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.

6/22/10 Midafternoon Report: Home Un-Improvement

The market had trouble finding a direction for most of the day as news is thin and the summer is beginning so most volume is moving to the Hamptons where portfolio managers can sip on lemonade, listen to yacht rock, and denigrate the poor all while ignoring the economic data which has been so lackluster that it is in line for its own NBC prime time sitcom (tentatively titled:  Just Dilute Me!).  There was one bit of macro data released today which was about as encouraging as the letter "L" is to Jackie Chan on a read through script and helped send the market tumbling end of day.  Purchases of existing homes fell last month and somehow analysts are surprised about that since reading comprehension is not one of their strong suits and thus they missed the part about the government tax credit running out and sales being pulled forward like Eddy Curry's pay check.  Home sales dropped 2.2% from last month despite near record low mortgage rates and falling prices and are now starting to roll over and play dead like a trained circus dog or Brittany Murphy.  The best part is that the National Association of Realtors is blaming part of the drop on a processing delay which is holding up 180k mortgages as apparently the red "Rejected" stamp has run out of ink.  Analysts guessed sales would be up 5.5% to 6.12MM homes which was such a close guess that it only missed by a nut hair, that is if the nut hair belonged to a brontosaurus, and not any brontosaurus, but a brontosauros with elephantitis of the nuts.  But hey, maybe the 180k "processing" hold up was real (though something smells fishier about it than Paris Hilton's penis flytrap after pissing out a Long John Silver's fish taco platter with extra tartar sauce because Money McBags doesn't remember hearing about any processing holdups when 7MM+ mortgages, or 25%+ more than last month, were being processed monthly in 2005, but whatever).  Anyway, if we assume the hold up was real and add the 180k home sales that were delayed due to "processing" to the monthly figures, exisiting home sales would have been up .8% which is still way fucking short of the 5.5% increase analysts guessed.  And making it even worse is that analysts used a lower number to build their forecasts as last month's sales were just readjusted upwards to the 579k number so analysts were actually forecasting greater than 6% growth.  Money McBags hasn't seen a miss this bad since Men Who Stare at Goats (and really, that movie was so fucking awful Money McBags wanted to stare in to the fucking sun so his retinas would burn and thus he wouldn't have to watch the whole movie) or any economics paper released by Art Laffer.  With the expiration of the government tax credit, the real question is if home sales are merely taking a breather after an artifically pulled forward sales surge or if the housing market is about to take another dip and send the economy back to it's bad place. 

In international news, Britain released a new emergency budget which includes an additional 17B Euro of budget cuts (25B Euro in total, or about what Money McBags would pay Britain for a chance to have Lucy Pinder and Nikkala Stott star in his personal home movie "The Mystery of Bonehenge").  The cuts are aimed at stricter rules for what qualifies someone to get disability pay (simply listening to Madonna's music will no longer be considered a disability, though listening to it and liking it will remain a sign of real impairment as only the auditorily challenged can bear that shit), a freezing of welfare benefits, an increase in the value added tax from 17.5% to 20%, a new tax on banks, and the biggest revenue generator will be a fine levied on those with crooked teeth.  In other international news, the yuan fell back a bit after yesterday's rise as the Chinese government is determined not to let it appreciate too quickly for fear of losing a large part of their manipulated competitive advantage.  Chinese state owned banks are now buying up dollars to either prevent a rapid yuan appreciation or to have more worthless paper to burn to keep warm when fiat currencies fail and the world reinstitutes the barter system.

In stock news, Walgreens announced a crappier than expected quarter and is trading down as if it spilled 1B tons of oil in to the Gulf.  The stock was down 7% after revenues rose 6% and earnings came in at ~$.53 taking out one-time charges which was $.04 below analyst estimates.  Speaking of Gulf oil spills, BP was down another ~3% today because it still has not hit zero (and yes, Money McBags is going to use that same joke every day until BP is actually at zero which will be sometime between tomorrow and when investors get their heads out of their asses).  And finally, AAPL is up today because in direct opposition to BP, it hasn't reached infinity yet.  AAPL's price target was raised by Deutsche Bank to $375 based on their new iPhone 4 release, the continued strong sales of the iPad, and a need to publish research to get portfolio managers to trade with Deutsche Bank.

In small cap news, WGO sold off hard on no news that Money McBags could find other than perhaps people realizing that paying more than 30x for a company in a declining industry with an expensive discretionary consumer product and a fleet of cheaper alternatives, is probably not the best thing to own.  Shit, Money McBags would rather own NTZ which might be the worst idea for a business right now (high end furniture in Europe), worse than even selling ice to eskimos, unfunny jokes to Jay Leno, or panties to Britney Spears.  The difference between NTZ and WGO of course is that NTZ is trading like it is a stupid fucking business while WGO is trading like it is selling super powered iPhones which give off pheremones to attract Aubrey O'Day rather than $100k gas guzzling unnecessary RVs.  After last Q, Money McBags hesitantly raised his WGO top end target to $9 from $7.50, so there is still plenty of room for the stock to go down.  In other small cap news NTRI has continued to try to make a run.  Money McBags wrote about them after thier last Q and they remain a very interesting watch list name as the company has a ton of earnings power, trades like a momentum name, and just put up a quarter of positive new customer growth which fuels their sales.  It's still a bit early for this company as they keep fucking up their ad spend and their affiliate program sucked a donkey dick (which was certainly pleasurable for Eeyore, yet did nothing for investors) to the tune of a $3MM charge last Q, so management clearly needs to figure out how to better execute (perhaps they should ask the state of Utah for ideas) but it's trading inline-ish with peers, has a nice dividend, and if they can put up a good next Q should have significant upside.  The only problem is Money McBags doesn't have a lot of faith that next Q will be good and he doesn't gamble (unless he is in Las Vegas, Atlantic City, his apartment, the car, etc..), so he is not going to buy.  Money McBags prefers more certainty than he has for NTRI right now so while it has a number of things going right, Money McBags would still just be guessing at their next Q.  One data point is good, two are better, three is a trend, and four is time to think about selling.  We're at the first data point now, so do your due dilligence.

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.

6/16/10 Midday Report: BP sets aside $20B to be used on an oily day

First of all, Money McBags would like to thank all of you for your feedback yesterday.  His inbox is currently overflowing like Whitezilla's urethra after downing three cases of Mountain Dew in ten minutes (and feel free to google "Whitezilla" on your own time, Money McBags refuses to link to it due to good taste) but he promises to try to get back to each and everyone of you.  The feedback was helpful as Money McBags learned that he does both too much analysis and not enough, the posts are both too long and too short, and the jokes both add to the analysis and detract from it.  The only thing that was universal was that his readers love the pics so Money McBags is thinking of dropping all subject matter, words, and rational thought and turning WGP into another NSFW photo site.  Anyway, Money McBags is still just short of his goal of 1MM visitors so if you all could spread the word, he will be able to continue to provide you with what you like best.

