has been long CSCO, though the stock has moved strongly sideways on him) as revenue was up 8% and their adjusted earnings of $.40 beat analyst estimates of $.35.  While many companies have beat earnings forecasts, CSCO was one of the few who also beat on the top line and not only that, they said the global technology environment is getting better and they will be hiring 3,000 people.  So take that rise in jobless claims to 480k, Cisco will be hiring 3k of the 15MM-20MM unemployed so the recovery is on like Donkey Kong.  CEO John Chambers did say that “we are already in the second phase of a capital spending increase" which is great news, though Money McBags was unaware that phase one had actually ended.

In small cap news, TSYS reports tonight and Money McBags eagerly awaits their earnings release which he discussed two days ago while JOEZ put up a nice quarter.  Now Money McBags understands the appeal of Joes jeans about as much as he understands the appeal of Desperate Houswives or unshaved lady parts (and that is not at all).  They are expensive jeans which people really have no reason to buy given the recession and cheaper alternatives.  That said, Joe's grew net sales by 42% as apparently people not only like the jeans but things called "woven shirts" and "denim leggings" (we'll assume "pants ponies" are not one of Joe's SKUs).  The company earned about $.05 per share (excluding their big one-time tax benefit due to chugging a jar of metamucil and thus releasing their valuation allowance) thanks to the increase in sales and a higher gross margin.  For the year, they earned somewhere between $.09 and $.13 depending on how you want to deal with their taxes and had around $3MM of EBITDA in the latest Q.  On the call they talk about aggressively growing stores and categories so they will continue to expand which means a bigger marketing spend and a more complicated business to manage.  On the positive side, they have $13MM cash, no debt, and products that snugly fit the lovely Anna Lynne McCord.  It's possible that they can continue to grow and keep gross margins the same with some better channel distribution, so maybe they earn $.15 per share next year, though that is a total stab in the dark guess based on growth off of last year and something analysts refer to as "putting a finger in the air."  The company is trading at around $1.85 today, is rapidly growing, and is relatively cheap (1.5x current revenue and if they can best their current earnings number, under 20x eps).  If you want retail risk in this shaky economy, this is one way to get that with some pretty nice upside.  Money McBags will not be purchasing JOEZ, despite the potentially good returns, because he just doesn't get overpriced jeans and never trusts the easily changing fashion tastes of  US consumers (the ones who brought you the rat tail and Hammer pants).  That said, people are making money here and it does not appear to be ridiculously overpriced for a growth company.

7/19/10 Midevening Report: Stocks higher as earnings more highly anticipated than the last thing that wound up disappointing everyone

The market sagged today like a droopy catenary with a very low value of "a" or Uma Thurman on vacation, before gaining some steam in the afternoon.  With earnings season started, macro data was lighter than Ben Stein's reputation as an economist or sales of Liberace's last book: "How not to get AIDS and die."  Homebuilder confidence dropped to it's lowest level in over a year as The National Association of Home Builder's index slipped to 14, with readings lower than 50 meaning more respondents said conditions were poor, and readings lower than 20 meaning we're completely fucked.  At blame for the drop was the governement tax credit running out, foreclosures continuing to increase, and pessimism proving to be higher than if Arthur Schopenhauer were trying to sell a mansion in Detroit at full price.

Alternatively, some made up organization called the National Association for Business Economics (and Money McBags would love to see the charts and graphs they pull out of their asses) said hiring picked up in the economy with 31% of businesses increasing payrolls while only 14% decreased payrolls.  What they negelcted to say is that of the 82 businesses which they survey, 31% are in the reposession business and 55% are fictitious.   

Internationally, Moody's cut their ratings on Ireland from a little drunk to fucking sloshed as a result of a weakening banking system, increasing deficits, and way to much puke still littering the streets from St. Patrick's day.  The downgrade was a full notch lower to Aa2 which as always means absolutely nothing to Money McBags since he knows Moody's is more fraudulent than a Lou Pearlmen business venture or Jamie Lee Curtis's vagina and he has no idea what the difference is between Aa2, Aa1, and Baa other than that two of them are ridiculous and one of them is the noise Roseanne Barr makes when taking it from behind.


