7/20/10 Midevening Report: Republicans fail to stop unemployment benefits from being extended, next up, trying to outlaw wheelchairs for quadriplegics

The market was moderately down today like a dysthymic after downing a plate of sugar coated prozac and a 2 liter of Jolt Cola before it ran up in the late afternoon due to the Senate extending unemployment benefits.  Earnings were the biggest disappointment early on with IBM, TXN, and GS all putting up subpar topline numbers (see Money McBags' prescient headline from yesterday) as if they were a Jerry Bruckheimer film or Greece.  That said, macro news also disappointed which is about as surprising as learning that BP may have more problems or Hilary Swank is really a man.

The main US macro news out today was that home construction declined because, well, because people don't even have enough money to build confidence, much less houses.  Construction of new homes fell 5% in June led by a 20% drop in the construction of condominiums and apartments but helped out by the increase in the construction of shanty towns and modern day Hoovervilles (and hopefully soon, Hootervilles, which will be made out of plenty of wood and pure awesomeness).  On the positive side, there was a 2.1% increase in the demand for new building permits though the Commerce Department listed it as "wishful thinking," and on the slightly more positive side Russian spy Anna Chapman may pose for Playboy.

The big news of the day was that the senate is set to extend jobless aid after some guy named Carte Goodwin was appointed to Robert Byrd's old Senate seat, making it in fact a "good win" for struggling people everywhere (and yes, that was an awful pun, nowhere near as good as someone named Mr. Goodjoint looking like this).  Yeah, Money McBags knows spending more money is not the best longterm strategy and that if the government keeps perpetuating this global ponzi scheme, we are all going to be more fucked than Lisa Ann on the set of Who's Nailin' Paylin, but having 4MM people surviving on month old pop tarts and feces is certainly not the answer.  There are easily other areas where one could cut spending to make up for supporting people who need extended unemployment benefits (like maybe buying 2 or 3 fewer stealth bombers, using credit cards instead of cash in Iraq, and taking memberships to Tranny porn sites out of the SEC's benefits package).

That said, never before has there been a need to cut costs to allow for extended unemployment and never before has the government tried to do that in the middle of a recession, but apparently Republicans hate winning elections.  Look, all of this money gets put right back in to the economy and is a mini stimulus which might buy the US another month or six to give it a chance to hit a patch of dumb luck and thus avoid being knocked in to bolivion.   Either way, Republicans blocking this package is among the stupidest political strategy blunders in American history, right up there with Nixon sweating through the Nixon-Kennedy debate, anyone allowing Sarah Palin to be interviewed, and Warren Harding banging a hooker with a teapot (or something like that).  Obviously the deficit needs to be better managed lest we fall further in to Keynes' folly, but cutting extended unemployment benefits is not the way to go unless one wants to speed up the oncoming anarchy and see what happens when crime starts moving to the suburbs.

In stock news, earnings disappointments led the day with Goldman missing estimates of ~$2.98 EPS by earning only ~$2.75 per share ex one-timers and if this keeps up, theWhite House GS' management team, may be in trouble.  Those one-timers included the $550MM settlement with the SEC, $600MM for a British bank payroll tax, and Raven Alexis the night of the company picnic after wowing her with how deep their structured products run.  It is a rare miss for the company, as they have perfected the ability to control both the markets and the government without winning a popular election or being likeable, but every once in a while even the great Ron Jeremy must come up flaccid.  The biggest issue with GS' Q was on the topline driven by revenue from trading of fixed income products, currencies and commodities, falling to $4.4B from $7.4B in Q1 and $6.8 billion in last year's Q2 which is a more precipitous decline than Lloyd Blankfein's hairline (or reputation) and caused him to vociferously utter "inconceivable" to anyone who would listen.  Of course with revenue falling, GS had to cut compensation in order to keep some profits (though profitability did fall 82% even with the cuts) and the ratio of compensation to net revenue fell to 43% in the first half from 49% in the first half of last year which means employees will now have to buy the in the lot Lamborghinis rather than have them custom made.

While last week Goldman settled with the SEC and admitted no wrongdoing (which is a bit like Roman Polanski claiming it was consensual or Eddie Murphy claiming he only acted in The Adventures of Pluto Nash and didn't write or direct it), the VP in charge of the (allegedly) fraudulent Abacus CDO, Fabulous Fab Tourre still faces a law suit from the SEC which could undermine Goldman's lack of admission of guilt, especially if Fab continues to blame it on the rain (and that reference will never stop being funny).  Tourre made a filing today with the courts saying that he isn't responsible “for any alleged failings” by GS and he didn't mean to sucker people out of their money, it just seemed like the thing to do.

In other earnings news, IBM's revenue came in short of analyst guesses at $23.72B vs. guesses of $24.17B due to a drop in service contracts which the company says were merely pushed back in to next quarter and sluggish growth in Europe due to it being siesta season overseas.  Also disappointing was TXN, whose earnings and revenue were at the midrange of guidance but failed to outperform whisper numbers (and Money McBags only hopes it was Alice Eve whispering the numbers).  Despite a 900bp increase in gross margins, 42% revenue growth, and above street guidance, the stock tumbled today as if it had downed a fifth of Jack Daniels and had vestibular neuritis.  On the positive side,  Pepsi beat estimates and earnings were driven by strength in emerging markets with sales in Asia/Middle East/Africa up 16% proving that the demand for sugary water is more inelastic than the demand for running water, shelter and malaria medicine.  After beating earnings estimates of $1.08 per share by $.01, PEP maintained their 11% to 13% earnings growth estimate for the year despite currency hurting their growth rate by 1% and Coke hurting their feelings by calling them copycats.