In macro news today, US housing starts declined by 10% to their lowest level since December (driven by a 17% drop in single family home building ) as the government tax credit finally disappeared like poor old Yorick did from the Danish royal court back in the day or America's global domination.  Not only did housing starts drop but they were way below analyst guesses as data and common sense apparently don't figure in to analysts' regression models (and Money McBags is anxiously awaiting the day analyst guesses regress to some fucking mean where the mean isn't "dead wrong" or "not even fucking close").  Analysts guessed housing starts would come in at 650k, which would have been down 22k from last month's 672k or down only 9k from the Commerce department's newly manipulated number from last month of 659k (though the Commerce department uses the less pointed word: "readjusted").  In actuality, new housing starts were 593k, which is the 10% drop that is being reported, but since analysts used the 672k number released last month in their models (and not the newly made up 659k number), the drop was really 13% which shows that analyst models work as well as a union member in Greece or a Rush Limbaugh marriage (but hey, maybe the 4th time will be the charm).  So by "readjusting" last month's number, the market got the bump from a better than expected number in April and now doesn't feel as bad about the drop since it's being reported as 10% and not 13%.  That is mind fucking boggling.  Money McBags has less faith in any of these numbers than Elin Nordegren has faith that Tiger Woods wasn't "sinking his putts" in only grassy holes.

But the most mind numbing thing about it all is that analysts were expecting only a 3% fucking drop.  Really?  I guess the government PUBLICLY announcing that the first time home buyers' tax credit was going away didn't make it up to the top of the ivory fucking towers on Wall Street where analysts dance their fat tails around pictures of Carl Freidrich Gauss while discussing their homoskedasticity and ignoring common fucking sense.  Look, last month was a record month for new home starts and featured a 6% increase which was the most since October 2008, so the rational person would probably start with saying this month will probably feature a 6% decline, you know, the amount of the ARTIFICIALLY INFLATED (as opposed to artificially fellated) increase last month.  And since the economy has improved by at most a Herve Vellachaize nut hair since then, why don't we start by knocking some shit off the 6%, I don't know lets call the baseline a fucking 8% decrease and then based on which way the wind is blowing, we'll move it a couple % from there.  Is that so fucking hard?  While it's an out of the ordinary least squares regression and the coefficient of determination may be less determinable than Caster Semenya's gender, it makes a fuck load more sense than whatever analysts are doing.  So here's the deal.  Money McBags isn't going to open up his excel, he isn't going to look at any data or any trends, and he's going to spend fewer than 10 seconds on this guess but he'll say next month's new housing starts will come in a 585k, a slight downtick from this month as the economy remains stagnant and those people who rushed to get the tax break the other month will still have a negative effect on the absolute number of housing starts.  Anyone want to bet if that guess is better than the econometrically arrived at bullshit spewed by the economists on the street whose PhDs are less practical than a bridge to Gravina Island?  Rant fucking over, but Wall Street analysts, it's on like Donkey Kong and this fucking Mario is going to save the princess.

In other macro news, manufacturing expanded by 1.2%, building on its .7% gain last month, and setting everyone up for a bigger drop when no one buys rebuilt inventories because they don't have fucking jobs.  Capacity utilization at manufacturing plants was up slightly and companies like Deere are seeing improvement as they said sales of utility tractors rose in the “double digits”  last month, largely due to the need to shovel all of the shit economists have been spewing about the economy.  Also, Producer prices fell .3%, or rose .2% if one uses the ridiculously derived core PPI that excludes food, energy, and intelligence.  These low prices give the Fed a longer time frame to hold rates flat and reinflate the bubble (I mean economy).

Internationally, France and Spain are increasing their austerity plans.  France has pledged to raise the retirement age by 2 years from 60 to 62 (though since they use the metric system, Money McBags believes that really translates to 29 years old), wants to raise income taxes on the rich, and will start charging fees based on the amount of armpit hair their women are sporting.  Leaks of the proposed actions have somehow caused the French to once again surrender to the Germans while praying to the great Jerry Lewis that he'll dump the MDA and adopt them as the new enfants de Jerry.  C'est dommage bitches!   Spain is also getting frisky with their workers again (though if those workers include Helen Lindes, who can blame them?).  The Spanish prime minister Jose Luis Rodriguez Zapata, who never saw a spanish name he couldn't add to his own, is seeking to spur full time hiring by employers while easing their layoff burden in order to get unemployment to drop from 20% to Spain's historic unemployment rate of 19%.  Money McBags isn't sayng the people of Spain don't work, well, actually, that's exactly what he is saying.

In stock news, Fannie Mae and Freddie Mac have been told to delist from the stock exchange though the FHFA's acting director Edward J. DeMarco (and the J apparently stands for "just kidding") said that the action "does not constitute any reflection on either enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of F.H.F.A. as regulator or conservator.”  Really?  The performance of those two shitawful enterprises which has led their stock prices to drop below $1 because no one wants to fucking own them is not a "reflection of current or future performance?"  Fuck, if that's the case then markets are terribly inefficient (which they are thanks to high frequency traders) and Mr. DeMarco should sink his entire life savings into those shitrags (and Money McBags says shitrags with all due respect).  In other company news,  BP's credit default swaps are now showing a 40% chance of default which means the market is only mispricing them by 60% so if you can, there is money to be made here despite BP agreeing to put $20B in escrow to pay claims from the oil spill while somehow also creating enough new water to drain the entire Gulf and refill the whole fucking thing since they've basically ruined that natural habitat like Robin Williams ruined comedy or Simona Halep ruined her post tennis marketability (and ask Soleil Moon-Frye what losing one's Punky Brewsters can do to one's career).  In other stock news, Fed Ex is down despite a good Q thanks to a disappointing outlook casued by growing pension liabilites and increased maintenace spend needed for their aircrafts.  Now Money Mcbags doesn't want to sound overly morbid here, but why not just not fix the planes and have the older workers fly them and thus kill two birds with one stone (figuratively and literally).

