2/1/10 Midday Report: Pat Sajak miffed as $3.8T budget allows government to buy as many vowels as they'd like.

Obama's budget is out and it looks like more stimulus is coming as the administration continues to try to sweep the recession under the rug (though I hear it is a delightful afgahn this time as Mrs. Obama has uncomparable taste).  The budget is roughly $3.8T which is equivalent to 190MM lap dances or as it is known in the NFL, "Wednesday."  Who knows, spending our way out of this recession may work, as I have found that spending my way out of depressions by dropping $20 bills like they're unpinned hand grenades (which is fast, furious, and with immaculate precision) at my local Rick's cabaret, is a suitable remedy.  Basically, the new budget is attempting to buy more time for the economy to recover on its own while channeling its inner Keynes and hoping the multiplier on GDP is somewhere near 1 billion.  Given the exponential pace of technological innovation and Keynes' logically thought out and unprovable equations (like all of economics with its oh so idealisitic goals which never work in the complexity of the real world, like a contractor with no competition or anything made in China) it is possible it could work.  The only problem is it gives investors more mixed signals than an indecisive three year old with tourettes.  Q4 GDP seemed decent, but it was driven largely by stimulus spend so it is hard to gauge if the economy really did improve (Money McBags maintains that inventories were just being built back up and may have even overshot their targets since consumer spend was stimulus driven).  Of course, to pay for the new stimulus, taxes will go up on the evil banks who we bailed out who continue to get money for free, big businesses, oil, gas and coal producers, people who make more than $250k, and Gabe Kaplan.  But fear not because the budget does contain a plan to trim future deficits to give or take $1T (that is unless things remain bad) so Keynesians can still rejoice that in either case the US will still owe a fuckload of money.

In macro news, the market is up today as the ISM reported that manufacturing in the US expanded at its fastest rate since August of 2004, back when everyone was buying new flat screen tvs for the 8 houses they were about to flip.  The index rose to 58.4, besting analysts forecasts and the 54.9 reading of December.  Anything over 50 signals expansion which means my pants are constantly over 50 whenever Jessica Simpson comes over for dinner.  Also, personal income was up .4% slightly ahead of estimates while consumer spending was also up .2% but below estimates.

In stock news, Exxon Mobil's proft fell 23% but they still beat estimates thanks to their exploration and production businesses as well as higher oil prices (OPEC this, bitches).  They did have some weakness in refining to the tune of a $287MM loss which may signal a shift from those gas guzzling SUVs and will likely require CEO Lee Raymond to stop double dipping his balls in gold (only one dip now Mr. Raymond).

In small stock news ARTG and ISYS both beat estimates and yet are trading very differently today with ARTG, to use a technical term, taking it in the yingus.  ARTG provides services to help power and optimitize e-commerce and we all know that even in this poor economy, e-commerce continues to grow faster than a Yeti's taint hair (and trust me that is fast, but don't ask how I know).   They earned $.06 non-gaap on 9% revenue growth and recurring revenue grew to over 50%.  They did around $10MM of EBITDA which would put them at a EV/EBITDA run rate of 10x to 11x but if they can continue to grow even modestly, they could earn almost $.30 next year.  With $85MM in cash, the company is now trading at around 13x next year's earnings with a nice cash cushion, though not as nice as Carmen Kinsley's cushion.  But here's the thing, they annonuced a 25MM share offering today despite all of that cash and gave the bland statement that it is for working capital and other general corporate purposes, such as possible acquisitions and the beginning of "Lobster Tail Tuesday's" in the company cafeteria.  With 134MM shares already outstanding, adding another 25MM dilutes the company by about 16% and thus the previous numbers all have to be reduced (the $.30 eps this year is more like $.25).  The stock is down 10% on the dilution, so actually up a bit on the decent quarter and now trading at around 16x a potential $.25 eps number which is still relatively cheap for a company growing like ARTG and selling at a lower multiple than comps.  The big unknown is why a company with $85MM in cash and with positive cash flow from operations who could have been an acquisition candidate themselves, needs to dilute shareholders for another $100MM.  Their biggest competitor is IBM so clearly $180MM is not going to allow them to take over Big Blue, so the question becomes who do they plan to buy with the capital raise or what business do they plan to enter?  Money McBags awaits to get some clarity on their use of cash but the company remains in an advantaged market and is trading at a reasonable, though not cheap multiple, so deserves paying attention to.  As for ISYS, they earned $37MM in revenue and had net income grow 50% to $2MM with gross margins expanding above their target 37% to 38.4%.  ISYS basically builds satellite systems for the military and after going through a few years of CEO turmoil and being in tertiary businesses, they have seemingly turned the company around and started to focus on their core capabilities.  The company has talked about a goal for 2010 of $20MM of EBITDA (analysts are closer to $15MM) and the company currently has about a $120MM enterprise value so is trading at 6x EV/EBITDA that goal.  Of course, the recent Q had $2.5ishMM of EBITDA so the $20MM relies on the rest of the year to pick-up.  They are up 5% today on their decent Q and if they can continue to improve margins and win deals, they could easily trade above $10.  It's not the sexiest company in the world, but the relaince on military spending which per Obama's new budget isn't subject to the discretionary freeze, should give them ample revenue opportunities.

