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changed, people are all connected, and whatever correlations you saw in the past are now likely more spurious and outdated than civility, manners, and landing strips.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.

6/7/10 Midafternoon Report: Hold on to your shorts as market continues on wild ride down

The market was chugging along today, taking a brief respite to lick its wounds after Friday's jobs report gave even the most virulent Bull a bad case of Foot in the Mouth disease, until it dropped precipitously in the last half hour like Helen Thomas' reputation at a B'nai B'rith fundraiser.   With Europe's ongoing debt problems and the US' stagnant at best job growth, investing long in the market remains more perilous than fighting a land war in Russia in the deepest of winters (though not as deep as Money McBags would go in Ophelie Winter) or challenging Anamika Veeramani to a spelling bee (or just challening Anamika Veeramani to spell her name).  The US news that had the most effect on the markets early today was that Goldman Sachs was issued a subpoena from the FCIC, also known as the "too little, too late" commission.  Money McBags eagerly awaits the FCIC's findings in several years, after no doubt much excrutiatingly toilsome research and much tax payer money has been spent, where they will 100% determine that we are fucked (of course we could save the time and money and just look for the reset button, but that would be too easy).  Seriously, that we need a 10 member commisson to figure this out makes as much sense as firing an employee because she is too hot (reason #989 why C is going to $0.  And as an aside, if Money McBags owned a bank, he would hire Ms. Lorenzana to manage his branch deposits anyday).  Anyway, the subpeona was issued as Goldman refused to submit documents the commission requested and when reached for comment, a Goldman spokesman said they just wanted to see if FCIC Commissioner Heather H. Murren would deliver the subpoena in person.  All along, Goldman Sachs has maintained that the suit is “unfounded in law and fact” and if one can't believe what a company that has manipulated the market while bringing in absorbitant profits and destroying value for average citizens thanks to their buddy-buddy taint tickling relationship with the federal government says, then whom can one trust?  As Money McBags has maintained all along, Goldman and every other Wall Street bank were complicit in the destruction of the US financial system and it would be easier to find incriminating evidence on them than it is to find rolls of back fat on a topless, sunbathing Kathy Bates, you just need to find someone with the stomach to do that dirty job.  So it's good that the FCIC is trying to grow a sac and go after them, but until they actually make some charges, this is all still lip service (though if the lip service is coming from the aforementioned Heather Murren, perhaps it's not all that bad).

Internationally, German factory orders apparently grew faster than the cells of Henrietta Lacks as they surged due to the weaker Euro, increased private sector investment, and the uptick in demand for industrial strength floor buffers to help clean up the sets of Germany's growing scat film industry.  Orders were up 2.9% in April from the 5% they were up in March which for the first time ever makes Germany Europe's shining example.  Also, Hungary is still in the news as investors continue to try to find it on a map and wonder if to solve their financial crisis they should just gobble up Turkey.  Hungary's financial crisis is the biggest turd to hit the country since the famous Diet of Turda in 1558 which established the freedom to practice Catholicism, Lutheranism, or by the name, apparently coprophagia.  Finally, fears are starting up again that China is increasing prices which will cause world wide inflation as they raise the minimum wage by 20%, though it will still leave workers wanting more half an hour after they receive their paychecks.  However, if China unpegs their difficult to spell renminbi from the dollar and allows their currency to appreciate while the their own product prices increase, foreign exports could become more competitve than Alan Greenspan at a bubble blowing contest.

In stock news, BP is showing their first signs of progress in stopping the oil leak which is destroying the Gulf and causing the slogan "drill baby drill" to be returned to Peter North where it rightfully belongs.  At this rate, the oil leak will be stopped and cleaned up somewhere around the time Paris Hilton finds some dignity.  Also, Money McBags favorite Dick "don't call me Richard, or Rich, or Rick, or Rightaboutanything" Bove (and again, Bove rhymes with "Oy vey") lowered his price target on BAC yet maintained his buy rating, mimicking his brilliant market call of Lehman right before they collpased.  Bove cited increased regulation, foreign exposure, and his lack of understanding of the financial markets for the price target cut.  Finally, BMY shares are taking off today as they announced that their experimental drug for skin cancer was found to extend the lives of patients with incurable melanoma by 4 months.  Patients were ecstatic, until they were told that four months that were being extended were Winter.