In small cap news, QCOR is up another 10% despite getting the Heisman from the FDA on Friday, pushing back the decision on approving Achtar for IS for the 9 billionth time.  Money McBags has talked about this ad nauseum (though not as nauseum as Lady Gaga's face, or her music) and he likes the company, especially with the potential for the NS market, but the stock is starting to get overvalued here.  Money McBags only has them earning $.60 next year and their gross sales were actually a bit disappointing this last Q.  Net sales had been running at ~68% of gross sales and this last Q they were 78% and Money McBags still hasn't heard why that was other than perhaps their reimbursement issues with Tricare were fixed.  The point is, Money McBags thinks this Q coming up will disappoint and you will get a better opportunity to buy this in a couple of months.  That said, the CEO has done a nice job turning this company around and pointing them in the right direction.  Finally, keep your eyes open for WGO's earnings report tomorrow to see if their core business can break even and how much cash from operations they burn.  They might have one more decent manipulatedly good quarter, but this stock is looking at a bigger uphill climb than Stedman Graham has to take on "couples night."

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).

6/4/10 Midafternoon Report: Jobs report challenges Marmaduke movie for biggest bomb released on Friday

The (No) Labor Department's jobs report came out today and was well below analyst guesses which sent the market tumbling like Tony Hayward's Q score at a Greenpeace convention.  The US added 431k jobs in May which was the biggest increase in a single month in over a decade since the internet was founded and needed people to set up all of the tubes.  While on the surface that number seems spanktastic (though not nearly as spanktastic as Rosie Huntington-Whiteley who Money McBags would let hunt his whitey anytime), the market was surprisingly not fooled by it.  First of all, analysts had guessed 500k jobs would be created so the actual number came up shorter than a Kristen Bell skirt or Bernie Madoff's alibi.  But what makes matter worse is if one digs in to the numbers it is doubtful any real jobs were created despite the government claiming that a whopping 41k private sector jobs were created, and honestly, bragging about 41k private sector jobs being created is like bragging that you won the spelling bee on the short bus.  But let's look at the numbers more closely.

Of the 431k jobs created, 411k were temporary census workers and 31k were temporary service workers.  So already were at a net -11k permanent job creation number unless the government decides to turn the US into Oceania and thus take a new census every month thereby making those temporary jobs permanent.  Now the Labor Department said the government cut 20k permanent jobs so the 411k census jobs added led to a net 391k new government jobs.  So since the top line number was 431K, they solve for x in 431k - x = 391k and get "you're fucked," I mean ~40k for private sector job growth.  But here's the thing, as we said above, 31k of those ~40k were temporary fucking jobs so even using the government's hunky dory jobs created numbers, there were only ~10k PERMANENT private jobs added to the economy or 10k total permanent jobs lost including the government figures.  That number is more piss awful than having to listen to Lynyrd Skynyrd put to music any of George Will's essays about baseball.  But wait, it gets even fucking worse, like being married for 21 years, or being for 21 years and then finding out your spouse was gay the whole time, and yes I mean you Fran Drescher (though to be fair, having to hear Fran Drescher every morning might turn Money McBags gay as well).  You see the BLS uses something they call a birth death-model to estimate the lag between the creation of new businesses and the close of businesses that their survey misses in the short term.  They don't release the methodology so it is the biggest black box Money McBags has seen since Vanessa Del Rio graced the screen in the 1980s.  For May, the BLS' birth death model showed an increase of 215k jobs, which again is an estimate likely based on population levels, claims for unemployment, and shoving one's thumb far up one's own ass.  So based on our previous numbers where we showed 10k permanent private sector jobs were created and 10k overall permanent jobs were lost, we can now deduct a number somewhere between 0 and 215k from that (and Money McBags believes the number is closer to 215k since the birth-death model is likely more fictitious than strippers who dance just to put themselves through college) to get the real job DESTRUCTION number which was likely more negative than a disgruntled anion.  So we've got that going for us.

Other tidbits from the jobs report show that 6.8MM people have been out of work for more than 6 months, the average length of unemployment is now 34 weeks which is the longest period since the government started keeping track in 1948, and Chewbacca was a wookie.  Some may spin the drop in the unemployment rate from 9.9% to 9.7% as positive but that was more likely caused by people leaving the workforce as the Labor Force Participation Rate, which oddly enough measures the labor force participation of working age adults, decreased to 65.0% from 65.2%.  So no matter how the government spins the jobs number, it sucked harder than a young lady trying to fellate Whitezilla all by herself.

In international news, everything was down as the Euro broke through the critical $1.20 mark on its way to extinction.  Traders now see $1.18 as the next short term technical downside target for the Euro until it falls below that.  The latest fears coming out of Europe revolve around Hungary which is apparently starving for funding.  The newly elected vice president of Hungary, Lajos Kosa, channeled his inner Joe Biden late yesterday by saying that Hungary is in a Greece-like sovereign credit crisis.  In response Prime Minister Viktor Orban didn't deny the issues but did call Kosa a dicknut for speaking out of turn and promised to punish him by uninviting him to the new administration's meet and greet with Zita Gorog.  The new government is now in the process of determining the real state of the budget, and will report this weekend on whether they are fucked or just lovingly violated.  The fear of Hungary defaulting is causing a spike in european CDS and has caused the price of European default insurance to rise to it's highest price since Jean-Paul Marat forgot to lock his bathroom door.

In stock news, everything is down as the government can't even properly manipulate the economy anymore.  MCD is showing weakness because they annonced they will have to recall 12MM Shrek drinking glasses that contain the toxic metal cadmium.  The irony in this is that the cadmium glasses are still less toxic and better for you than the nine piece Chicken McNuggets.  And WMT had their annual shareholders meeting today where they announced a five year plan to add 500k jobs, insitute a $15B stock buyback plan, and continue to make the world a worse place.

In small cap news, WGO took it in the winnebago again today since the stock remains more overvalued than multi-family dwellings in Detroit before the subprime crash.  Money McBags has been through this before but the company is not going to make money this year and is trading at a valuation that makes less sense than the rules of cricket.  This is a best a $7.50 stock and on high volatility days it will get pitched around like the SS Minnow because valuation is based solely on hope and hope doesn't put food on the table (though Hope Dworaczyk could put her melons on Money McBags' table any day).  The fact is, every small cap closed down except for somehow CTGX, JOEZ, TZA, and TWM (and that last two are funny because they are leveraged small cap short ETFs) because no one wants to hold illiquid little shit when the economy is still struggling, Europe is going to 0, and we now have to give a fuck about some do-shit country called Hungary who dropped a steaming pile of ghoulash on the markets today.

Oh well, at least try to have a good weekend.