In small cap news, just about everything ran up end of day and Money McBags is pressed for time today so he'll just leave you with one thought: CRUS.  Apple reports tonight and CRUS provides an audio chip that goes in to their iPhone.  Money McBags has talked about this stock in depth here and all it has done is go up like the age of consent in Georgia over the past 200 years.  You can read Money McBags' analysis of CRUS by using the search function on WGP but he was alerting you to this stock when it was below $10 and his estimates have continued to go up with the surprisingly quick rebound of their energy business.  Money McBags thinks they can earn $1.20 per share and with the type of growth they have been witnessing, there is no reason the company shouldn't trade at 20x that which means you can still earn >25% here.  So pay attention to AAPL's release because strong iPhone sales should bode well for CRUS' upcoming Q.

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.

7/1/10 Midafternoon Report: Market sucks again, swallows investor gains

It was another volatile day in the market as initial jobless claims came out and were much worse than expectations which is not surprising to anyone except for those who make those expectations.  Claims were up by 13k to 472k while analysts had guessed that they would drop to 452k which means on average they couldn't even get the 50-50 directional guess right.   And as usual, claims were part of the weekly we suck at math derby (also known as "Numbers Manipulation Thursday") as last week initial claims were 457k, so if they grew by 13k this week, that should have made claims 470k, but of course the (No) Labor Department wants to try to mitigate the fuckawfulness of the economy so they always release a slightly better number and then revise it worse when no one is paying attention.  So last week's claims were revised up to 459k and thus we get the true mathmatical equation 459k + 13k = Holy shit we're fucked (or 472k, potato, puh-tato).  The good news is that people claiming extended benefits dropped by 376k, the bad news is that number fell because the government voted to stop paying them, so um, welcome to the double dip (and not the kind where you only get bacteria), make sure you are properly supplied with canned foods, matches, and plenty of viewing material because this could get interesting.  And to reiterate, Republicans filibustered a bill to continue extended unemployment benefits which is the first time this has ever happened with an unmeployment rate above 7.5% during a recession and it immediately cuts off 1.5MM unemployed people from cash flow they may need.  If ever Money McBags wanted to lose an election, that is exactly what he would do, fuck the people who need help in the midst of the biggest recession in history.  What wasn't reported was that Republican Senators also filibustered dignity and common sense while proposing legislation to have unemployed people serve as speed bumps on Pennsylvania Avenue to keep drivers from going to fast.

In other US macro news, pending home sales also hit the shitter (and hit it with the force of a taco bell bean burrito slathered in extra hot sauce and Ecoli) which surprised analysts but shouldn't have surprised readers of WGP.  The pending home sales index fell to 77.6 from 110.9 because the first time home buyers tax went away which is only something that has been known for months.  The 30% drop in the index dwarfed the 12% drop analysts had guessed once again proving that past performance is no indication of future performance in regression models when we live in a fat tailed economy.  Finally the House passed a financial overhaul bill which will now go to the Senate for a vote on what should be sweeping changes but has been watered down more than Christina Hendricks in a wet t-shirt contest. 

In addtion to macro news that was so bad not even Chris Dodd could have done something to make it worse, Goldman was further questioned by the FCIC today on their derivatives trading as relates to AIG (and as usual Money McBags would love to have the FCIC's Heather Murren question him about the exposure of his long derivative).  CFO David Vinnar was nice enough to constantly conflict himself by telling the commission that Goldman doesn't have a "derivatives business," but when questioned on how Goldman can call themselves a "top five derivatives dealers in the world," he acknowledged that Goldman's derivatives business is "a very big part of what we do."   Money McBags guesses that kind of logical fallacy or semantics masturbation is bound to happen when one talks out of their ass.  Anyway, this whole thing is just theatre since if the government really wanted to shut themselves, I mean Goldman, down, it would take about 3 minutes of actual investigation.

Internationally, China is showing more signs of slowing down than Robert Byrd, as new data shows the second derivative of their manufacturing sector is likely abating.  Two indexes (indices?  indi? indiyouknowwhatthefuckimean) came in below analyst guesses, though still showed expansion (but that expansion is now more like from flaccid to quarter chub as opposed to full pitched tent).  Tao Wang (not to be confused with Tiger Wang, Dong Wang, Peter Wang, or Wang Chung)  an economist at UBS China said “economic growth is strong but momentum has peaked” and if that is true, the global recovery may need another shot of stimulus or else it could flatline worse than Gina Lee Nolin's acting career.  In other intentational news, Spain was able to sell 3.5B of 3 year Euro bonds after promising not to default on them and promising to have Rebecca Ronda personally deliver them to all buyers along with a refreshing spanish milkshake.   The fact that Spain was able to get their bonds out and not at a too exorbitant yield is a positive, though Moody's  has now placed Spain’s credit ranking on review for a possible downgrade, citing “deteriorating” growth prospects, challenges in meeting deficit targets, and the fact that no one in the country works.  That said, Money McBags cares what Moody's has to say about as much as he cares about Donald Rumsfield's thoughts war strategy, Chuck Klosterman's opinion on pop culture, or Aristotle's view on the heliocentric universe.