In small cap news today ISLE is falling back to where it was pre-earnings and after earnings Money McBags said the jump up was likely a quick short squeeze as the stock wasn't cheap and the company is debt-ridden, and features bleaker properties than the Detroit version of Monopoly.  Not only is ISLE falling but WGO is finally ticking down under $11 on its way to $7.50.  The price of this stock makes less sense than the 11 dimensions of M theory or any song by the Black Eyed Peas.  And look out tomorrow for MLNK earnings.  Money McBags has written about this company many times as it is cheaper than a kissing booth being manned by Gabourey Sidibe after she downed a gallon of extra spicy garlic fries and 2 liter of Dr. Pepper.  It is trading at 3x a run rate EV/EBITDA with 50% of their market cap in cash.  They key to tomorrow's release will be their cash flow statement to see if they were able to avoid burning cash as their business will likely have another sluggish quarter (according to them, though Money McBags doesn't quite understand why, since their biggest customer HP had a good Q,  but perhaps tomorrow they'll make it more clear).  So look for the release because when the markets get better (which is sometime between 2015 and the next Galactic Empire), this stock should have some nice upside with its current limited downside (again, barring a huge cash burn this quarter).

4/16/10 Midafternoon Report: Goldman Craps

Oh no they didn't.  The SEC apparently found their shriveled ballsac hidden in Meaghan Cheung's now empty desk and hired Faye Reagan to skillfully tickle it back to life which has led the re-testosteroned agency to go after the biggest turd in the punchbowl, Goldman fucking Sachs.  Holy shit is it on.  The government hasn't gone after one of their own like this since Bill Clinton misplaced a cigar in the Oval Office (and yes, Money McBags considers GS one of the government's own since they are more intertwined than chocolate and vanilla in a marble cake or Wilford Brimley and Betty White sharing an electric blanket).  The SEC is claiming that Goldman Sachs defrauded investors by misleading them about the subprime mortgages they were packaging and selling as part of CDOs.  The government's case centers around the fact that Goldman is full of shit, and less importantly, around the fact that Goldman let John A. Paulson (no relation to former GS CEO and US Treasury Secretary Hank Paulson, and also no relation to other famous frauds such as Bernie Madoff) pick and choose which mortgages were going in to those CDOs despite the fact that Goldman knew Paulson was betting against those securities.  To be more precise, the issue centers around a subprime CDO called Abacus, whose name apparently signifies the sophisticaiton of investors who bought this fraud because they apparently were using an ancient roman abacus to calculate the likely value of the CDO after losses as we all know roman numerals and hence roman abacuses, don't contain a zero.  It is the classic case of heads I win, tales you lose, now go get me a fucking vodka tonic and hold the fucking lemon.  GS led investors to believe that an independent third party picked the subprime mortgages for their CDOs which was such a boldfaced lie that Money McBags is now going to rename them Boldman Sachs, or BS for short.  The suit by the SEC also names Boldman trader "Fabulous" Fabrice Tourre with helping perpetuate this fraud which now vaults him past Milli Vanilli's Fabrice Morvan as the most famous fraudster named Fabrice.  One only wonders if Mr. Touree will also blame it on the rain. 

In their defense, Goldman referred to the SEC accusations as “completely unfounded in law and fact” unless you are "talking about securities law and irrefutable details."  The firm did say they will “vigorously contest" the charges "and defend the firm and its reputation.”   When reporters reminded them that after the financial crisis and their ties to Washington, their reputation might have already been blown, the Goldman lawyers simply responded with "That's what she said."

Taking Boldman out of the equation today, which is a bit like taking Modigliani out of the Modigliani-Miller thereom, jelly out of a PB&J, or facials out of porn, US macro data was positive.  Housing starts beat forecasts and rose to their highest level since November of 2008 when everyone was putting up new cardboard boxes.  New home starts rose 1.6% to a seasonally adjusted annual rate of 626,000 units and economists were guessing that they would come in at only 610k.  Even more interesting is that February’s housing starts were revised up from a 5.9% drop to a 1.1% increase which is a bigger revision than Texas school text books are going through in the school board's attempt to reverse natural selection.

