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.

2/11/10 Midday Report: EU says they will bail Greek out but offers few details, claims they were drunk at the time

The Greek debt crisis in Europe is still causing uncertainty in the markets as the leaders of the EU gave a tepid, vague, and Spicoli-ian response to their discussions and plans to bailout the Greeks.  The president of the EU, some guy named Jose Barroso who also doubles as the Prime Minister of some place called Portugal where he is said to survive off of the magic lillies from the river Tejo opined: “There is an accord."   He then went on to give a little more detail by saying: "it's a Honda Accord, but still it's an accord.  Oh I keed I keed.  We have a great accord, for me to poop on" as apparently Triumph the Insult Comic Dog is big in Portugal these days.  German Chancellor Angela Merkel then said: “Greece won’t be left alone but there are rules and these rules must be adhered to. On this basis we will agree on a statement.”  Of course the rules are that Greece has to drastically cut its spending, increase many of its taxes, and be home before 9pm, but the good news is that the leaders of the EU have finally agreed on a statement.  So whoop-de-dam-doo, we have a statement.  Unfortunately Money McBags has yet to find that statement anywhere and unless the statement is "we're bailing out Greece, now pass the saganaki," it is unclear what has actually been accomplished despite Herman Von Rompuy claiming that the EU will provide "determined and coordinated action if needed."  That's great to know, really, but if you could provide that action BEFORE THE FUCKING EU IMPLODES, that would be much appreciated.  You know Mr. Von Rompuy, if that's even your real name, the rest of the world is trying to run an economic recovery here so could you stop pussyfooting around (unless it's your foot and Abbey Lee's pussy, then please take your time) and lend the Greeks some fucking money already.  Jeesh.  I haven't seen a supposed plan with fewer details since Hank Paulson scribbled his TARP strategy on the back of a napkin using only ketchup packets and Alan Greenspan's tears.  The EU leaders are being so vague they are making Sorities paradox look easier to reach a conclusion about than Sarah Jessica Parker's gender (trick question, because she's a tranny).

As for the US macro economy, initial claims for unemployment were out today showing a drop of 43k last week to 440k overall.  This is lowest level in five weeks and may signal a "drop in the administrative backlog" which of course was likely caused by not having enough administrators to process the claims since most of the administrators had been laid off.  The US economy appears to be stagnant right now and the question remains how long any recovery will take. 

As for stocks, Pepsi reported an inline quarter and reaffirmed guidance and announced they will be increasing their share buy backs due to stronger than expected free cash flow.  Earnings were driven by their snacks business line which feature such products as Doritos, Lays, and their new launch of Cheetos's Atherosclerosis sticks with the slogan "turning even your heart attacks orange."  The company thinks they will have low teens 2010 earnings growth and is currently trading at a perfectly respectable 15x 2010 estimates.  If Money McBags did not pick KO in the Pepsi challenge, he might consider adding a little PEP here.

In small cap news, not a lot is going on today as WGO is about to drop through ther support levels and EBIX is about to test the $14 level.  As far as new information, an analyst from SocGen initiated coverage on KITD with a sell rating and a $9 price target citing concerns about KITD's lack of profitability, potential future goodwill impairments, and receivables growth outpacing revenue growth.  Now just two weeks ago Money McBags broke down KITD for all of you with the main points being that they are in a growing market and are forecasting $13.5MM of EBITDA next year while trading at cheap EV/EBITDA and revenue multiples.  As for SocGen's criticisms, first of all, a bank that almost went under due to a fraudulent trade shouldn't throw stones, unless those stones are made of diamonds, gold bullion, and Alexs Texas's behind and aimed at those investors who lost money.  Secondly, KITD's receiveables did rise as they made several acquisitions and consolidated those receivables.  The hope is that their collections will be better than the acquiree's and that they can churn out better revenue growth.  Money McBags does agree that it is something which needs to be watched.  However, SocGen's valuation might as well have been written in French because it makes less sense than people who give a crap about the Sports Illustrated Swimsuit issue (not that Money McBags is against scantily clad lovely ladies, but we have something called the internet which makes the SI Swimsuit model look about as risque as a Nun showing some ankle or Jay Leno's monolgues.  Honestly, the most entertaining part of the SI Swimuit issue this year was finding out there is a model named Cintia Dicker (dicker?  Money McBags doesn't even know her.  Though to be honest, he would do more than just dick her)).  The analyst's $9 valuation is achieved by taking some weighted valuations (including a $10.60 value derived from a DCF, which is higher than the current $10 price) and applying some sort of sector, company, and speculative discounts to that weighted valuation (why the discount isn't just put into the actual discount rate of the valuation is beyond Money McBags, but then again, so is the appeal of American Idol, so what do I know?).  Anyway, Money McBags hasn't seen anything that contrived since Michael Jackson married Elvis's granddaughter.  The analyst took down the valuation by 5% based on "company appeal" because of KITD's low liquidity.  Excuse-moi?  Comment t'appelles tu?  Merde Tete?  The main point is KITD is a speculative play, something which Money McBags said in his initial review of them and that is why Money McBags is not yet an owner.  That said, the company is a market leader in a fast growing market.  Yes, the acquisition model is a bit worrisome and the management team is a bit too salesy, but there is real potential for a company like this with locked in recurring revenues from Fortune 100 companies, to be a big winner.  It is worth following KITD and maybe even buying if you can comfortable with the risks, that said, it is not a "sell" as SocGen so daintily pulled out of their derrieres.