7/30/10 Midevening Report: GDP goes down again, claims it likes the taste

The big macro news today was that GDP slowed to 2.4% growth in Q2, that is until it's revised down next Q to keep up with the administration's "hold the shock and hope for no awe" strategy.  This strategy was further evident in today's release as GDP from the past 3 fucking years was revised downward because apparently the Commerce Department is still figuring out how to properly use the "solver" function in Excel.  The peak to trough decline is now seen to have been a 4.1% decline instead of a 3.7% drop, which officially makes this recession the worst since the 1940s which was so long ago that Abe Vigoda had only been dead for a decade and muff guessing still referred to fashion designers trying to figure out the latest in hand warming trends.

Surprisingly though, and in direct opposition to the downward revision strategy,  last quarter's GDP was revised up to 3.7% from 2.7% which makes today's number even worse.  It also goes against every fucking rule of manipulating data since, you know, the whole point of manipulating data is to use it to your advantage but apparently the new guy at the Commerce Department must have missed the memo while he was busy figuring out how to put a cover sheet on his fucking TPS report.

So GDP was below guesses of 2.6% growth and was mostly hurt by a trade deficit growing wider than the Octomom's cervix with imports spiking up 28% which is the largest jump in 25 years since the run on french cookies in the mid 1980s, consumer spend slowing to only 1.6% growth after growing 1.9% last Q, and a renaissance of common sense.  The one bright spot Money McBags could find was Jasmine Waltz, and the one bright spot he could find in the GDP report was that the equipment and software category grew at an annual rate of 21.9% as businesses need to buy a bunch of shit to do what people used to do.  The slower GDP growth comes a day after Fed Bank of St. Louis President James Bullard published an academic paper warning of the potential for the US economy to hit a period of deflation and turn in to Japan from 20 years ago which would be bad for everyone but the bukakke industry.

GDP is now slowing down, the economy has lost 8.4MM jobs, and Christina Hendricks still has not agreed to make a late night Skinamax movie, so any hopes of a speedy, stimulus driven recovery are becoming slimmer than Amy Fisher's parents hopes and dreams. Money McBags is sure the Fed will announce something soon to try to kickstart the economy, but based on the fact that they have been in existence for 100ish years and still haven't figured shit out (largely because economics is a more full of shit field of study than proctology), he's not holding his breath (though he would gladly hold anything of Hayley Atwell's).

In other US macro news, the University of Michigan's consumer sentiment index fell to 67.8 which is the lowest level since November and 10% below the 76 number it registered last month (though to be fair, it registered such a high number last month because it had put the thermometer next to the heater in hopes of being able to stay home from school).  As always, Money McBags has no idea what the difference between a 67.8 and a 76 is other than 8.2 so while market seems mildly happy that the 67.8 came in at .8 better than analysts' guesses, Money McBags is pretty sure an 8 point drop is worse than a .8 outperformance, even if it were measured on some weird logarithmic scale.

Finally in macro news, the Chicago PMI defied all common sense, data, and laws of supply and demand and rose by more than guessed for the month of July.  The PMI jumped from 59.1 to 62.3 while economists had guessed it would fall because, well, because we're in a fucking recession.  Interestingly enough, readings above 50 signal expansion so despite GDP slowing down and consistently high rates of foreclosures and unmeployment causing the midwest to be bleaker and more run down than Warsaw in 1945 or Barbara Walter's vagina, Chicago area manufacturing continues to grow.  It is as perplexing as the 9 dimensions needed for string theory to hold or the Lifetime channel. 

Internationally, Moody's cut Iceland's rating outlook to negative, said they they could cut it to junk, and warned Iceland that they better "check themselves, before they Reykjavík themselves, because fucking with foreign currency loans is bad for yo' health."  Iceland defended themselves by properly pointing out that Moody's is a bunch of asshats and by saying they are a long way off from defaulting on any debt payments.  When asked what a "long way" was, Economy Minister Gyfli Magnusson simply replied that he'd like to buy a vowel before quickly mushing off on his dogsled.

In the market, MRK's profits fell 52% due to merger and restructuring charges associated with buying Schering-Plough and redoing the company cafeteria.  Without those one time charges the company beat analyst eps guesses by $.03 and earned $.86 on the Q but the stock dropped as the company trimmed their full year guidance due to price cuts on drugs from European governments and slowing sales of vaccines and Singulair.  A company spokesman said they would do their best to continue to promote bad and unhealthy behavior in order to boost sales of their products.