Now look, Money McBags is no Donnie Deutsch (and not just because he has no idea who Donny Deutsch actually is, but also because he's not completely full of shit), but it doesn't take a marketing guru to understand that if you are selling something, those buying it should assume it works and also understand what the fuck it is they are buying.  Since Moody's obviously has failed step 1, they can at least have their ratings be understandable.  Thus if Money McBags were in charge of Moody's, the first thing he would do is fire everyone, the second thing he would do is hire Ines Sainz as his personal assistant (actually, he would do that first and fire everyone second, but whatever), and the third thing he would do is get rid of the stupid rating system and only have three categories companies could fall in to:  No Problems, Shit is getting a bit scary, and Stay the Fuck Away.

And it's not just Ireland in the international news today, but Hungary is starving for attention as the government refused further austerity measures which caused the IMF and the EU to get their panties all in a bunch (which wouldn't be a problem if the IMF were Sofia Vergara and the EU were Jessica Biel).  The government's stance has apparently called off offers of further aid for the country from the EU/IMF which has led to yields on Hungarian bonds to shoot up like Chris Farley after reading a review of Beverly Hills Ninja.

In stock news, after being swallowed by Nokia and spit out as a JV, Siemens* is sticking to a deal to purchase a Motorola unit that makes telecommunications equipment.  The company hopes that upgrading their equipment will help the company grow and thus lead to a stronger, and perhaps better aimed and placed, Siemens' strategy.  Also, Apple continues to fall despite saying they will give iPhone 4 users a free case to correct the call dropping problem that happens when holding the phone with a bare hand (also known as phonetile dysfunction).  In order to plug the gap in the antenna, the case comes with plenty of lube and a lifetime supply of viagra.

In small cap news, JOEZ sold off again today and remains either cheap or expensive depending on if you think management can go against previous performance and figure out how to turn growing revenue in to something called profits.  One company that Money McBags would like to highlight is IBKR which has earnings later this week.  Money McBags has talked about IBKR a few times on this blog (just throw it into the search function) and has consistently brought up the statement from their CEO, who owns 80% of the stock, that the company has $2 of annual earnings power, which it earned in 2008.

The problem is that this company has been more of a value trap than Alyssa Milano's crotch and it has done nothing but go down since it went public in 2007.  The company has two basic businesses, they are a market maker for listed options and they have an online brokerage.  In the market making business, they take no counter party risk and in times of volatility also take no profits as when volatility is low, the bid/ask spread gets compressed with competition increasing.  This kills margins in that business worse than cheating on your cancer stricken wife, having a baby with the person you are cheating with, and then claiming the baby is not yours, kills a political career.  Margins in the market making business dropped to 7% last Q thanks to actual volatility coming in lower than implied volatility which hurts them since they are long volatility like Lexington Steele is long dongability.  So net income in the segment dropped from $118MM to $5MM which is a bigger drop than Mel Gibson's popularity after a few late night booty calls to his wife.

IBKR's other business is an online brokerage unit for daytraders that has had strong growth.  The business continues to grow accounts by 25%+ and grew net income from $45MM to $65MM last Q.  That said, no one really gives a fuck about this business yet because it doesn't drive the business.

Anyway, the reason Money McBags thinks this is an interesting company right now is that volatilty in the last Q has been spiking like KaKa's popularity in Brazil, and last year when volatility was this high, the company earned $.30 per share.  Check out the chart of the VIX below which Money McBags is using as a volatility proxy:

So look, Money McBags has no idea how to forecast this Q for IBKR since their quarters are lumpier than Dolly Parton lying on her back but the business is set up to perform well in volatile times and their earnings in theory should smooth out over the long run (which as Money McBags said in an earlier post, may be eons).

That said, they have proved that they can earn $2 per share and if they can achieve that again, they are trading at 8.5x that which is hella fucking cheap for their growth.  Plus, since the economy is teetering on the brink of shitting its pants for the second time, volatility should only increase in the long run and thus IBKR should start to grow their earnings power.  Anyway, if ever IBKR were going to put up a good q again, this should be it, so buying a few short term call options may not be the worst idea here.  Though to be fair, Money McBags has yet to meet a value investor who has not angrily urinated on their tattered copy of Securities Analysis while cursing Benjamin Graham's margin of safety after investing in IBKR, so buyer beware.

 *Money McBags knows it was Siemens Networks and not Siemens, but sometimes we must sacrifice for the joke.