In earnings news, Bank of America became profitable once again thanks to their trading portfolio.  BAC earned $.28 a share which easily beat analyst guesses of $.10 but like JPM, earnings were driven by investment banking and trading profits as profit from the investment bank was $3.2B while overall net income was also $3.2B.  So if one does the math, the consumer is still a little bit dicey while paper gains are leading to positive returns.  It seems like we have seen this somewhere else before, but Money McBags can't exactly remember where.  Oh yeah, the last 15 fucking years of the financial sector.  But don't worry, nothing to see here, these guys have it all under control this time around.  Afterall, 30 day delinquent credit cards fell from 7.23% to 7.07% and the bank wrote off only 12.5% of their card portfolio as uncollectible, so phew.  Money McBags was a bit worried that they wouldn't be able to create enough phony revenue through trading gains to be positive, but as long as credit card delinquencies are only 7.07%, then everything is hunky fucking dory.

In other stock news, GE beat forecasts by besting analyst guesses of $.16 per share and earning $.21.  CEO Jeffrey Immelt said "We saw encouraging economic signs, including increases in airline passenger miles and freight loadings, declines in receivables delinquencies, and growth in local advertising markets.”  He then said, and "even if we hadn't seen markets pick up, we spent an inordinate amount of time relearning how Jack Welch "managed" earnings for so long and will be implementing that system once again."  That said, it wasn't all lobster tails and BJs in Jeffrey Immelt's exectuive suite as GE Capital's earning dropped 41% as they couldn't manipulate paper trades to hide their consumer lending portfolio like the recently profitable banks.

Finally, GOOG reported and is down 6% despite growing earnings by 38% with a 23% increse in revenues.  Even though they beat analyst estimates, GOOG apparently missed the whisper number for earnings of $7 and to be honest, the only whisper Money McBags wants to hear is from Lucy Pinder and includes the words "no" and "gag reflex."  GOOG's call was also notable because CEO Eric Schmidt did not take part in it which caused investors to worry that he may be leaving the company because apparently dominating the world has become less appealing.  Money McBags is looking at this as a buy opportunity and if Goog drops into the $530s, he will be adding to his position.

In small cap news, everything is down except CRTX has strangely continued to rally.  Money McBags mentioned this the other day and the stock has maintained it's perky-ness.  If you can believe management, the stock is probably 30%+ too cheap, but they have exectued poorly and had to buy growth at high prices in order to stave off the decline of their main drugs.  The company reamins cheap if you believe them, but Money McBags is gong to keep sitting this one out as it feels more like a lottery ticket than an investment.  That said, if you have some money about which you don't care and don't live close enough to a Rick's Cabaret, doing some work on CRTX and dipping a toe in might not be a horrible idea.  They are trading at around 1.5x revenue and are just starting to get the sales team ramped up on the acquired drugs so there could be some decent growth in their portfolio.

Until next week, enjoy your days off.

1/20/10 Midday Report: China flexes pimp hand and vows to curb lending, businesses cower in the corner and promise to work harder for daddy

The big news bringing the market down today is that China is beginning to realize they may have a bit of a bubble on their hands as they opened up their fortune cookie last night and saw their fortune was written on the back of a yuan (as for the fortune, it said "man who puts balls in peanut butter is fucking nuts").  As a result, China will reel in their profligate lending.  The chairman of the China Banking Regulatory Commission said that he expects banks in China to decrease their loans by 22% in 2010.  So in the year of the golden tiger (and also the year of Tiger Wang), businesses may not receive the showers of money they saw in 2009 (now aptly renamed from the year of the Ox, to the year of the golden shower).  It is good that China is realizing that they need to reign in their stimulus sooner rather than later, but this news of course is putting fear in to investors who worry about the short term recovery from the global recession.

In US macro news, US wholesale prices showed virtually no inflation as energy price declines offset increases in food prices.  This is bad news for fat people but good news for the Tin Man.