In other earnings news MET insured the fuck out of some shit and beat analyst guesses while Amgen also beat guesses despite lower revenue and profits as  both investors and osteoporosis sufferers bend over backwards with excitement over their drug Proli.  Also in the market Disney sold Miramax for $660MM to better focus on making shitty vapid films for kids to buy shittier vapider toys off of and C paid a $75MM fine for a little something called misleading investors about the amonut of subprime loans they held on their books.  C claimed they only had $13B of exposure when they had $50B but Money McBags is sure the $75MM fine will make up for the billions investors lost by believing any of the publicly audited financial statements C released.

In small cap news, TSYS sold off by 17% after their net income fell by 50% in another quarter more confusing than the ending of a Kafka novel.  Remember a couple of weeks ago Money McBags told you TSYS would make an interesting short term trade and on this past Tuesday he said:  

"TSYS was up 4% plus and remember on 7/9 Money McBags said it was too cheap and would make a nice short term trade and it's up just under 20% since then so good for you if you picked up some shares but don't get too greedy as news on the company remains thinner than OJ's alibi and it has traded down for a year for a reason."

So hopefully you didn't get too greedy and took your profits and went home because we were given more reasons for its shitacular performance this year.

That said, on the surface, the quarter wasn't horrible, as revenue was an alltime high $92MM, though pretty much flat with the first two quarters of the year and gross profit of $33MM was also up a bit sequentially.  EBITDA of $15MM was down a bit sequentially and barely up from last year when revenue was $25MM less so they are clearly having margin/expense issues with gross margin dropping from ~45% to ~36% from last year's Q.  Not really what you'd like to see out of a supposedly growing business.  Money McBags is a firm believer in not owning businesses with negative operating leverage unless they are in the start-up stage, so that is a huge red flag, especially for a company that has relied on acquisitions for much of their growth.

That said, the biggest problem seems to be that they saw their text message licensing business slow down and lead to fewer sales of pepetual licenses which was what Money McBags thought was a big growth area for this company.  People like the fuck out of texting so it was always a bit confusing why this company's revenue didn't scale faster with that and why that is now slowing down for them.

Money McBags hasn't had time to listen to their call yet as he has been busy trying to solve the Riemann hyopthesis (he thinks the answer is zero) and looking for more pictures of Sofia Vergara, but he's sure the call would have been as confusing and unilluminating as ever as this management team has overpromised and underdelivered more than an M. Night Shyamalan film.  That said, he's not sure if they are still guiding to $80MM-$85MM in EBITDA as they are only at ~$30MM half way through the year with one of their growth segments slowing and margins getting squeezed like Ines Sainz' ass in an airplane seat.

The company currently has an EV ~$280MM so it's pretty cheap if you think that they can double their EBITDA in the second half of the year but as Money McBags needs a fucking forensic accountant, a strategy consultant, the Amazing Kreskin, and a fuckload of luck to understand their press release and the different parts of their business, he's going to stay the fuck away.

Hopefully you all made a nice short term profit and perhaps their call explained a lot, as this company seems way too fucking cheap for what they claim to do.  That said, the market isn't usually this wrong when selling something off over this long of a period of time, so Money McBags will remain happily uninvested.  That said, if anyone can clearly and concisely explain their business in two sentences or fewer, Money McBags would be interested to understand.

Enjoy your weekend and don't forget, When Genius Prevailed is on Facebook and Twitter.

2/26/10 Midafternoon Report: AIG loses more in Q4 than entire GDP of Malta, warns Botswana they're up next

The market is a bit mixed today like the drug cocktail found in Brittany Murphy's stomach.  Sales of existing homes dropped for the second consecutive month, this time by 7.2% which is the second largest decline ever and is creating more of a buyers market than the internet did for newspapers.  The decline was caused by the government tax credit winding down, the high unemployment rate, and the disappearance of the barter system.  Economists actually expected existing home sales to rise so it's good to see they are once again about as good at their predictions as Stevie Wonder is at being the seeker in a game of hide and seek (or as he calls it "life").  An interesting data point is that 38% of all homes sold were distressed sales.  That is a remarkable number.  So homeowners, look to the house on your left and look to the house on your right, because on average one of those houses is being foreclosed upon and your new neighbors may be a few tax brackets below you.  In more positive macro news, business activity grew more than anticipated and its most since 2005 according to the Chicago Purchasing Managers Index, or as its now more commonly known as: "Fiction."  Unless the index was measuring coffee sold while waiting in line at the unemployment office or tickets sold for the proposed Julia Mancuso/Lindsey Vonn catfight (and Money McBags would love to ski down Julia Mancuso's hills), the data is perplexing to say the least.  Also, GDP was revised up to 5.9% growth from 5.7%  in the last Q.  However, most of that growth was a result of inventory restocking.  Looking at GDP without the change in private inventories, growth was a He Ping Ping-esque 1.9% and consumer spending was revised down from 2.0% to 1.7%.  The point of all of this is that the economy is about as healthy as Mark Sanford's marriage or Money McBags' new found love of Alice Eve so until jobs can be created, we are going to have more and more marginal to disappointing economic news.