5/24/10 Midafternoon Report: American xenophobes shout "I told you so!" as european fears send US markets tumbling

Stocks were mostly flat today like they had no gaussian curvature or had Heidi Montag's singing voice until they took a nosedive over the final 30 minutes of trading.  Existing home sales in the US rose by 7.6% and bested analyst guesses thanks to the first time home buyers tax credit, foreclosure auctions, and promises by Sabrina Soto to intervene with buyers' real estate and show them where to properly lay their pipes.  While home sales were up, prices also rose 4% with the median home price now $173k, or three times the cost of Detroit.  Treasuries continued to gain in this uncertain market as investors sell out of their equity holdings and seek safety in bonds, even if those bonds are issued by a country whose debt is 2/3 of their GDP and a country who somehow thought naming a town Bumpass was a bright idea.  In other US news, the financial services industry is still trying to figure out how they will be affected by the financial reform bill which was recently passed by the Senate thanks to a collective dose of extracorporeal shock wave lithotripsy.  Many analysts think the bill will reduce profits but leave industry size and power intact, which is basically like castrating Lexington Steele.  While profits could be cut by 20%, financial service companies will no doubt find new ways to exploit loopholes and the cornholes of average workers in order to extract maximum profits for doing nothing other than hitting buttons and passing paper.  Fear not though, Money McBags has a solution for America's impending debt problem that doesn't involve Faye Reagan offering to service said debt.  In an auction this weekend, the first US silver dollar which was minted in 1794 sold for  $7.5MM.  So all we need Bernanke to do is just mint a fuckload more silver dollars and fudge the dates on them.  Problem solved

In international news, the Bank of Spain bailed out a regional bank named Cajasur which of course is Spanish for "We suck at lending."  The bank is apparently largely controlled by the Catholic church whose strategy was to make up for losses by turning water into wine, unfortunately, they were less successful at that than Martin Luther was at keeping his complaints succinct (seriously, 95 fucking theses?  I mean we know the benches were too hard and chapped your ass cheeks, but couldn't you have left that one out and just made it 94?).  This marks the second time since 2009 that a regional bank has been bailed out by Spain and the also the second time since 2009 the Bank of Spain has put in longer than a two hour work day.  In other international news, Britain announced 6B euro in spending cuts.  They hope these cuts work out better than their spending cuts of 1932 which took dental care off of public health plans.  Among the cuts in the legislation are tighter restrictions on first class travel by public employees, advertising cuts for public projects, and less material to be used for the uniforms of the national soccer team.

In stock news, C was upgraded by Goldman Sachs to buy, most likely due to a typo or Goldman trying to pump C shares so GS's majority partner, the US government, can dump them.  C remains more full of shit than someone with Prader-Willi Syndrome and no anus.  The company is too big not to fail and has seen a talent drain similar to the third season of Flavor of Love.  Goldman analysts were busy today though as they also raised Sprint to a buy sending the stock up nearly 10%.  The reason for the upgrade was a potential lower churn as Sprint has likely already lost every customer they are going to lose.  Also, savings and loans banks reported their highest profit since 2007 when they were actively taking careless risks by lending money to people who couldn't afford to pay for haircuts, much less pay loans back.  Of course not even Thrift banks can screw up getting free money and lending it for more than free with the government ready to bail them out should anything go wrong (well, that is all Thrift banks except for maybe IndyMac).  Thus record profits aren't really anything to applaud as it is like applauding a hefty stripper in a Reno gentleman's club for convincing a patron to pay for a lap dance (and for those of you who have never been to a Reno strip club, they're all fucking hefty).

In small cap news, JOEZ was somehow up 8% despite small cap stocks being tossed off like a 21 year old virgin's wanker while guess 1629's NSFW muff.  Money McBags broke JOEZ down after their last Q and thinks they could earn between $.10 and $.15 per share in 2011 whic means the stock is now trading at 13x to 20x that but the concern is obviously that with Europe going to 0, people may not have money to spend and thus JOEZ's growth may slow.  While their jeans sales aren't directly related to Europe, the global economy is and the last time Money McBags checked, the US was part of the global economy.  Given the current market fear and dislocation, Money McBags has no interest in stepping in to JOEZ here, even if he'd be stepping in to the overpriced and stylish Outsider, but he is keeping abreast of the stock (though he wishes he were keeping stock of Brooklyn Decker's breasts instead).  In other small cap news, WGO continues their drop to $7.50 as high beta shit companies that rose for no reason are now becoming less in vogue than banana hammocks and Keynesian economics.  Money McBags has said this before but WGO is not going to make money this year and next year will be lucky to earn $.50 per share much less $1.20 and it is trading at 10x $1.20.  As long as the market continues to sink like all of Money McBags' hopes and dreams, WGO should be more than a big short (as opposed to these small shorts).  Finally, Money McBags dumped his DFZ today.  He loves the company and thinks they earn around $1.05 pretty easily next fiscal year with an accretive acquisition on the way.  That said, the stock is less liquid than a hefty corn shit and with the market structure broken, Money McBags doesn't want to get caught holding anything with no way to get out.  So he took his 25% profit and went home.

5/20/10 Midafternoon Report: S&P slides closer to next technical level of 0, most economists predict a bounce from there.

Fucking Europe.  Seriously.  First they tried to tax us without letting us represent ourselves and you know what, we don't play that way.  Then they got all upitty and burned down the White House while poor little James Madison sat on his gelding and got his S'mores on.  And after that we've had to bail them out of losing a fucking war to the worst human ever (and Money McBags does not mean Bill Laimbeer), got stuck with Pride and Prejudice being taught to every high school class in America, and were subjected to the fucking Spice Girls.  Really?  Jeesh.  As if Europe has not treated us poorly enough by using us like a young lady in Lawrence Taylor's hotel room, now they have decided to have their whole fucking economy go to $0 because the loose union of countries can't keep the weakest links from exhibiting worse moral hazard than Magic Johnson's wife after finding extra strength condoms.  Sure, we fucked up the whole financial system first, but for fucksake Europe, at least we know whom to blame.  So clean your shit up because Money McBags doesn't want to have another revolution and have to throw your tea away because his tea bagging is reserved for Faye Reagan only.  As an aside, Money McBags is aware that every example he used above refers to Britain and their tea and fucking krumpets eating, bad teeth having, and fag smoking nation, and that Britain does not use the Euro and therefore is not the problem.  That said, his commentary stands after all, we all know it wasn't over when the Germans bombed Pearl Harbor.