1/27/10 Midday Report: In bid to increase approval ratings, Obama to unveil Apple Tablet at State of the Union address as a panacea for US budget problems

The market continues to limp it's way down as investors await tonight's State of the Union address where President Obama is likely to whip out his small business tax breaks and smack them against a non-defense discretionary spending budget freeze.  This budget freeze supposedly applies to 17% of the Federal budget and will have enough loopholes in it to make it less well-followed than the failed reality TV series: Federal Reserve Bank Governor Idol (though Sandra Pianalto yelling at Chuck Evans for leaving the toilet seat up in the house was must see TV).  It does likely mean that the president won't be getting the X-Box he asked for for his birthday as times are tough.  In addition to Obama going after the budget tonight, Apple is set to finally release their new tablet which has techies more excited than they were for the release of Avatar, extra-strength Accutane, or Olivia Munn's Princess Leia photos.  Honestly, Money McBags has not seen anything this eagerly anticipated since the release of those vapidly redundant Harry Potter books or Hanna Hilton's first girl on girl scene (and Money McBags gave that two bums up).  The tablet is supposed to be so awesome that it is said to have cured Steve Jobs' cancer and to run on the tears of baby unicorns.  And finally, the FOMC is meeting today with Bernanke expected to keep rates at their current 0 to 25bps or what we in the business call "free."

While the market awaits that news, there were some macro-reports that came out which highlight the worries people are starting to get about the economy.  New home sales fell in December by 7.6% and were short of expectations as analysts expected sales to rise (and I believe this now makes analysts' incorrect prediction of the simple 50-50 guess at the direction of home sales statistically significant at the 95% level, so they've got that going for them).  Home sales were down as a result of the government tax breaks drying up and the forgotten fact that no one has any money.  Plus as the job market is more frozen than an Alaskan's nuts after a midnight skinny dip in Lake Chilkoot (and yes that is really the name of Lake in Alaska), people simply aren't moving.

In world news, Greece teeters on bankruptcy causing investors to stock up on credit default swaps of sovereign debt and all the tzatziki sauce on which they can get their hands.  Greece is trying to remedy the situation by pawning off 25B of Euro bonds to China as well as stadium naming rights to the Parthenon, and the Golden Fleece.  The flight to quality and away from sovereign debt like Greece has caused one month treasuries to have a negative yield for the first time since March of last year which is about as good of an omen for the stock market as stairs are for Stephen Hawking.

Berkshire Hathaway's B shares are shooting up today like a young Drew Barrymore as word is they will be added to the S&P 500 index after their acquisition of BNI.  Also, Toyota announced they will be shutting down production on eight lines of cars which make up 57% of their 2009 sales due to problems with the accelerator pedals seemingly caused by something called a friction lever.  A friction lever joke is way too easy for Money McBags but this bears watching as the street wonders if Toyota has started to slack on their quality which has been their competitive advantage.  In other stock news, YHOO turned a profit despite a 4% drop in year over year revenue.  Revenue was up 10% sequentially and management said they see search revenue stabilizing so any investor who wants to own a portfolio of market laggards, now is your time to buy.

As for small cap stocks, ZAGG once again continues to trade down making Money McBags' bet on 12/31/09 seem even better as it was likely risk free.  So just remember, betting against Money McBags is like challenging Greg Oden to a cock off (very NSFW or actually anyone, but the news needs reporting), you can't possibly win.  And SMCI put up a huge quarter.  Now SMCI basically makes custom servers and server solutions for businesses, usually being the first to market with new INTC chips, hence the Nehalem release has been driving new business for them.  They just put up $.22 of earning per share on $182MM of revenue (up 42% y/y), easily beating analyst estimates of $.17 and $160MM.  The company also gave above street guidance of $.18 to $.21 eps for next Q and $180MM of revenue in what is typically a down quarter for the industry.  SMCI is an extremely well run little niche company with $82MM of cash on their balance sheet and no debt.  They have a competitive advantage in that they are small and nimble (like Speedy Gonzales or the slightly smaller and more nimble, Shawn Johnson) and therefore can be first to market and customize at the same time.  The company may be peaking but on the call management said they could get back to 30% growth rates as the end of the year should be good for them with AMD and INTC introducing new products.  Estimates for fiscal 2011 are for around $1.10 and they are currently trading at 13 or so times that not including their cash after today's run up.  This should be a cyclical company and this may be the top of the cycle as they have just strung together some very good quarters so Money McBags would not be buying today as the easy money has likely been made.  That said, this really is a quality company and has proven over time that they are good at what they do and well managed.  Should there be a dip, this is definitely a company to accumulate but either way it is worth doing your own research here as they could continue to outperform.

1/22/10 Midday Report: Volcker? I hardly even know her.

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