In stock news it's uglier out there today than it was in Barbara Streisand's bridal suite when James Brolin went out for a smoke.  One stock moving nicely up though is Ford as they announced a 13% rise in sales for the month of June led by the Ford Focus, their Super Duty F1 series, and pure luck.  That said, the company announced a $4B buyback yesterday so has had good news two days in a row which currently qualifies it for the award as greatest stock ever.  In other news, financials continue to sputter because there is currently less faith in the financial system than there is in Norse mythology.  The Treasury department has been reducing their holdings of C which is good because the government shouldn't own public companies, especially ones going $0.

In small cap news, ZAGG is unsurprisingly selling off after it hit $3 for no reason the other day and Money McBags broke down why the stock was at least $1 too expensive.  One sector that Money McBags has liked but is getting destroyed today like a college senior's hopes and dreams is the home health care sector.  Small cap names AFAM and LHCG have been solid performers as they offer a service that is both cheaper than hospital stays and better for patients as home recovery rates are better than hospitalization recovery rates.  The problem is these companies rely heavily on medicare funding and their billing practices have always been questioned.

Well today, the SEC announced they are launching an investigation in to AFAM and AMED around the companies billing more home visits to medicare than they actually made.  That news is less good than waking up next to an unshaven Kathy Bates.  As a result the sector is down 10% today and rightfully so, in fact if Money McBags owned any of these companies he would be puking them out like a bulimic with a vomit fetish.  That said, LHCG does not seem to be part of the investigation so it could be a good time to try to pick this up on the cheap once things settle.  Money McBags has always preferred LHCG in this group because they are a bit more rural than the others and therefore face less competition.  That said, the market is enticing as it is growing 10%-15% a year as the population ages and home health care becomes a more ready solution.  It costs medicare $132 per home health care visit vs. $6k for a hospital stay and as mentioned before, recovery rates are better at home because patients aren't around so many fucking sick people all day.

LHCG earned $.64 a share in Q1 and gave guidance for $615MM to $625MM in full year revenues and $2.75 to $2.85 eps.   With the sell off today the stock is trading at only 9x this year's eps guidance and yet the market is growing by double digits.  Revenue was up 17% last Q and guidance does not take in to account any de novo branches which only take a year to reach full margins.  The company has ~$13MM net cash to still make acquisitions and the market is ripe for continued rolling up as the top 4 players are only ~10%-12% of the market.  The problems are the reliance on medicare funding and the government's ability to slash that at any time, the need for continued acquisitions, the uncertainty of any future medical liability issues (as with all health care providers), and the current SEC investigation on competitors.  Still, this is a growing market and is a cheaper alternative for medicare and insurance companies that ultimately provides better service and better results so why not buy this for 9x earnings when you can?  As he said, Money McBags would let this settle because the last time fudged billing fears struck the industry, these stocks got pulverized even though none of the public companies were found to be complicit.  So bide your time but put this on your buy list.  And to reitirate for those of you new to WGP (and if you're new, don't forget to join WGP on Facebook), Money McBags' buy/interesting list consists of KIRK, KITD, TMRK, CTGX, CRUS, QCOR, NTRI, EPAX and now LHCG among others.  Many of those are getting to be pretty washed out (KIRK, KITD, CTGX) and yet have nice earnings streams and solid longterm businesses so once the market is done dying, those are companies that should see positive momentum.  And while the market drops, there is always WGO and ZAGG to short, or just buy TWM and watch Wall Street burn.

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

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

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

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

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

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

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

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

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

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

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

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).

5/28/10 Midafternoon Report: Market falls after basque-ing in Spain's downgrade

Money McBags has been busy so today's report will be brief, like the Anglo-Zanzibar war of 1896 or Gary Coleman's remaining days (what, too soon?).  The market tanked again and closed down 8% for the month of May which is the worst May in 48 years which was so long ago that the Hulk comic book had just been launched and Brigitte Bardot was at the peak of her ungodly powers.  Sinking the market today was that it was open, well that and Spain was downgraded by Fitch from cultutral institution to Europe's bitch.  Fitch cut Spain's rating from AAA to AA+ which means absolutely nothing to Money McBags because he doesn't use the metric system.  That said, if there is an algebra teacher in the house, Money McBags would love to have them solve for X in the equation AAA - X = AA+.  The director of Spain's Treasury, Soledad Nunez, whose first name is so awesome that Money McBags can't bring himself to mock it, reminded the market that AA+ is "still a high rating" before reminding the market that Fitch is worse at their jobs than he is.

In US macro news, incomes rose .4% but consumer spending was flat in the first logical economic move by US consumers since sales of the pet rock fell to 0.  Spending growing at a lower rate than income growth implies that people are actually saving which would go a huge way towards cleaing up this debt driven culture in the long run.