In US macro news, ain't a lot of good shit going on today.  New claims for unemployment spiked to 471k, up 25k from last week and the first rise in five weeks which surprised everyone but the 20MM people looking for jobs.  Riddle me this, with unemployment so high, how the fuck are all of these economists still getting paid for adding absolutely no value?  It is a more fraudulent occupation than the Chief Compliance Officer at Goldman Sachs or Lady GaGa's stylist.  Not only were new claims for unemployment up, but the index of leading indicators was down .1% which was worse than economist guesses for a .2% gain as apparently they confused the word "leading" with "made-up."  Finally, the Philadelphia Fed said manufacturing rose to 21.4 but was short of the 22 predicted by consensus estimates.  In that same report, the jobs number fell and more unemployment is only going to do wonders for the lovely metropolitan Philadelphia area where the motto is "if it's not nailed down, it's ours."

Politically, the SEC continues to investigate what is now being called the "flash crash" because "high frequency trade off," "stock schlock," and "holy fuck what just happened" apparently weren't catchy enough.  When they're done investigating the crash and can completely rule out trannie porn as the cause, Money McBags hopes they investigate why the market is going to $0.  Also, Senate Democrats apparently voted down a proposal for financial reform because Senators Feingold and Cantwell didn't think the proposed regulation went far enough and Money McBags applauds the state of Washington's lovely Ms. Cantwell who couldn't well pass the current legislation without stricter rules on derivatives.  The junior Senator said "Even something like Hoover Dam with all of the great concrete and all of the great engineering and all the great things that make that structure work, still has a problem if somebody drills a hole in the bottom of it."  Well said and to be brutally honest, Money McBags trusts any 51 year old single, never been married, woman when she talks about needing to proverbially put fingers in dykes.

Internationally, well, internationally things are more fucked than Dexter Manley in a spelling bee or Keynesian economics.  Germany's ban on naked short selling continues to spook the market as German traders all run to their nearest Breuninger's to load up on slacks.  Making matters worse is that Greek workers are on a 24 hour strike, or what used to be known as "Tuesday."  Money McBags isn't saying that Greek workers are lazy, but does it really take more than 300 years to clean up some rubble from the fucking Parthenon?  I mean we now have things called cranes and bulldozers.  Luckily, French economy minister Christine Lagarde said: “I absolutely do not think that the euro is in danger” before adding "it will provide great kindling for Europeans when they can no longer afford heat."

As for stock news, well, everything was down, especially financials though the always optimistic, rarely right, and yet deliciously named Dick Bove (rhymes with "oy vey") said banks stocks "may fall another 10% to 12% reflecting market fears but they are still very attractive investments."  He then opined, "Longer term, I still expect that these stocks will grow in multiples, not percentages, as long as we feed them after midnight, expose them to bright lights, and dunk them in water."   SPLS actually put up a good Q today, unfortunately the market cares less about performance than a John Meriwether investor.  Staples CEO said he is a little more optimistic than he has been and raised the low end of guidance for Q2.  Williams-Sonoma also posted better than expected profits, raised guidance, and said they are getting more positive about their customers coming back as apparently there is still a demographic that likes to buy overpriced shit that they don't need.  Also, Game Stop also put up a good quarter thanks to popular games like "Battlefield Bad Company 2," "God of War III," and "Erin Andrews Peephole Finder."  It's no surprise that a video game retailer would put up a good quarter because stoners are still selling the shit out of weed, something about inelastic demand.  Finally, Sears put up a shit awful Q simply because they are Sears.

In small cap news, everything is going haywire again except KITD has somehow moved up on another high volume day.  Money McBags has talked about KITD all week but their sell of was overdone if you believe management.  The spike in A/R has investors worried, especially as those receivables are tied to european revenues but management had a mostly logical response to the spike which Money McBags broke down the other day.  One of Money McBags' favorite small shorts (along with Bridget the Midget), WGO, has been getting hammered lately and he'd like to think it is because investors are finally realizing this company is not going to break even for at least another year and not just because everything is down.  WGO simply does not earn money and now that inventories have been un-destocked, they can't play the positive cash flow game anymore.  Even if WGO were to somehow earn money, for the stock to trade at its current price of ~$12.50, WGO would have to earn $1.25 next year because Money McBags would never pay more than 10x for a company selling an expensive discretionary good with little operational flexibility in the biggest recession since Herbert Hoover stuck to the gold standard.  So if you want to play the downside, shorting WGO is a decent option.  That said, when the market settles down, Money McBags will be looking to add with companies like CTGX, ARTG, TMRK, RICK, and QCOR on his to buy list.  But hey, be careful out there.

3/18/10 Midday Report: Market pauses to watch NCAA tournament, hopes boss isn't looking

There was a flurry of economic data released today but unfortunately it was less decisive than a sugar addict with a severe case of ADD in a candy store with only $.50 to spend.  Consumer prices remain unchanged, rising only .1% sequentially excluding food and fuel (or as they're better known as, essentials).  Consumer prices are now up 2.1% since last year but that is not enough for policy makers to be concerned about inflation as they they continue to test their thesis that if they ignore it, it will just go away.  In other macro news, the index of leading economic indicators was up .1% which was the smallest gain in a year and could signal slower growth ahead.  Of course since this is a ridiculous metric Money McBags could give a shit what it says.  He cares about as much about the leading economic indicators index as he does about creationism, show tunes, or Roseanne Barr's vagina.  New claims for unemployment  also came out and were down 5k to 457k which is still too high to signal a recovery (though no longer as high as Ron Washington during the seventh inning stretch).  Unemployment remains stagnant but at least the volatility has abated for now which is good news for anyone who still has a job, though remains bad news for those looking for one. Finally, manufacturing in the Philadelphia region rose again and at the fastest pace this year which should be good for handgun owners and anyone brave enough to drive into Philly to pick up whatever is being produced there.

In international news, Greece is dong a worse job of staying out of headlines than Peggy Eaton in 1829 (and for the record, Money McBags would love to have seen her petticoat).  Oh Greece, Money McBags thought he was done with you but you keep coming back like indigestion from a saganaki appetizer.  We all really wanted to believe in your austerity plan and the EU's tacit promise to back you up (thus figuratively taking you the Greek Way), but now there are doubts that the EU will really bail you out and Money McBags is stuck trying to think of more jokes about Hellenic culture.  Ugh.  Honestly, Money McBags may be more tapped out than Pheidippides during the Persian Wars.  So please EU, just bail these fuckers out or let them collapse but finish it already.  Otherwise Money McBags is going to have to start dipping into his Socrates pedophile jokes ("Did you know Socrates tried to start a clown college?  Yeah, he let his students juggle his balls.") and noboby wants to hear those.  Making things worse is Greek Prime Minister George Papadapolis trying to engage in some type of bail out game of chicken with the EU and German leader Angela Merkel (who in this pic gives a new definition to Merkle's boner) by claiming if the EU does not commit to a bail out plan, he will run like a jilted lover to the IMF to get some of that sweet sweet sugar.  The IMF coming to bail out Greece would be a blow to the solidarity of the Euro Union and not a delightful full tongue and lip blow, but one with lots of teeth.  In other international news, US ambassador to China John Huntsman spoke to students in China and said that China needs to let their currency rise because with the renminbi pegged to the US dollar, Chinese exports remain cheaper than Gary Coleman's rate sheet.