4/8/10 Midday Report: Citi execs sorry they broke the economy, wipe their tears with their outsized bonuses

Money McBags is back and the markets are selling off a bit as apparently people somehow still care about Greece going bankrupt (but then again, some people also still care about the Poincare conjecture, the etymology of Star Wars languages, and saving the whales, so whatever).  Seeing as how Greece hasn't been relevant since the Battle of Corinth or the internet rumor of a Maria Menounos side boob shot, their financial crisis shouldn't be enough to derail the market from rallying back.  What should be enough is continued unemployment as new claims for unemployment rose last week by 18k to 460k which was worse than economists' guesses of a drop to 435k.  So once again supposed experts even got the coin flip direction wrong (Money McBags told them to call tails instead of heads).  Economists are blaming the Easter holiday for some of the variation in the jobs number because the floating holiday comes at a different time each year and seeing as how no calendar existed last year and the day Easter fell on this year was a complete fucking surprise, it makes sense that data to allow economists to properly seasonally adjust for Easter would be difficult to obtain.  The Easter excuse is about as plausible as a bunny laying colored eggs, Santa Claus, or a male friendly lesbian (shout out to Chasing Amy on that one, it's too bad Kevin Smith died shortly after that movie came out, he had such promise.  And if he didn't die, how does one explain Jersey Girl or you know, the last 10 fucking years of his supposed career?).  The positive news on the jobs report is that continuing claims decreased by 131k to 4.5MM which is the lowest it has been since December of 2008 and companies like Home Depot say they are starting to hire more workers.  Money McBags is more positive on the economy than he has been in months and is looking to add to his exposures if the market consolidates here.

Internatonally, as mentioned before Greece is still taking up all of the headlines as they try to boost their resume from reality star to working actress status, and if this debt issue doesn't work, they're either going to adopt a Malawan kid or try to get Crete drunk and have octuplets.  Bonds of the country are slumping worse than sales of Alan Greenspan's new book:  Bubbles for Dummies:  How any Dummy can create one.  The premium for Greek bonds over German bonds is now 427bps, the highest it has been since the Euro was created and the great deodorant crisis of 1964.  Of course, Greece isn't going anywhere so hedge funds, asset managers, and Pete Rose can bet against them all they want, but if the country survived the release of My Big Fat Greek Wedding, it can survive anything.  In other international news, China is going to revise their currency policy where they will now let it float and perhaps appreciate as much as 2% against the dollar.  This is another small step in trying to prick the Chinese bubble but most importantly, China is trying to do this without using any MSG. Also, Europe is keeping their benchmark rate unchanged at 1% as they hope the cheap cost of capital can pull them out of recession by increasing the sales of black jeans.

In stock news, United and USAirways might be merging which is a little like if syphilis and gonorrhea had a baby and you had to spend 6 hours sitting next to that baby on an LA to NYC flight.  Of course this merger fits in with the old adage, two wrongs don't make right (though two Wrights make an airplane, three rights make a left, and I believe four rites make a Scientologist) as two crappy airlines don't make a good one.  Also, Citi's failed management team has been testifying before congress where they have promised to tell the truth about how they were more incompetent than Gabirelle Sidibe's dietician or John Edwards penis.  Charles Prince opened with:  “Let me start by saying I’m sorry,”  which was succinct, to the point, and no doubt a great solace to all of the people who lost money due to his criminal risk controls.  He then expanded on that by saying:  “I’m sorry the financial crisis has had such a devastating impact for our country. I’m sorry about the millions of people, average Americans, who lost their homes. And I’m sorry that our management team, starting with me, like so many others could not see the unprecedented market collapse that lay before us.”   Well thanks for that Chuck, really.  I am sure every average American will sleep better on their worn out mattresses knowing that you feel badly that you missed the biggest financial crises in the last 80 years even though you were in the fucking center of it.  Either you are blinder than Mr. fucking MaGoo after downing a bottle of Wild Turkey or you were just a greedy fuckwad, so let's just be up front about everything.  You didn't "not see the unprecedented market collapse" you didn't bother looking for it, which is you know, something on which someone running a bank is supposed to focus, it's called risk fucking management, jeesh.  So while you were out getting your teeth whitened for the 38th time, your company wrote, traded, and packaged enough bad loans to help sink the global economy, but Money McBags is glad you are so sorry that you have now permanently relocated to your multi-million dollar Florida mansion where you no doubt sadly eat caviar off of hookers' ass cheeks all day (and just a head's up, that stuff in the crack may not be beluga).  But hey, thanks for being sorry dickbag.