In stock news, some shit went up but most shit went down because we're in a bear market with more downside volatility than Lindsay Lohan with a dime bag.  AAPL was one company that was up strong today on a price target increase to $325 from BofA Merrill, or as they are better known as BofS Merrill.  With iPad sales predicted to make PCs obsolete and allow NSFW muff guessing enthusiasts to take their sport on the road with them, Apple is one company that should continue to do well even if Europe falls in to the ocean.  In other stock news, GS is said to be ready to settle with the SEC to avoid fraud charges but unless the settlement is inconceivably large for Lloyd Blankfein to handle, Money McBags would like to see this go to trial.  If Goldman is not guilty of fraud than Money McBags' understanding of the words "fraud" and "guilt" are worse than George W. Bush's understanding of the words "mission" and "accomplished" or Tiger Woods' understanding of the word "fidelity."

Anyway, sorry for a brief marginally funny report today but it has been busy at Chez McBags.  Of course, if you send 10 or1MM of your friends to When Genius Prevailed, Money McBags will be able to spend more time analyzing the markets, knocking out dick jokes, and sharing his love of all things Sonya Kraus.  So enjoy you're long weekend and remember to be careful out there.

5/3/10 Midafternoon Report: Consumer spending up as sales of moral hazard increase (though to be fair it does come in blue this season)

Stocks are off to the races again today and the good news is that the market is seemingly being ridden by Calvin Borel.  Sending the market up is that Greece is once again set to be bailed out, Warren Buffet was out defending Goldman Sachs, and people are spending more than they earn.  Hold on a second on that last one.  Now look, Money McBags is no historian (though he knows the difference between Dred Scott and Avy Scott, knows that neither tea nor pot was involved in the Teapot Dome scandal, and knows that the War of 1812 not only ended in 1815 and thus is a bit of a misnomer but also ushered in the "Era of Good Feelings" where bipartisanship was shunned and taint tickling Tuesdays swept the nation), but spending more than one earns is what got us in to this whole fucking recession.  Anyone remember the popular sport from the mid 2000s called flipping fucking houses?  Well it caused the economy to be flipped as people just borrowed the fuck out of shit because banks were able to package all of those crappy loans and sell them to yield hog investors who wanted those extra 10bps of interest income.  The point is, consumers not managing their personal balance sheets with eyes on the future (though if their eyes were on Katie Price, Money McBags can almost forgive them) is a recipe for fucking disaster which we just learned, oh I don't know, 24 months ago.  Ugh.  To highlight the shortsightedness of consumers, consumer spending was up today, but it grew twice as fast as incomes grew.  And if you do the math on that (and remember, math likes to be done in the reverse cowgirl position), that means savings declined, which again, is exactly what got us in to this mess.  American people apparently just like buying shit and then whining about it when they lose their jobs and can't afford to pay their too expensive mortgage or their maxed out credit card bills.  This is a nation of infants and if they don't figure it out soon, Money McBags is going to go door to door with Jeremy Grantham and the pinheaded Suze Orman and he and Jeremy will take turns buggering Ms. Orman and her inflated FICO until people understand having money saved for retirement is more important than buying a new Shake Weight.  Rant over.

In other macro news, manufacturing grew at its fastest pace since 2004 as the ISM's factory index rose to 60.4 which was inline with analyst guesses.  The growth was driven by new equipment orders and increased production of default notices.  Also new construction was up modestly, but the fact that it was up at all has Bulls giddier than Peter North's son on take your kid to work day.  What drove new construction was public construction which was up 2.3% and state and local government construction which was up 2.5% as new line dividers were constructed to keep the crowds at the unemployment office running smoothly.

Internationally, Greece is getting a 110B bailout in euros over a three year period, until tomorrow when Angela Merkel's cold feet and colder heart once again change her mind.   To get the bailout, Greece has to instill a 30B austerity plan, cut their debt, and promise to tell native born son Yanni to shut the fuck up.  Even with the bailout,  Greece's debt is estimated to rise to 140% of GDP in 2014 which is a whole lot of souvlaki they can't afford.  The bailout may be giving investors a day to breathe a bit easier but with the amount of debt Greece is going to have to repay and the cuts to their publc spending, the country is now facing real threats of deflation and the first potential revolt since Alexander Ypsilantis led the Filiki Eteria.

In the markets today, Warren Buffett was out defending Goldman because, well because he owns a fuckload of GS preferred so you know, he has to defend his fucking book.  Buffett defending Goldman is about as much of an endorsement as Michael Brown defending the hurricane Katrina response, Jerome Kerveil defending his trading, or Tara Reid defending plastic surgery.  So big fucking yawn there.  In other market news, United and Continental  announced a $3B merger.  The deal was actually consummated a month ago but was held up due to weather (feel free to steal that one Jay Leno).  And Apple annonuced they sold over 1MM iPads thanks to them coming installed with Diora Baird wallpaper.  Lastly, semiconductor sales were up 4.6% in March as PC and smartphone sales continue to rise and inventories climb back to normal levels.  Money McBags is longer the technology/smartphone trend than Lexington Steele is before a scene with the lovely Lisa Ann.