In stock news, Nike just did it (see look, Money McBags can write lame mainstream puns as well as anyone employed by Jay Leno) by putting up a huge quarter and reporting a jump in future orders (see, another mainstream pun).  Nike beat analysts estimates of $.89 eps by posting earnings of $1.01 per share as sales in the US and China were robust as more people are walking places after having their cars reposessed.  Also,  Teva is buying German drug maker Ratiofarm for $5B and the rights to their leading generic drug scatagra which is said to increase bowel movements and thus is widely used in Germany's top industry of scat film making. Finally, telecom company Vimpel was popped like a puss filled whitehead after missing analyst earnings estimates by $.14 per share.

In small cap news, Money McBags' short WGO announced their Q and surprised the whole investing world by actually putting up a profit of a whopping $.02 if you read the headlines.  Though apparently those same headline writers gave you Dewey defeats Truman and Four Stars for Ishtar because WGO only earned a profit due to a tax benefit of $2.2MM.  Take out the tax benefit and the company had an operating loss of $.07 which plays in to Money Mcbags thesis which he broke down for you all in December which is that this company will not make money in 2010.   Sure they put up a decent Q on the top line (short of analyst estimates though above Money McBags' estimates) as revenues were up 247% to $110.5MM as a result of increased orders for Class A vehicles (A standing for "Absolutely ridiculous that anyone would buy one of these things new," as the used market is more flooded than Faye Reagan's eye socket after the final scene of her last bukakke film).  WGO's sales order backlog was also up 250% and they now have $50MM in cash and short term investments thanks to the plethora of government tax benefits.  Even with this seemingly strong balance sheet (though apparently strong in the way that Richard Simmons is strong), they filed a shelf to raise $35MM.  Ummm, excuse me?  Guess what people, you don't dilute equity holders to raise $35MM of cash if the business is turning around.  It's not like they're going to acquire a smaller company so why do they need the $35MM?  Are they going to have a blow out night at Rick's Cabaret or are they going to try to blow up their vertical integration and build out more nimble production facilities?  Their overall cash was up $5MM in the past 6 months but if you strip out the $15MM tax benefit and the $5MM from sale of securities, they blew through $15MM.  With only $50MM left on the balance sheet (or a year and half worth at this rate), it's no wonder they are seeking to raise capital.  Inventories and receivables alone in the past 6 months have been a negative $21MM hit to their cash flow which I guess is good in that they are taking orders and building back up, but it's bad from you know, a fucking working capital standpoint.  Not only that, but their EBITDA was $0 for the Q which is better than the negative EBITDA they have been running but you know what zero EBITDA buys you?  It buys you a mix tape of Vern Troyer's greatest basketball dunks or a copy of Jessica Simpson's MENSA acceptance letter.  Look, it's good for their business that the Class A market is seemingly coming back, and it's good that they no longer have negative gross margins, but if anyone can tell Money McBags what valuation metric gets this company to their current $13.50 price (other than a 30x P/E multiple on FOS estimates, with FOS of course being "full of shit," or the new DCF type-valuation where the terminal value denominator is determined by picking the smallest known positive number), he'll buy you a share of ZAGG.  Look, Money McBags does not think WGO is going out of business, especially if they can raise another $35MM, but unless you think the recovery will be strong and unless you are using 2015 made-up estimates, there is just no way to defend the current valuation.  Fuck, Jim Bowie had an easier time defending the Alamo than anyone can in defending the WGO valuation.  Money McBags maintains that this is a $7 to $8 stock based on at best 15x their not going to make $.50 2011 EPS.  Money McBags has yet to listen to the call, so perhaps they shed light on the equity raise but he would rather own a used Magic Johnson leaky condom than WGO.

2/8/10 Midday Report: Debt crisis forces EU to pull Super Bowl ad, can only afford to broadcast it on new 24 hour Michael Bolton Hip Hop Channel

The market opened down again before bouncing back a bit as people are more worried about Europe's debt problems than they are about global warming, health care spending, and that thing on Drew Brees' face.  The President of the EU's Central Bank, Jean Claude Trichet (and it must be pointed out that his name is an anagram for "tend rich ejaculate," which is exactly what he is doing by tending to the crisis caused by an overspending splooge filled orgy by the already rich European bankers), is steadfast that Europe's debt problems are not an issue and budgets can be cut but he has as much sway on how Europe's countries operate as James Polk did over the Treaty of Guadalupe Hidalgo (Shout out to Nicholas Trist. Word word).  The point is Monsieur Trichet can recommend whatever he wants and can publicly fellate Greece/Portugal/the whole Iberian Peninsula until he is blue in the face (pun completely intended), but it will likely come down to the countries of the EU acting in unison to bail out a country (or several) which are irrelevant to them.  The EU is the ultimate free rider system for small countries like Greece to continually take risks since there are no real political repercussions as the rest of the EU has exactly zero votes in any Greek election or Greek policy.  So when Monsieur Trichet said over the weekend when being asked questions about Greece: "I doubt that, in a press conference, Ben Bernanke would have a question on Alaska or Massachusetts," that was a completely bogus, non-sensical, and irrelevant remark because Bernanke/the US Federal Government could absolutely fuck with Alaska or Massachusetts while all the EU can really do to Greece is tell them their kabobs were a little dry and to "maybe not suck so much at  managing your budet."  Any other line of action could potentially lead to a complete disbanding of the EU and that would be about as helpful to the global economy as Mr. Horton was helpul to Arnold and Dudley in picking out bikes in that very special Diff'rent Strokes.  The problem is that the EU may simply prove to be pareto inefficient, like lesbian porn where somehow adding a money shot would make everyone better off.

In US news, a flurry of blue chip upgrades are keeping the market from continuing it's sell-off.  Google was upgraded by Merrill Lynch/BAC (from hereon out to be known as "at least we're not Rodman Renshaw"), as the analyst cited their cheap valuation based on the metric he decided to use which would support that cheap valuation (mutiple of cash flow less cash).  Of course all the analyst had to do was point out GOOG's recent jizztastic quarter (and for those of you not down with the lingo, there are very few things that are better than jizztastic), the fact that they are down 10% since then, and say "They're fucking Google dipshits."   The other big upgrade was Home Dept being added to Morgan Stanley's best ideas list.  This caused Money McBags to also update his best idea list to now include a threesome with Hanna Hilton and Jessica Biel, lobster newburgh, and the light bulb.  Disney was also upgraded to neutral by Morgan Stanley due to an improving economic outlook and CIT hired a worldclass rain maker in John Thain to take over the company as it climbs out of bankruptcy.  Now Money McBags loves to deride CEOs for their bad decisions and big egos, but he is a fan of Mr. Thain who was able to actually get something for Merrill Lynch in selling it to BAC as the market was free-falling like Scott Lee Cohen's political career.  Thain is a terrific choice for the potentially undervalued CIT and this company deserves a new look by investors.