In small stock news, JOEZ has been rocketing up into their quarterly results release after hours tonight.  Money McBags broke the stock down after their last earnings call and will do so again tomorrow, but in the meantime the stock has become more fashionable than Giselle Bundchen in a pair of their jeans.  Money McBags does not get $150 jeans as he understands fads as well as prisoners understand game theory or Tiger Woods understands texting (hey, Tiger, your messages don't just disappear into thin fucking air.  A blind person leaves fewer tracks when walking through the mud than you did while cheating on your wife, but kudos to you for being more clueless than a colorblind synthesthesiac).  Money McBags will start breaking more stocks down again next week as he is evaluating a number of names.  KITD remains his top pick as they have more potential than a slightly overweight 18 year old girl with low self-esteem and no gag reflex.  What is interesting about KITD is that their smaller competitor, Brightcove, just raised another $12MM in their 4th round of financing.  Brightcove is barely breaking even (so is KITD, though this year KITD should earn at least $.55 and likely closer to $1) but this round of financing should allow them a nice private plane with all of the accoutrements for their likely upcoming IPO road show.  Money McBags is creaming at the possibility of Brightcove going public and thus giving analysts/the market/Pauly Shore a public comp for KITD to show how undervalued KITD remains.  So keep your eyes on Brightcove (while Money McBags will try to keep his eyes on Michelle Lombardo's not so bright cove) for any news to help with valuation.

6/4/10 Midafternoon Report: Jobs report challenges Marmaduke movie for biggest bomb released on Friday

The (No) Labor Department's jobs report came out today and was well below analyst guesses which sent the market tumbling like Tony Hayward's Q score at a Greenpeace convention.  The US added 431k jobs in May which was the biggest increase in a single month in over a decade since the internet was founded and needed people to set up all of the tubes.  While on the surface that number seems spanktastic (though not nearly as spanktastic as Rosie Huntington-Whiteley who Money McBags would let hunt his whitey anytime), the market was surprisingly not fooled by it.  First of all, analysts had guessed 500k jobs would be created so the actual number came up shorter than a Kristen Bell skirt or Bernie Madoff's alibi.  But what makes matter worse is if one digs in to the numbers it is doubtful any real jobs were created despite the government claiming that a whopping 41k private sector jobs were created, and honestly, bragging about 41k private sector jobs being created is like bragging that you won the spelling bee on the short bus.  But let's look at the numbers more closely.

Of the 431k jobs created, 411k were temporary census workers and 31k were temporary service workers.  So already were at a net -11k permanent job creation number unless the government decides to turn the US into Oceania and thus take a new census every month thereby making those temporary jobs permanent.  Now the Labor Department said the government cut 20k permanent jobs so the 411k census jobs added led to a net 391k new government jobs.  So since the top line number was 431K, they solve for x in 431k - x = 391k and get "you're fucked," I mean ~40k for private sector job growth.  But here's the thing, as we said above, 31k of those ~40k were temporary fucking jobs so even using the government's hunky dory jobs created numbers, there were only ~10k PERMANENT private jobs added to the economy or 10k total permanent jobs lost including the government figures.  That number is more piss awful than having to listen to Lynyrd Skynyrd put to music any of George Will's essays about baseball.  But wait, it gets even fucking worse, like being married for 21 years, or being for 21 years and then finding out your spouse was gay the whole time, and yes I mean you Fran Drescher (though to be fair, having to hear Fran Drescher every morning might turn Money McBags gay as well).  You see the BLS uses something they call a birth death-model to estimate the lag between the creation of new businesses and the close of businesses that their survey misses in the short term.  They don't release the methodology so it is the biggest black box Money McBags has seen since Vanessa Del Rio graced the screen in the 1980s.  For May, the BLS' birth death model showed an increase of 215k jobs, which again is an estimate likely based on population levels, claims for unemployment, and shoving one's thumb far up one's own ass.  So based on our previous numbers where we showed 10k permanent private sector jobs were created and 10k overall permanent jobs were lost, we can now deduct a number somewhere between 0 and 215k from that (and Money McBags believes the number is closer to 215k since the birth-death model is likely more fictitious than strippers who dance just to put themselves through college) to get the real job DESTRUCTION number which was likely more negative than a disgruntled anion.  So we've got that going for us.

Other tidbits from the jobs report show that 6.8MM people have been out of work for more than 6 months, the average length of unemployment is now 34 weeks which is the longest period since the government started keeping track in 1948, and Chewbacca was a wookie.  Some may spin the drop in the unemployment rate from 9.9% to 9.7% as positive but that was more likely caused by people leaving the workforce as the Labor Force Participation Rate, which oddly enough measures the labor force participation of working age adults, decreased to 65.0% from 65.2%.  So no matter how the government spins the jobs number, it sucked harder than a young lady trying to fellate Whitezilla all by herself.

