7/26/10 Midevening Report: Market rally excites quants as S&P rubs up against upper bollinger band

The market ran again today as Fed Ex boosted guidance due to international companies wanting shit faster and macro data headlines were manipulatedly good (like Cameron Diaz' face on a magazine cover).  The big macro news was that new home sales jumped 24% which is the biggest jump since May of 1980 and totally sounds better than saying new home sales were the second lowest since 1963 (and you remember 1963, the year the Beatles released their first album, JFK was assassinated, Raquel Welch was breaking in to Hollywood, and full muff was the norm).  Of course 1963 is also when this data started being recorded, so for all we know it could also be the second lowest month since 1863, but whatever.  So before we start handing out lobster tails and buy one get one free blumpkin passes to Amber Lancaster's powder room (and Money McBags will take two of those please), perhaps we shoud look at the shittiness (which may be too technical of a term for most) of the absolute number and ignore the relative spin.

To start with, last month's new home sales were revised down from 300k to 267k which is only a minor 11 fucking percent downward revision (and minor in the way that reading a Thomas Pynchon book gives someone a minor headache or bumping in to Audrina Patridge would give someone a minor stiffy).  Anyway,  last month's number of 300k, which is now 267k, means that new home sales fell by 37%, 40%, or 47% last month depending on which of the manipulated numbers from two months ago you want to use as the base line (the 504k initially reported, the 446k downwardly revised number from last month, or the even more downwardly reviesed 422k reported this month, and yes, two fucking months after the data, the numbers are still being downwardly revised because apparently they have yet to hit zero).

The point is, the awfulness of last month's number keeps getting worse but investors are overlooking that because the headline growth for this month is 24% and 24% growth is a big fucking number (even though in absolute terms it is still the second worst number ever and will more than likely be revised down next month to 305k). So while economists and the Commerce Department can point to growth rates as a sign of accomplishment, it's as disingenuous as landing on an aircraft carrier and claiming Mission Accomplished in Iraq or telling Rosie O'Donnell she doesn't look fat in those jeans.  In short,  last month's historically bad number gets revised down more and thus this month's second worst historically bad number gets to look slightly better because of the BS growth rate off of the downward revision.  Just imagine how great this month's number would have looked if it went from one new home sold to two.

Anyway, the 330k number being reported is in fact ~24% higher then the 267k number (but only 10% higher than the 300k number that was actually reported last month) and it beat analyst guesses by 10k and since analysts have proven to be so right over the last 5 years to 3,000 years, a beat is such good fucking news that the commerce department can spend the day admiring the new portrait of Carlos Gutierez  instead of trying to fix shit.  But lets not let details get in the way of a good rally because that would be like letting a little hepatitis get in the way of boning Pam Anderson.

There wasn't much international news today except that Europe is starting an anti-trust case against IBM, though if Money McBags were IBM, he wouldn't trust the europeans in their black jeans and with their love of european fudge pops.  The EU is claiming that IBM may have abused their dominant position in the mainframe computer market like the dominant Ariel X abuses her defeated foes in the NSFW Ultimate Surrender Summer Vengeance tournament.  This anti-trust case stems out of complaints from a company called T3 communications which is a firm invested in by MSFT and other than Tiger Woods' ex-wife, MSFT is the foremost authority on anti-trust.

The big stock news of the day is that Fed Ex raised their guidance for fiscal 2011 from $4.40 to $5.00 per share to $4.60 to $5.20 per share and this comes after UPS showed everyone what Brown can do for them by squeezing out a solid quarter last week.  UPS' revised guidance was driven by increased demand for international priority packages where according to a Wellls Fargo analyst: "Growth in Asia has been red hot, fueled by the tech sector and iPhones and handheld devices and discounts on Hello Kitty's line of dildos."  Fed Ex is feeling good enough about their operational efficiences and global volume growth that they have reinstituted their 401k matching program so now employees can lose the company's money in addition to their own.

In other stock news, BP is getting a new CEO and hopefully this one won't won't be a dud even with a name like Robert Dudley (and that was such a bad pun that Jay Leno should feel free to steal it).  Dudley will be the first Amercian born CEO of BP as the company's board hopes to improve on the langauge barrier between themselves and the US government (as apparently "your shit is not safe" didn't translate correctly from US regulators to BPs former CEO).  Otherwise, it was a light earnings day on the market but Roper industries put up a nice Q despite a rumored take over from Furley Industriies which turned out just to be a wrongly overheard conversation in the company kitchen.

In small cap stocks, IMAX had a strong day on Inception's continued box office outperformance and the stock has bounced back nicely since Money McBags talked about it as something to avoid the other week.  Money McBags favorites CRUS and KITD also had solid days, as did just about everything else in the small cap space, except for IBKR which deserves to go down for how they made Money McBags feel after their earnings announcement last week which he was more highly anticipating than the inevitable Christina Hendricks playboy spread (and yes, it will happen).  Money McBags is short on time today so he won't be getting to any detailed small stock analysis but it should be a busy week with QCOR, IMAX, CTGX, and NTRI reporting so he promises he will have more compny breakdowns for you as necessary.  If you are craving for more dick jokes though, Money McBags was busy in the comments section from Friday's column, so enjoy.