In stock news, BAC and WFC reported earnings, well to be more precise, WFC reported earnings and BAC reported losses.  BAC underperformed analyst expectations by posting a loss of $.60 per share vs. estimates of a $.52 loss per share.  They blamed the $.08 miss on analysts being really bad at math.  Without the TARP repayment and dividends paid on preferred stock, the Q4 loss would have only been $194MM, and in related news, if I didn't have a dick, I'd be a chick, so unfortunately the details matter (and if I were a chick, I would be totally gay for Aubrey O'Day).  BAC also raised their provision for credit losses to $10.1B in Q4, from $8.5B a year earlier because of some little thing I believe they referred to as "people not wanting to fucking pay shit back."  They also had total write-downs for the year of $33.7B, more than double the $16.2B in 2008, so at least we finally know the price of dignity.

The point is, BAC benefited from the investment banking gains of Merrill Lynch while they still took it in the yingus from their consumer portfolio.  They suffered a loss of $4.9B on their consumer credit card business, compared with a $3.3 billion loss a year earlier.  So guess what market, things aren't getting much better.  People still love charging off like Martha Coakley loves being bad at politics (and I need to digress for a second here.  Money McBags does not get involved in politics.  He does not care one iota what the fuck happens in this world as long there is world peace, no capital gains tax, and free blumpkins for all.  And to be honest, he'd be happy with just one of those three, unless that one was world peace, and then he'd need at least one of the other two.  The point is, Money McBags is completely apolitical, for all he cares, a gay person could marry an abortion while smoking a joint through the barrel of a shotgun in the middle of the oval office while spraying chlorofluorocarbons all over a bald eagle, so the fact that he has an opinion on this senate race is unusual.  But this must be said.  For a democrat to lose Ted fucking Kennedy's senate seat in Massachusetts after having a 30 point lead in the polls and without having killed someone, been arrested for fraud, or openly rooted for the Yankees and claimed Bill Russell was a bitch, is perhaps the worst performance not just in the history of politics, but in the history of anything.  Think about it.  Ted Kennedy killed a lady and that couldn't stop him form winning election after election.  All this Coakley broad had to do was be alive, and yet somehow she fucked that up.  Sure the dude who beat her (and yes this is really him, and sorry to my straight male readers) had a secret weapon in his lovely daughter Ayla, for whom Money McBags would cure cancer (though not one of those hard cancers like nut cancer, something much easier, like cancer of the mouth, also known as Kathy Griffin), but Coakley's loss is so colossal it should be part of the lexicon.  So here we go, BAC did not lose $.60 per share this Q, they Coakleyed $.60 per share.  Diatribe over).

Most interesting was the verbiage from BAC's CEO who said "economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.”    Which seemed at odds with WFC's CEO's statement that:  “While losses remained elevated during the quarter as expected, a more favorable economic outlook and improved credit statistics in several portfolios further increase our confidence that our credit cycle is turning, provided economic conditions do not deteriorate.”  Of course, WFC managed to turn an $.08 profit compared with a ginormous loss last year, so things are looking a bit rosier for them, except if you look at their charge-off numbers which were up sequentially $300MM to$5.4B driven by commercial and consumer real estate.

So are all banks created equal or will performance differences really start to show now that the economy has sort of recovered?  More importantly, has the economy actually recovered?  Here are four interesting stats from this NYTimes article (as always, buyer beware with facts and the NYTimes):


1. Bank of America said the percentage of credit card loans it thinks will never be paid hit 13.53 percent in December. JPMorgan Chase expects to charge off 10.5 percent of its credit card portfolios in the first half of 2010.

2.  Fourth quarter of 2009, the number of domestic credit card accounts has declined by 20 percent from its peak in the second quarter of 2008, to 341 million from 426 million

3.  the amount of available credit on cards has declined by 21 percent since its peak, from $3.51 trillion in the third quarter of 2008 to $2.77 trillion in the fourth quarter of 2009, the data shows

4.  Hayley Atwell is still really hot, and Money McBags will drive this bandwagon into the ground until playboy drops by the Atwell residence.

So available credit is shrinking for the US consumer.  What would be interesting to know is how utilization rates have changed and whether anything can be gleaned from this other than people got rid of their 3rd and 4th credit cards which they rarely used anyway and unemployment is still high (no word on how it can afford to keep getting high though).