In international news, everything was down as the Euro broke through the critical $1.20 mark on its way to extinction.  Traders now see $1.18 as the next short term technical downside target for the Euro until it falls below that.  The latest fears coming out of Europe revolve around Hungary which is apparently starving for funding.  The newly elected vice president of Hungary, Lajos Kosa, channeled his inner Joe Biden late yesterday by saying that Hungary is in a Greece-like sovereign credit crisis.  In response Prime Minister Viktor Orban didn't deny the issues but did call Kosa a dicknut for speaking out of turn and promised to punish him by uninviting him to the new administration's meet and greet with Zita Gorog.  The new government is now in the process of determining the real state of the budget, and will report this weekend on whether they are fucked or just lovingly violated.  The fear of Hungary defaulting is causing a spike in european CDS and has caused the price of European default insurance to rise to it's highest price since Jean-Paul Marat forgot to lock his bathroom door.

In stock news, everything is down as the government can't even properly manipulate the economy anymore.  MCD is showing weakness because they annonced they will have to recall 12MM Shrek drinking glasses that contain the toxic metal cadmium.  The irony in this is that the cadmium glasses are still less toxic and better for you than the nine piece Chicken McNuggets.  And WMT had their annual shareholders meeting today where they announced a five year plan to add 500k jobs, insitute a $15B stock buyback plan, and continue to make the world a worse place.

In small cap news, WGO took it in the winnebago again today since the stock remains more overvalued than multi-family dwellings in Detroit before the subprime crash.  Money McBags has been through this before but the company is not going to make money this year and is trading at a valuation that makes less sense than the rules of cricket.  This is a best a $7.50 stock and on high volatility days it will get pitched around like the SS Minnow because valuation is based solely on hope and hope doesn't put food on the table (though Hope Dworaczyk could put her melons on Money McBags' table any day).  The fact is, every small cap closed down except for somehow CTGX, JOEZ, TZA, and TWM (and that last two are funny because they are leveraged small cap short ETFs) because no one wants to hold illiquid little shit when the economy is still struggling, Europe is going to 0, and we now have to give a fuck about some do-shit country called Hungary who dropped a steaming pile of ghoulash on the markets today.

Oh well, at least try to have a good weekend.

7/15/10 Midevening Report: Senate approves financial reform only 5 years too late, next up, what to do about all of those indians

The Senate passed a sweeping financial reform bill today, though the only thing it is likely to sweep is more problems under the rug.  After many compromises between Democrats and Republicans, the bill basically lets regulators feel the financial sector up but then caucusblocks them from going all the way.  Sure there are now limits on how much banks can invest in hedge funds and sure some prop trading desks will be sold, but all this bill really did was create a fuckload more complexity in regulating the financial sector and The Street thrives on complexity since they make money by basically exploiting loopholes.  So the bill gives the Fed more strength (and really, haven't they earned it?) to create a bunch of redundant regulatory groups and gives them power to do a bunch of shit that they will only do after the fact because pro-active regulation is more of an oxymoron than deafening silence or David Hasselhoff's talents.  Money McBags gives the financial reform 3 yawns out of 4 as it's like thinking about putting a band aid on a gaping bullet wound.

In macro news, new claims for unemployment were the lowest they have been in 2 years, until the (No) Labor Department revises them upward next week.  Claims dropped by 29k to 429k after they were once again manipulated upward from last week's 454k number to 458k.  The large drop in claims is being attributed both to temporary layoffs at factories being postponed as companies like GM announced they will keep their plants open for most of the season, and just making up numbers.  One reason the drop didn't move the market up is that the (No) Labor Department concentrates on seasonally adjusted numbers and their seasonal adjustment is likely as good as Sheyla Hershey's boob job so therefore if we look at unseasonallly adjusted numbers, we see that they rose by 45k to 513k, the highest number since January.  Also, continuing claims jumped up by 247k to 4.68MM which is as healthy for the economy as smoking a cigarrette spiked with asbestos and Charlie Sheen's taint hair.  Either way, Money McBags is sure that the 429k number will be revised upwards to something like 437k next week so it's hard to get excited about a big drop that is really due to a timing issue and will be changed anyway.  And just to show that Money McBags is here for you in analyzing the numbers, remember that last week after claims were announced at 454k, Money McBags predicted that:

"The big macro news is that new claims for unemployment dropped to 454k or some number higher than that depending on how much the (No) Labor Department manipulates/readjusts numbers next week.  Money McBags is not a betting man (unless there is money to be won or young ladies to impress) but he is willing to wager that next week we learn that new claims for this week should have actually been 459k."