In small cap news, Money McBags bought TMRK close to the open today in the mid $7.30s.  He has talked about TMRK many times (starting on 1/4/10) and finally pulled the trigger for no particular reason and he has no idea why it is up so much today other than the fact that Money McBags is a market mover.  Money McBags is feeling better about TMRK after they raised $50MM last week which should give them enough growth capital and they are still trading at a discount to larger peers.  TMRK has a competitive advantage in that they have a lot of government business (~22% of revenue) and they are in a market growing 20% a year with some big players (Amazon, Google) who are clearly going to be looking for acquisition targets to consolidate the space.  TMRK is trading ~9x 2011 EV/EBITDA estimates but that is lower than where EQIX bought SDXC and not only that, but VMware who is the leading software developer in this space (and portfolio holding of Money McBags) has a nice sized investment in TMRK.  If VMware doesn't know this space better than 99.7% of the world, than Money McBags will eat a giant shit sandwich with extra diarrhea.  Now Money McBags doesn't expect this stock to rocket up any time soon as they are still going to have lumpy quarters and are still investing in building out data centers, but cloud computing growth is more real than Pam Anderson's tits (though perhaps that is a low bar) so TMRK should continue to be in a fragmented multi-year growth industry.  In other small cap news, NTRI reports tonight and Money McBags is very curious to see what happens to their advertising spend.  If you remember, two months ago Money McBags broke down NTRI's craptastic guidance which was so bad it caused investors to throw up for days and thus more effectively lose weight than using NTRI products.  The company is still trading ~7x EV/EBITDA which is pretty cheap for a solid cash generator and nice business model when they aren't fucking up their advertising strategy.  Money McBags has no idea what NTRI's Q is going to look like but it is worth paying attention to tonight because the stock should be more volatile tomorrow than Mike Tyson after missing a week of his medication and having some of his pigeons stolen.  This could be a good entry point (though still not as good of an entry point as Jessica Alba's derriere), so pay attention to earnings.

4/30/10 Midday Report: Biggest swinging dick on the Street may land in aptly named penal colony as criminal investigation launches on Goldman

The markets are down today due to mostly inline GDP, more shenanigans in Greece, further investigation in to Goldman Sachs, and gravity.  GDP for Q1 was released and the economy expanded by 3.2% thanks to consumer spending which was up 3.6% and interestingly enough coincided with the release of KFC's Double Down thereby spiking sales of Pepto Bismal and artificial hearts.  Guesses were for 3.3% GDP expansion so the economy pretty much performed inline but following a 5.6% expansion in Q4, the economy has now had it's best two quarters since the end of 2003 when the great mortgage fraud frenzy was peaking and anyone who currrently or previously had a heartbeat could get approved for a loan (Money McBags isn't saying it was easy to get a mortgage, but Abe Vigoda owned 6 mansions and one apartment complex during that time and he died in the 1980s.  What?  he's still alive?  Nevermind).  Also, the Fed's inflation target was only up .6% which is the lowest level since records started being kept in 1959 but that target ignores food and fuel prices since why measure the things people actually need to spend their money on when measuring the value of money?  It's a bit like judging a movie based on the font of the opening credits (and Money McBags loves him some Garamond) or a wet t-shirt contest based on the flip-flops the contestants are wearing, but whatever.  Business spend also keeps inproving as it was up 13% thanks to the fact that it is bouncing back from historical lows and an increase in the sale of cardboard boxes to help pack up laid off employees.  While the consumer appears strong in GDP numbers, consumer sentiment dropped in April, though it still beat analyst guesses and was essentially the same as last month.  Consumers are at least flat lining as the average US citizen gives a fuck about whatever is happening in Europe and as job losses have begun to stagnate, they are happily oblivious to any potential impending financial doom.  Money McBags is pretty sure Europe will get their shit together so perhaps ignorance is bliss (though probably not as blissful as Elisabetta Canalis). 

There is more he said/she said/finger pointing/tail wagging/pillow biting in Greece today.  Moody's downgraded 9 Greek banks which is a bit like downgrading hydrogen as a fuel for zeppelins after the Hindenburg crash or Heidi Montag's singing career after her second album was released.  Greek prime minister George Papandreou is back crying for help saying "what is at stake is the survival of the nation.”  But if he were really concerned about the survival of the nation, perhaps he wouldn't have let the debt grow out of control or claimed the comedian Ant as one of Greece's own.  Tomorrow's Labor Day festivities in Greece will likely be subdued as greater austerity measures threaten the ability of Greek workers to continue to produce no valuable output.  Seriously, what does Greece produce besides baklava for tourists and Julia Alexandratou sex tapes?  Perhaps union leaders should focus on that by figuratively solving the problem of what to do with all of the underwear they stole.

In the market, Goldman is getting sacked as US federal prosecutors may open a criminal case against them for crimes against humanity, or securities fraud, potato-puhtaato.  It's not clear what exactly the charges would be since every single investment bank does something criminal every day, but that is how the markets stay efficient.  Money McBags does wonder what will happen to CEO Lloyd Blankfein if GS is found guilty and whether his cellmate will try to put his underlying assets into Blankfein's special purpose entity.

Finally in small cap stocks, Money McBags favorite QCOR put up an ok quarter and yet are off to the races again.  After last Q, Money McBags highlighted this company and mentioned one should buy on any pull back, unfortunately that pull back never occured as QCOR is now up 50%+ since then.  This quarter revenue was up ~13% to $26.2MM and eps came in at $.11.  Both of these numbers were short of Money McBags' estimates (he had $27.5MM in revenue and $.15 eps) and yet the stock is absolutely ripping up like it is on a Red Bull and meth binge.  There are five reasons for this as far as Money McBags can tell. 