Interestingly, companies have been performing well this quarter with more than 73% of S&P 500 companies that have reported, beating analysts’ estimates which is the 2nd highest percentage since Bloomberg began tracking the data in 1993.  Of course, the market rose in anticipation of this since the market is more forward looking than Roman Polanski's dating rolodex (and seriously, if you don't get that one e-mail me at moneymcbags@gmail.com and I'll explain it).  So we're now at an important inflection point with Europe potentially imploding, the US maybe getting on solid footing, and jobs still harder to come by than an original or funny Jay Leno monologue.

In small cap news today, an analyst from Robert Baird (and if you've never heard of Robert Baird, don't worry, neither has Mrs. Baird) upgraded Winnebago from underperform to neutral based on "valuation."  Now Money McBags finds nothing more convincing than a valuation upgrade of a company who HAS NO EARNINGS and is not going have any earnings for 2010 and maybe even 2011.  That is awesome, really.  If Money McBags were to guess what the analyst based his valuation on, he would guess the number of shots of tequila that analyst had last night to dull the pain he feels for having to work at Robert Baird and not a sell side shop that people have heard of before.  After upgrading WGO, the analyst was seen climbing into his Edsel and heading to his home on Three Mile Island while eating a packet of pop rocks and chugging a coca cola. Now look, Money Mcbags does not have the report and does not know what Baird's price target for WGO is, but if it is anything above $8, it is way too much.  This was Money McBags' analysis of WGO from 2 months ago, and while his short call has worked about as well as the brakes on a Toyota Prius, he stands by that call like WGO stands by their losses.

Oh yeah, one more thing.  Money McBags preemptively signed up for twitter at this account www.twitter.com/moneymcbags He has no idea if he will ever use it, but it is there.

12/17/09 Midday Report: All the news sucks today, but will it swallow tomorrow?

A rash of negative news for the markets is out today.  The dollar is rising thanks to the Fed saying they believe the economy is strengthening (they conveniently left out the part about the quadrillion dollars they printed over the past year to strengthen said economy, but I understand that is a minor detail) and the Federal Reserve Bank of Philadelphia showing a positive increase in manufacturing in the Philly region (apparently guns, crack cocaine, and Allen Iverson jerseys are included in those manufacturing numbers).  This news is leading investors to bet on rates rising in the future and thus the trade out of equities and commodities is gaining a bit of momentum, like pants-less Tuesdays.

Other bad market news includes another downgrade of Greece, this time by S&P who is now giving the country a Triple-B rating (while Maria Menonous maintains her double D rating), citing the country's lingering inability to collect remunerations from the Grecco-Persian wars, the gag-inducing contributions to the entertainment world by Nia Vardalos's opus, and the fact that they have a fuckload of debt with 16% of their GDP tied to the tourism industry in a global economy where no one can fucking afford to travel except for Tiger Woods' wife.  If Greece doesn't either collapse or fix their debt structure soon, Money McBags may have to hang it up because his stable of Greek jokes is thinner than Socrates defense for "corrupting" the "minds" of young men.

The final blow to the market today was that weekly claims for unemployment went up for the second straight week while analysts were expecting them to drop.  While the four week trend is still down, two rising weeks in a row is not a good signal, unless you hate people working.  So the market is down because the economy is both strengthening (rates may rise) and getting worse (new jobless claims are up), heads you win, tails I fucking lose.  Why do I even play this game?

In stock news, RICK is running into earnings tonight as it is cheaper than a used broken condom.  If they can show positive profitability trends in their Vegas club, they could double by next year.  Money McBags' favorite short WGO also reported this morning and said they are seeing improvement with backlog up 350%.  What they tried not to mention too much is that they still lost $.14 in the Q (don't be fooled by that tax break), are still going to lose money next Q, burned $7MM in cash., saw market retail sales continue to plummet (down 31%), and still produce an overpriced product that no one can afford to fucking buy.  While new tax breaks helped them out, today's action is the usual short covering of fickle investors.  WGO has less chance of  being profitable this year than Paris Hilton does of giving the annual MENSA address in Latin, so Money McBags would be getting ready to re-short this in the next few days.  Oh yeah, as predicted, no one wants to buy C stock, something about not wanting to own a terribly run company with worse risk management capabilities than Chris Henry.

Short Idea: Winnebago (Ticker: WGO), That's not a Winnebago in my pants, but I am happy to see you

What they do:  They sell really expensive unneeded RVs.  Apparently people use them to go camping and drive cross country and shit.  Money McBags is not sure why people do either of those things since we have hotels and planes and thus camping and driving are so 1920s, but Money McBags also does not understand  this Lady Gaga thing so whatever.  The point is, RVs are expensive and we are in a little bit of an economic downturn (which you may have known had you been able to afford a computer to read this.).

Why Money McBags Thnks They Suck:

1. Their margins are truly gross:  Due to the fact that their production pretty much all takes place in their plant in Forest City, Iowa (where the men are men and the sheep are scared), they have huge fixed costs.  The fixed costs are so large that their gross margins are currently negative.  That's right, negative gross margins.  So it costs them more to make a Winnebago than it does to sell one.  It's like using an AIDS clinic as your dating pool.  Even when you score, you lose.  For the last year, their cost of production (and remember, this is before SG&A) was 114% of their selling price.  Now the market has bottomed for them and this should start getting better as dealer inventory picks up a bit, but even in their most recent Q it still cost them 3% more to make an RV than to sell one.  You don't need to be a maffematician to see the problem with this.

2.  Vertical integration ain't what it used to be:  As noted above, WGO's fixed costs are so ginormous, they are sunk before they even make a delivery, but the worst part is they can't do anything to fix it.  Since they have one plant that produces pretty much everything, they can't outsource parts of the process to cheaper plants in Mexico or Compton or wherever cheap labor is.  They are stuck with what they have and in order to be profitable with their given logistics, they would need to deliver about 1,800 RVs a quarter.  1,800 RVs, that sounds fairly easy, right?  I mean that's only about 35 RVs per state per quarter.  But guess what, in this last Q they only delivered 600 RVs total and they have only delivered 2,000ish on the entire year.  So they need to triple fucking deliveries just to break even.  To put that in more perspective, in 2008 Apple iPhone sales only grew 245% and the iPhones are fucking cool while expensive RVs are pointless and expensive.  Random shit that sucks just doesn't triple sales, no matter how much inventory has been cut.