And sure enough they were manipulated up to 458k so either Secretary of Labor Hilda Solis (though to be honest, Money McBags thought we did away with the word "secretary" and were now calling them "administrative assistants," but whatever) is using WGP to set her numbers or Money McBags' forecasting method which involves sticking his finger in the air while figuratively pulling a number out of Sofia Vergara's voluptuous ass is not just more delightful than the bullshit models used by the (No) Labor Department but also hella more accurate.  See, anyone can make up numbers.

In other macro news, the NY Fed's Empire State Manufacturing index dropped like George Steinbrenner on Tuesday (too soon?).  The index came in at 5.1, only slightly below the 18 economists had guessed, and while Money McBags has no idea what the difference between 5.1 and 18 is (other than 12.9), he's pretty sure something less than 1/3 of predictions isn't good in the same way that being the only female smurf or hiring MC Esher to design your staircase isn't good.  Not only did manufacturing in New York decline, but it did in Philly as well where the Philly Fed's manufacturing index also fell to 5.1 which was below guesses of 10, though the 5 point miss was said to simply be stolen like everything else manufactured in Philly.  While Money McBags finds it odd that two Fed manufacturing surveys would each register 5.1 in the same month (something about as likely as Paul Krugman winning a nobel prize), he does not find it surprising that manufacturing was starting to slip because we're in something called a GLOBAL FUCKING RECESSION.

On a slightly more positive note, the Fed said industrial production creeped up .1% in June thanks to mining and utilities, on an even more positive note, Brooklyn Decker.  Finally, producer prices fell again, this time by .5%, led by a steep 2.2% decline in food prices which were driven by an earlier weather-related jump in the price of tomatoes and an even earlier economy related dive in people's incomes.

Internationally, China's growth slowed in the Q to 10.3% from 11.9% in last year's Q1 while industrial production rose 13.7% which would be great if it weren't lower than what 26 out of 27 analysts on Bloomberg had guessed.  Of course on WGP, Money McBags has shown both that analysts have no ability to forecast numbers and the numbers themselves as mostly fictitious like supply side economics, big foot, and Lauren Conrad's career, so ho fucking hum again.  While China's growth was basically inline, it left investors hungry for more just twenty minutes later and thus asian markets were down.

In the market, JP Morgan beat estimates in their quarterly game of numbers roulette.  Net income was up 76% to $4.8B despite an 8% decline in revenue thanks to a $1.5B reserve release which was the biggest release in NY since Stephon Marbury.  That said, while the reserve release is a bit puzzling since the economy is nudging south like a wannabe hollywood actress on her first casting couch, JPM's credit card division turned profitable for the first time in several quarters and overall the company beat guesses by ~$.03 after stripping out one-timers.  The biggest surprise though was WGP favorite Dick "Don't call me Richard" Bove who never saw a financial stock he couldn't misunderstand or artificially pump up, lowered his rating of JPM claiming revenue was weak and earnings were more manipulated than new claims for unemployment numbers or Tiger Woods' image.  In other large cap news, the market braces for GOOG's earnings release and Money McBags is long the stock but he bets it will drop 8% regardless of whether they beat or not because high frequency traders hate growing companies with solid earnings and instead have calibrated their algorithms to find companies that are correlated to the phases of the moon and since HFTs control 50% of the market volume, they win most of the time.

In small cap news, JOEZ is set to report tonight and they will likely show more revenue growth, and yet declining earnings as their cost of operations and tax rate have them more set to fail than Amy Winehouse in a "girls I'd like to bone contest."  Also, Money McBags favorite KITD had their buy rating reitirated by Janney Capital today.  Janney maintained their $13 price target which is only ~50% too low, but remember, analysts are paid to just publish and not to be right or stick their necks out for anything.  As Money McBags isn't getting paid for his research and has no constituency to please other than his own trading account and the lovely Teresa Palmer, he is not afraid to make big calls and unless KITD's management is completely and utterly full of shit (10% chance but moving up proportionally with their growing A/R), this company is more undervalued than sharing a chilli dog with Natalie Portman.