1.  Operating expenses were higher than normal as they try to build out their sales and marketing efforts.  Money McBags is 100% behind this as he'd like to be 100% behind Jessica Biel.  Anyway, with costs up to help grow future revenue, a bit of a hit to the bottom line is unconcerning.

2.  They announced that a panel of experts is going to rule on their FDA submission to get Acthar on label for IS on May 6th and QCOR will host a conference call about it on May 10th.  This isn't the final hurdle as the panel merely gives a recommendation to the FDA who then has the final ruling on June 11th, but a positive opinion will be a better sign for QCOR than marrying in to the Kennedy family was a positive sign for Arnold Schwarzenegger's political career.  Getting IS on label would finally allow QCOR to market to doctors in their historically biggest segment.

3.  Kelly Brook is hot.  Ok, this might have nothing to do with QCOR being up, but Money McBags had to investigate to make sure.  It is likely just spurious correlation but it was necessary for Money McBags to test his lurking variable to make sure.

4.  NS is coming.  Holy fucking shit could it be on.  The QCOR cake just got a little more icing on it as NS could be bigger than both their IS and MS segments combined according to management.  They filled 11 NS prescriptions this last Q which is still smaller than one of the late great He Ping Ping's turds but it is encouraging enough that management is going to launch a pilot sales program in April to try to reach nephrology doctors.  Patients with NS need to use Acthar for 3 to 6 months to be cured so the recurring revenue potential is huge for QCOR.

5.  MS continues to grow, ticking up 187% and overtaking IS as their biggest segment.  Remember, just two years ago this segment was about the same size as NS currently is but management dedicated resources to blowing it out, so it does bode well for their ability to execute a NS strategy.

So while all of that was good, numbers were still below what Money McBags thought and he is taking his full year estimate down to ~$.60 from ~$.70.  The big question for Money McBags has to do with why their reimbursement rate as a % of gross sales which had been running at 30%+  was down to ~22% this quarter?  The reimbursement rate takes gross sales to net sales by removing medicare/medicade/etc. expenses.  So with only a 22% remibursment rate, it means gross sales were way below Money McBags estimates and the question is why and what is the rate going to be going forward?  Sure they seemingly cleaned up a bunch of the tricare reimbursment issues, but is this 22% rate the rate to use going forward?  If so, that would be huge for eps and if not, investors may be in for a negative surprise next Q.  That said, with his current $.60 eps estimate (based on a 25% reimbursement rate, 20% sequential quarterly MS growth, no growth in IS, and no growth in NS) the stock is trading at 16x that, even after this run up so it's still not hella expensive especially with the NS potential.  Remember, they said NS could be bigger than their current business so in the ultimate best case scenario (and Money McBags is not saying this will happen, just their big upside possibility), they could more than double their earnings in 2012 (say it takes them 2 years to get NS up and running like it did for MS and they get operating leverage and continued growth in MS) which makes this a ridonkulous buy.  However, Money McBags would like to get a better understanding of reimbursement, a better understanding of what they are going to do with their cash (last Q they said they were going to look to buy another drug but there was no mention of it this Q), and a better understanding of Kate Bosworth.

4/28/10 Midafternoon Report: The debt claims in Spain fall mainly down the drain

Same shit, different day.  The markets continue to bounce around on news of Europe's impending doom, though this time not by the Daleks or the smell emanating from Posh Spice's girl power, but rather from bankruptcy.  While Angela Merkel continues to tease Europe's proverbial cock with her low cut dresses and constant pledging of support to Greece only to quickly pull that support back like Lucy pulling back a football when Charlie Brown is about to kick it, the US vigorously debates financial reform (only whatever the exact opposite of vigorously is).  Unfortunately Senators accomplished nothing in their questioning of Goldman Sachs yesterday as Lloyd Blankfein, or his doppelganger, answered every question asked to him by simply squawking "inconceivable."  When Senator Carl Levin responded "I don't think that word means what you think," Blankfein pointed to the clock behind the Senators and quickly downed a vial of iocane powder while they weren't looking thus ending the day of questioning.  With the drama out of the way, Democrats and Republicans can now get together and argue the merits of real financial reform and agree to sweeping legislation that will correct the wild west of Wall Street where incentives to cheat the system are more perverse than a Vincent Gallo film.  Oh wait, politicians can't even agree to start the debate as they are too busy trying to keep their egos from running in to the common sense portion of their brains.  At least the interests of the American people are at the forefront of all of this, and yes that was sarcasm.

Anyway, macro data was light today with markets anticipating the Fed notes in the afternoon (and as an aside, Money McBags was privy to one of those notes before it was released and it read:  "Janet, when you said you "liked me" did you mean you "like liked me" or just "liked" me.  Circle one.  Bennie B.").  The only economic data is that mortgage applications fell, though that was driven by a lack of refinancing as purchase applications were up 9% with 50% of that gowth coming from people trying to get the $8k government tax credit before it runs out.  These are just more signs that we are skidding along the bottom (though if it were Alexis Texas' bottom, Money McBags would happily enjoy the skidding) and the question remains how long will it take for a real recovery to occur and will Europe going bankrupt deter further growth.