European markets were off to a better start today as the British Statistics Office revised up their estimate of UK economic growth in the fourth quarter to 0.3% from 0.1% citing the long awaited introduction of dental floss, while Asian markets advanced after figures showed that Japanese factory output, rose by 2.5% in anticipation of Nintendo's new game console, tentatively called "Wii're Fucked."

The big stock news today is that investors are not down with AIG and their craptastic quarter.  AIG posted an $8.57B loss or to make it seem smaller, $65 per share (and remember, shares are currently trading at $25, so that is a neat fucking trick).  At least analysts were close as operating loss per share was estimated to be $3.94 and it just missed that number by coming in at whopping $53.23 a share.  So estimates were only off by a factor of 14ish or as they say in the forecasting business, a nut hair (that is if it were one of Lexington Steele's nut hairs, and not a regular Lexington Steele, but one who had grown to be 30 feet tall as a result of radiation poisoning from his last scene with Gianna Michaels).  Shareholders should have faith though as CEO Robert Benmosche said in a pre-recorded (in order to duck questions) call: "While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago...we believe we are on our way to regaining our stature as one of the world’s largest and most successful property-casualty insurance operations."  He then stated that he thinks Roman Polanksi is also on his way to regaining his stature as a successful babysitter and Bernie Madoff is on his way to regaining his stature as a first class investor.  While $6.2B of losses can be chalked up to paying back the government, the addition of $1.8B to their property-casualty reserves can be chalked up to being bad at the insurance business, whch would be fine, if insurance weren't their main fucking business.  Money McBags knows it's easy to kick someone when they are down, unless you're Oscar Pistorius (and in that case you just knee them), but AIG's situation is more convolutedly complex than the 11 dimensions needed in M-Theory or trying to figure out where the pictures come from for the still deliciously not safe for work Guesshermuff (and all my guesses remain "fantastic").  Trying to analyze AIG is a lot like taking your car to a mechanic, it's always something and you have no way to prove the guy wrong.  Money McBags is eagerly waiting AIG to come out and just blame their losses on a faulty johnson rod.  There are easier ways to make money so pay attention to AIG only for any market risk insight you may get.  In other stock news, C is replacing 3 of its directors as apparently Colombia Pictures has hired them back to shoot a remake of their long running hit Monkey Business.

In small cap news today RICK continues to show the market its tits by climbing another 3%.  CEO Eric Langan announced yesterday that he expects the VCGH deal to add $50MM of revenue by 2011 to bring RICK's revenues to $150MM.  He also said they would be consolidating brands in an attempt to streamline their image so they can better promote it through television commercials on such channels as ESPN.  Now look, Money McBags loves everything RICK is about, really he does, he loves the business, he loves the growth, and most of all he loves every coked-out part of their inventory.  That said, the idea of turning it into some Hooters-esque national chain is the worst thing they can do.  Strip clubs were not meant to be Walmarts or McDonalds and advertising them on prime TV channels is the wrong place and the wrong audience.  Anyone who wants to go to a strip club knows exactly where they are and which ones are best, they don't need a fucking TV commercial with some likely dopey jingle (Rick's Cabaret: Plop, plop, jizz, jizz, oh what a relief it is) reminding them that they love vagina.  So a TV ad campaign worries Money McBags like a parent learning their daughter will be going to Cancun for spring break.  This company should stick to what it knows and put marketing dollars into the girls, airport billboards, and hotel concierges' pockets.  Money McBags is still awaiting more detail on VCGH's financials, but the stock is nearing his price target.  In other small cap news, PMFG, a company that provides separation and filtration products mainly for natural gas and which Money McBags has followed off and on for the past couple of years announced a secondary offering today at a price a measly 30%ish below their close on Thursday causing investors to collectively utter a befuddled "What the fuck?"  They are selling 1.3MM shares for about 10% dilution at $11.50 and net proceeds from the offering will go towards repaying a portion of their outstanding borrowings in connection with their poorly timed acquisition of Nitram Energy, towards working capital, and also towards general corporate purposes such as settling the likely shareholder lawsuit to be filed against them for such a diltuive and poorly priced secondary.  Wow.  Money McBags is glad he doesn't currently own PMFG and can only scratch his well-coiffed head and wonder what is going on in their Dallas headquarters.

As always, enjoy the weekend and don't forget Money McBags is now on twitter.