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.

4/20/10 Midday Report: Goldman blows quarter out, then offers to blow SEC Chief of Enforcement Robert Khuzami as part of "settlement"

The markets are modestly higher today despite a blow out quarter by Goldman as other blue chip companies mostly met expectations and meeting expectations after an 80% market rally is like trying to impress Grigori Perelman with long division or Tommy Lee with a Hawaiian Tropic girl.  The big news is obviously that Goldman released their quarter today by smacking their CDOs on the table and yelling "Securities fraud this!"  They demolished analyst guesses of $4.14 eps by earning $5.59 per share on $3.46B of earnings which was 91% growth.  Though to be fair, it is not clear how much fraud and market manipulation analysts had in their models as Excel's goal seek function isn't yet equipped to handle that.  What's also amazing is how a company who produces nothing other than writing on paper can earn $3B. Anyway, the quarter was so jizztastic for GS that Lloyd Blankfein is going to spend the rest of the day at the spa getting his nails done so they will now match the drapes in his conference room.  But all is not well for Goldman, they still have to deal with the SEC's lawsuit about how they misled investors (but only on that one CDO, wink wink, and if you believe that, Money McBags not only has a bridge he'd like to sell you but he'll give you a great deal on it) and in the quarter they lowered their compensation payout from 46% to 43% so all of the traders who have been manipulating the market are now going to have trade down from a hooker a day to one every other day and might have to pass up on the third bottle of Dom at their local Rick's Cabaret.

There is no macro news out today and the only international news is that Greece's latest bond offering met strong demand.  Of course they had to double the previous yield on these short term bonds to 3.65% which was actually below estimates but still hella expensive for the ponzi scheme George Papandreou is running where he will gladly give you three souvlaki's and a glass of greek wine tomorrow if you pay him for one today.  The IMF is starting to get a bit frisky here and is warning about sovereign debt impeding global growth.  Wow Captain Obvious, you think?  Next week it is rumored that the IMF will issue warnings that staring directly in to the sun may cause blindness, eating foods high in saturated fats may cause obesity, and getting too close to Paris Hilton may cause herpes.

The real story of the day though is earnings with KO, IBM, and J&J mostly meeting expectations but trading down as the market demands quarters to be cleaner than an OCD sufferer's closet for stocks to appreciate.  KO's profit rose by 20% to $.80 per share taking out one-time charges while their revenue grew 5% to $7.53B.  The eps number beat analyst gueses by $.05 per share while the revenue number disappointed as analysts had guessed they would bring in $7.72B.  Driving growth was the international business which was up 5% thanks to Brazil and India where sugary sweetnees is still seen as the cool thing to do while North American sales fell 6% thanks to people avoiding higher end products and wanting their teeth to stay cavity free.  Money McBags is actually an owner of KO and bought more last week to get some market exposure from a blue chip stock that hasn't really participated in the recent rally.  Despite weak North America sales, KO isn't going anywhere and will be a place investors go for safety if the market gets chippy again or if it finally consolidates.  IBM's earnings rose 13%, they beat revenue and EPS guidance, and they raised their forecast for the year to at least $11.20 per share and yet the stock is trading down 2% because their service booking dropped 2% in the quarter, margins were slightly below forecasts, and Chewbacca was a Wookie.  Finally, JNJ had a 29% increase in earnings yet lowered their outlook due to recent health care legislation which is the same thing every drug company has done so this is more of a non-event than a Larry King divorce.  The stock is flatter than Heidi Montag's singing voice or her original chest, so a big fucking yawn here.

In small cap news, SFSF got an upgrade today to buy from an analyst at something called Janney Capital Markets or known better as "Morgan Stanley wasn't hiring."  The analyst raised SFSF to a buy claiming that the worst for them is likely over and that they should be able to continue to grow bookings at 20%.  The company has a decent balance sheet with ~$300MM in cash and no debt though most of that is thanks to a recent follow on offering to give them some powder for future M&A and they are already using some of it to buy Inform for $40MM of cash and stock.  The company is in a niche space of selling performance/compensation management software for businesses to evaluate employees, essentially outsourcing and making HR more efficient while relegating the number of smiley face cupcakes employees receive.  They sell the software as a service which should yield a better multiple than the traditional software model.  That said, this comany still has no earnings and guidance is for at best breakeven this year with revenue growth already in decline and estimated to be 17% for 2010.  Money McBags is a bit perplexed by this stock as the valuation assumes a hefty growth rate and analysts seem to be valuing them on the fictitious EV/adjusted FCF and anytime a company is being valued on a non-traditional metric, that usually points to something being fucked up (and in this case the fucked up is the earnings which are less positive than Don Rickles at an ugly convention).  The company is up 4% on today's upgrade but Money McBags thinks the valuation is way ahead of itself especially as the company relies on big deals, hence the rebound in the last half of last year.  Money McBags is staying away from this stock for now as it seems too rich despite a decent software offering and being in a market less penetrated than Ellen Degeneres, but it is that market potential that keeps SFSF on his radar.

And don't forget Money McBags is now testing out twitter, for reals this time.