As for Europe, the Greek financial crisis rages on and has now become the second longest greek saga after the Iliad.  However, there was a new wrinkle to the mess in Europe today and that was Spain being downgraded from entree to tapas by Standard and Poor's.  Apparently the 16 hour work week and 24 hour siesta week has finally caught up with the Spanish.  Now Money McBags isn't calling them lazy, but their top tourist attraction is a church that has been under construction since 1882.  Seriously, when it's finished it better have one hell of a good organ and some pimped out confessionals as only Joan Rivers' face has had construction lasting that long.  Anyway, Germany is back to bailing out Greece as expeditiously as possible, or until tomorrow, which ever comes first (and Money McBags bets whichever one is watching Helena Mattsson will come first) so the markets will continue to bounce around this uncertainty.


In stock news, Comcast's profit rose 12% as they grew their subscribers and apparently started charging for calls of complaints.  Advertising revenue was up 24% mainly due to whatever company is behind Xfinity blasting the airwaves to get their new brand image out.  The stock is up almost 2% today and analysts think they might be starting a meaningful growth trend but Money McBags thinks the cable/high speed internet model will be going the way of black and white TVs and civility longterm, so he couldn't care less.  In other stocks news, DOW saw pricing grow 17% and volume grow 16% as they put up a quarter that was so good it seemed to be made out of bone china and not plastic.  They earned $.43 per share easily besting analyst guesses of $.30 and saw strength pretty much across all business lines.

In small cap news, CRUS continues to run so hopefully you are all enjoying an extra visit to the champagne room on Money McBags, while BWLD and SMCI are going down faster than a hefty 18 year old girl in Tommy Lee's trailer.  BWLD same store sales fell by ~3% across the board as Americans have decided that shitty chicken wings, crappy beer, and awful decor are no longer in vogue.  BWLD now thinks they will be challenged to meet their full year targets and Money McBags would avoid this company like he avoids their crapy restaurants.  SMCI is a different story.  Money McBags has written about SMCI on When Genius Prevailed several times and after their last quarter remarked that they were likely reaching the high end of their valuation.  Of course SMCI ran up about 30% since then so good for you if you owned it but after today's ugly guidance, they are almost back down to where they were.  The company actually just put up a decent fiscal Q3, beating top line street guesses with 87% y/y revenue growth and coming in line at $.21 eps.  There is a lot to like about that like, maybe not as much to like as Kate Hudson's thong, but it was good nonetheless.  The problem is that their guidance for next Q was a bit short on the bottom line with guidance for $.20 to $.23 eps and analyst guesses at $.24.  So guidance is for sequential topline growth, but a potential flat to down bottom line as margins appear to be coming back down which is usually a sign of increased price competition.  Money McBags has not had a chance to listen to their call, but since the CEO's english is about as good as Ben Roethlisberger's dating advice, Money McBags is going to wait for the transcript.  That said, the company has a decent balance sheet with $73MM in cash and no debt even though they had negative operating cash flow as their inventories and A/R have spiked (with their topline rapidly growing, that is mostly explainable).  The comany is trading at ~9x this year's EV/EBITDA and depending on your forecast, ~7x to 9x next year's EBITDA.  That said, it's not clear what growth is going to be for next year as this year featured both a bounce back from the dwindling economy and positive momentum with INTC's launch of the nehalem chip.  Analyst estimates for fiscal 2011 are ~$1.20 so if you believe those a $14 price isn't unreasonable for a cyclical company at the peak or moving towards the peak of its cycle.  That said, we may already be at peak earnings for SMCI as they rely to some degree on new chip launches and with nehalem already out, Money McBags is unaware of the next chip release.  The point is, this is a well run company with a real competitive advantage in that they are able to nimbly meet customer demand and get in early in the cycle, but that early cycle may be over for now.  Their CEO still runs it like a small firm which is good in that they have a singular focus, but bad in that he probably needs to step back a bit for it to continue to grow.  Either way, Money McBags doesn't have a great feel for what next year will look like for SMCI and thinks the price is probably pretty fair.  They've been earning ~.20 per quarter so in a no growth scenario, annualize that to $.80, throw a 12x to 15x multiple on it and you get a $10 to $12 stock which is probably the low end of where SMCI should trade.  If they can continue to grow, this is a good entry point so the real question you all should try to figure out is what the fuck is going to drive sales for SMCI next year because if you think they can continue to grow, the stock is reaching another good entry point, though not quite as good of an entry point as Megan Fox's mouth.  Money McBags would never short this company, but without more details it is too early for him to go long.

4/27/10 Midafternoon Report: If Greece is now junk, what does that make Haiti?

The market is down today as Standard and Poor's downgraded Portugal to a principality and Greek to junk and not the the kind in a trunk that most investors love, but good old fashioned junk.  It was the first time since the advent of the Euro that a European country has lost its investment grade status and Money McBags would be concerned if the rating cut hadn't coming from an agency who missed something called the subprime mortgage meltdown which only caused the biggest financial collapse in 80 years.  The real fear is that the EU can not handle this situation and it spreads throughout Europe like the bubonic plague in the 1600s or black jeans in the last half of the 20th century.  Consider the market spooked as it was looking for a reason to consolidate down anyway and now we have it.