They basically can't cut costs anymore and their other revenue (accessories, parts, etc.) went from $50MM to $30MM pushing up their prior 1,400 per Q break even number to the current 1,800.  Analysts are guessing that by 2011 sales will triple to make WGO profitable, but there is more chance that sales of Wilfred Brimley: A nude retrospective triple before WGO does.

3.  This two word phrase means you're fucked.  What is "secular decline?" (We also would have accepted "broken condom"):  Starting in 2004, annual growth in the RV industry was 4%, 1.5%, and then -9.5% in 2007.  So before the crash, RV sales were starting to fall and then in 2008 they were down 32% when all of the jobs and money dried up like Betty White's nether regions.  The point is, even before the glut of ABS. MBS, and just BS killed the global economy, RV sales were starting to decline.

4.  It's the economy, stupid:  First of all, these RVs are expensive.  On average they cost between $80k and $160k depending on how many toilets you want and how many shelves you need on which to place your NASCAR collectibles and boxes of Slim Jims.  Secondly, no one has any money.  Consumers are squeezed tighter than Joan Rivers' face.  With all of the mortgages in default, who exactly is going to have the money to buy an expansive completely discretionary item?  Which brings us to the final point which is that industry growth in the 2004-2007 time frame was driven by lenders giving money to anyone who was breathing and could fake an employment agreement.  You could put 10%, 5%, heck even 0% down.  Well that shit aint happening any more.  Only GE is still kind of lending in the RV space and those consumers who were over-leveraged are now under-duress.  It is easier for a straight man to get a hummer at an Indigo Girl's concert than it is to get an RV loan right now.


5.  Take my Winnebago, please:  Given the economic crisis, the used RV market has become more bloated than Kirsite Alley's small intenstine.  People are dumping their RVs below book values and well below current retail prices because they need money to pay their mortgage, loans, doctors' bills, and bangbrothers subscriptions.  Why would I buy a new Winnebago when I can buy one a year old one with no miles for less than half price?

6.  Stupid is as stupid does:  While WGO picked up some marketshare as competitors went into bankruptcy, Fleetwood and Monaco are apparently coming out of bankruptcy and those two will have more nimble production facilities.  Thor has remained profitable throughout as they have a better ability to control costs and this should allow them to outcompete WGO, especially on price.


7.  Valuation is out of whack:  WGO is not going to earn any money in 2010, they're just not.  Sales are not tripling, sorry guys, but there is zero chance of that happening if I round to the closest non-negative number.  Estimates for 2011 are somewhere around $.40-$.50 and falling by the hour.  Let's say they can earn $.50 in 2011 which is more of a guess by analysts than the box office draw was by the producers of Will Ferrell's Land of the Lost.  But ok, in 2 years WGO sales will more than triple and they will earn $.50.  Well they're trading at 22x that number.  The company has lost money for five consecutive quarters and sells a product that is too expensive for their target market, how does this deserve a premium multiple?  Oh yeah, it's going to grow 200%+.  Rigggggghhhhhhhhht.  If you believe that, I have a bridge and some Kevin Federline autographed AIDS tests to sell you.  Maybe they break even in 2011, maybe, and that is if you believe inventories at dealerships have fallen to almost zero right now so just getting back up to a former normal stocking level will drive revenue.  Anyway, let's say they actually have some positive earnings in 2011.  What multiple should a company in secular decline trade for when they have major operating cost issues?  8x earnings?  10x earnings?  If you believe that then they would need to earn $1.10 to $1.35 in 2011 and that's not going to happen.  In terms of EV/EBITDA, they had negative EBITDA (that is what negative gross margins do to you) and have an enterprise value of  about $290MM.  So if this kind of company should trade at 6ish times, then they will need to have about $50MM of EBITDA.  Well their EBITDA before the crash was $70MM, so do they get back to 80% of pre-crash EBITDA in 2011?  Doubtful.


Things to worry about:

1.  WGO is likely going to survive:  They do have brand equity and decent market share and management seems like they are making the best of a bad situation, so some long-term holders just may not be inclined to sell.  This company may make money eventually (though it could be 5 years out), so long time holders may be asking why bother selling now?

2.  They have $40MM net cash:   But this is mainly because inventories dropped by $60MM in 2009.  They have said that can't happen again (obviously, because inventories are down to $40MM so if they dropped by $60MM they would have negative inventory, but then again they have negative gross margins so nothing this company does really surprises me) and that inventories are starting to go up.  So is that $40MM cash cushion enough to keep them afloat as they still lose money and build back inventories?

3.  The consumer and job market comes back stronger than expectations:  It's possible.  But it's also possible that Faye Reagan is giving me a blumpkin as I write this (and trust me, if that were happening, I would not be writing this but I would be preparing to dial 911 as my heart would likely be about to explode at any minute in a surge of euphoric glee).

4.  It's cheap based on historical EV/EBITDA multiples:   Well so are my nuts and people aren't lining up to buy those (just kidding, my nuts remain premium priced with an adequate waiting line to purchase).  Before the crash, WGO had a peak EBITDA of $120MM which had fallen to $70MM by 2007.  So if you take that 2007 EBITDA and assume that by 2011 inventories will have risen, negative gross margins will have flipped, and leprechauns will roam the Earth giving away free pots of gold, thus getting WGO back to that level, then they are trading at around 4x that number.  Of course their net cash may start to decline as they are unlikely to burn through inventories and thus their EV is a bit depressed right now if demand does not pick up and fix their margins (though it's not as depressed as the guy who had Tiger Woods in the "least likely to get herpes" pool).


Summary:

WGO is a company slated to lose money for at least one more year (and Money Mcbags thinks it will be longer), is producing RVs at negative gross margins, is a big ticket item in a 100% consumer discretionary spend space in the worst economy in 70 years, is in a market where much cheaper similar alternatives exist and with competition coming back in the market, and most importantly is fucking expensive.  Even if they were to earn $.50 in 2011 (which they won't), they should at most trade for 15x that and thus be valued at $7.50 (which is still too high).

If you can get borrow on this pig and agree with Money McBags' analysis, then go for it.

***Disclaimer:  Money Mcbags has no position in WGO, short or long.  He also has no position in the movie "White Men Can't Hump."