In small cap news, KITD, a company Money McBags is following closely announced they will be issuing shares in both the US and Prague (where they will soon be listed).  They are seemingly raising capital for more acquisitions where they buy companies for their customers, fire all the employees, and enjoy the benefits of leverage.  KITD is basically a large database of videos for internet/IP delivery.  They get raw video from customers and then help clients manage, view, distribute, manipulate, and store that data.  They have a greater than 99% customer renewal rate because once a customer gives them their data, it is a huge pain in the ass for that customer to get all of the data back and have to reformat it, etc. (it is more of a pain in the ass than Valentine's day).  KITD's market is growing 100% a year as IP takes off, they have little competition, they also have a ton of NOLs, and 93% of their business is outside of the US.  IP video is cheaper and better than digital and it represents only 23% of the global video market so there is a lot of room to grow.  That said, the company is a bit odd as it has had headquarters in Dubai and now Prague and they are still unprofitable from an operating eps standpoint.  Also, the CEO loves himself almost as much as he loves money and looking silly at the movies and the company basically just relaunched less than a year ago when this new CEO came in and developed a new strategy.  Now the good news is that the CEO is the biggest owner and has a substantial portion of his net worth in the company, the bad news is that the CEO has led failed companies before.  But he has had success recently and at least we are betting with him.  Also, despite little US exposure, they did win the business of Verizon Fios which is the only IPTV telco user in the US.  The company has little sell side coverage but recently announced fiscal 2010 guidance for revenue to increase at least 60% to more than $75 million, with an annual operating EBITDA margin exceeding 17.5%.  Ok, so EBITDA will be somewhere around $13MM and their market cap $120MM is with $13MM of net cash as of their last 10Q, so they are trading at around 8x EV/EBITDA before their just announced capital raise and at around 1.5x revenues when companies like this who use the software as a service model tend to trade at between 2x and 6x revenues.  These are relatively cheap multiples for a growing company with a high recurring revenue base which contains many blue chip customers.  Money McBags does not yet own KITD because he is still trying to fully understand the company's competitive advantage, but he is thinking about buying a starter position and will throw down the gauntlet to his loyal readers to do some of their own research here and see if they come up with anything else important.

Oh yeah, a Money McBags longtime reader e-mailed him about a Korean-American bank HAFC which is apparently now trading at around .5x of TBV (even with today's big run-up) and promises to love you long time.  Money McBags knows nothing about HAFC and how real their TBV really is but if it is even 80% correct then there is room to grow here.  So you should all do some due diligence.

12/03/09 Midday Report: BAC does not need your stinking funds (well at least not until next time)

The market is abuzz today with BAC's repayment of $45B to Uncle Sam who apparently got drunk and touched BAC in their loan loss reserves just one too many times.  So to break the cycle, BAC is going to pay back their bail out funds through the profits they made by being able to borrow from said Uncle Sam at 0% and lend for more than 0% and then have Uncle Sam bail them out should those more than 0% loans go bad.  Honestly, that is the best business model ever created, even better than the Brooklyn Decker kissing and rim job booth.

But it gets better.  BAC is going to repay some of their bailout funds by issuing $18B of securities which should be great for the current shareholders since issuing securities isn't dilutive or anything, right?  Why else would BAC have opened up 6%?  Oh wait, issuing equity will lead to substantial dilution on the order of 10% to 15% (according to street analysts who may be right or wrong depends on the coin flip).   So this all makes perfect sense.  All companies need to do in this market is fuck up really badly, get coddled by good old Unky Sam, and then fuck their shareholders over and over again until their balance sheet is completely flaccid.  After this, their stock should shoot up at least 6%.  Makes perfect sense, just like intelligent design (spindle cells be damned) or Tori Spelling's face.

In other market news, Comcast is buying NBC so now not only will NBC have shitty programming, but their customer service will suck too.  But hey, this deal is synergy-istic and synergies are what the business world is all about.  Just ask Time Warner and AOL or this guy.  

As for our daily job report data, the service industry saw jobs contracting but initial jobless claims fell unexpectedly.  So our economy is getting worse and it is getting better at the same time, it's like Schrodinger's cat.  Is the cat alive, is it dead, or does anyone fucking care (and who put the cat in the fucking box anyway? Do I need to sick PETA on this Schrodinger fellow?)  So depending on what data you view as most representative, we are either fucked or slightly fucked, take your pick.