In the US, consumer confidence rose to its highest level since Lehman Brothers collapsed and the highest level since the pet rock fad (because seriously, if people were willing to throw money away on fucking rocks, they must have been hella confident that things were going ok).  The consumer confidence index came in at 57.9 beating even the highest of forecasts after getting those forecasts in a camel clutch and having them submit.  People are generally starting to feel better and the fact that most Americans don't read the news and have no idea that Europe is teetering on the brink of bankruptcy while their own government printed more money than humanly possible to count (again, the "too big to count" strategy) can only help the blissful ignorance.  In other macro news, the Case-Shiller index showed that home prices were up from a year ago but declined on adjusted basis by .1% sequentially.  This still beat analyst guesses though prices are basically stagnant which is better than them dropping but is still a long way from a recovery.  And grabbing most headlines today were Goldman Sachs executives and Fabulous Fab Tourre who never saw shitty CDOs they couldn't pawn off on investors, testifying in front of congress about their alleged fraudulent behavior.  After hours of questions and answers, all we learned is that Senators don't have a fucking clue about the financial system and Senator Claire McCaskill, to quote another great Fabulous Fab, "Girl you know it's true, ooo, ooo, ooo."  Today's hearings accomplished nothing other than letting some rich assturds (the Senators) grandstand and belittle the richer assturds (GS executives).  Excuse me while Money McBags yawns through this part of the saga.  The fact is GS did some shady shit as did the whole fucking financial system so unless GS gets more than a slap on the wrist, nothing is going to change.  Money McBags is close buying long dated out of the money puts on MCO because when the smoke clears from this cock off, the rating agencies are going to be the musician to the regulators' very rusty trombone.

In stock news, Ford reported their 4th consecutive profitable quarter and earned $.46 per share which easily blew by analyst guesses of $.31.  In the Q, Ford outsold GM for the first time in 50 years and gained 2.7% market share thanks to the Toyota recall and vibrating seat warmers.  The stock is getting clobbered though as it had a huge run up and they still sell Fords.

In small cap news CRUS put up a huge quarter and Money McBags is an owner of CRUS and has talked about it many times on When Genius Prevailed.  He first alerted all of you to the company on 1/12/10, told you all he was buying on 1/28/10, and it is now up 75%+ which is enough to take Hayley Atwell out for a nice dinner of tea and my crumpets.  CRUS's Q was way better than Money McBags was expecting though and their guidance pissed all over Money McBags' estimates as if it suffered from bladder incontinence and had just downed a two liter of Mountain Dew and a box of Franzia.  For the Q, CRUS earned $.16 non-GAAP and Money McBags was expecting $.11 with their revenue coming in ~15% stronger than they had indicated.  They said all segments were pretty much up, but energy rebouned to $22MM up from $14MM last year and back to where it was before the economy bent over and starting catching pitches from pitchers with low hanging FICOs.  Guidance is for $78MM-$84MM in revenue for next Q (Fiscal Q1) with 55% margins and ~$26MM non-gaap operating expenses.  With ~65MM shares and enough NOLs to make Wesley Snipes salivate and thus not pay taxes for real, that gets to an eps estimate of ~$.29 if Money McBags is doing the math correctly (and it has been suggested that the correct way to do math is with a reverse cowboy).  CRUS didn't give detailed full year guidance as visibility in to Qs 3 and 4 is low (though hopefully not lower than Stevie Wonder's visibility in trying to see a shooting star without a telescope) but they gave full year revenue growth guidance of 30%.  Of course, guidance for fiscal Q1 already puts them at that 30% revenue growth and it is unlikely that the next 3 quarters will be flat with last year given the audio growth and return of the energy business.  Plus, they said none of their new products figured in to their backlog and thus there could be some upside if some of the new applications start taking off.  So how the fuck should we value this company?  As said previously, Heather Vandeven is hot, but as also said previously, Money McBags had an ~$.85 eps for CRUS for this upcoming fiscal year with ~$.19 coming next Q.   So we could assume they will be inline with Money McBags estimates for the rest of the year and gross up his previous $.85 with the $.10 beat in Q1 their gudiance implies and thus get a $.95 fiscal year eps estimate.  Alternatively, we can take Q1 estimates as a baseline, say they get an uptick in September's Q like usual, and the other Qs will all come in the same as Q1 guidance.  So 3 Qs at $.29 and one slightly higher gets us to $1.20.  Either way, just call earnings somewhere between $1.00 and $1.20 per share and given that, the company is still fairly cheap trading at 10x to 12x fiscal 2011 with $2 of cash on the balance sheet (of course some of that cash is going out the door because on the call they said they were buying a building to relocate their headquarters and it's not clear what real estate in Austin is going for these days).  The point is, this company just grew revenue 87% and the trends are still in their favor as their 35% customer which is AAPL is still selling the fuck out of some iPhones.  So hopefully you all bought with Money McBags, and if you didn't, the stock should consolidate down a bit over the next few days and it is still relatively cheap, so you'll get another chance.  Throw a 15x multiple on $1.00 of earnings and you get a $15 stock and that seems to be a fair low end price.