7/27/10 Midafternoon Report: Consumers still confident the economy sucks

The market bounced around today as it tried to find a direction like scientists are trying to find the elusive "God particle" (though apparently scientists have figured out where it isn't which includes Jane Austen's writing, Bernie Madoff's bank account, and Jamaica.  But newsflash Einsteins, you might want to check Brooklyn Decker's vagina because if the "god particle" isn't there, Nietzsche may have been right.).

Anyway, the big macro news was that consumer confidence fell to a five month low with consumers still worried about jobs, the potential death of fiat currency and subsequent return to the barter system, and Eliza Dushku's consistent refusal to do nude scenes.  The index fell to 50.4 from an upwardly revised 54.3 and economists had guessed it would come in at 51, so good on them for almost correctly predicting one number out of the thousand they guess on yearly.  That said, a drop in consumer confidence could lead to further declines in spending which is as good for the economic recovery as fat tails are for trying to forecast using gaussian assumptions, tickets to the Ford theatre were for Abraham Lincoln, or The World's Biggest Gang Bang was to Annabel Chong's pelvis.

In headline manipulatedly (and yes that is more of a rehetorical tautology than "free gift," "short summary," or "Kathy Griffin manly") positive macro news, the Case-Shiller home price index was up 1.3% on a non-seasonally adjusted basis, .5% on a seasonally adjusted basis, 4.7% year over year, and 30% in the land of make believe where every party is as delightful as a rainbow.  Of course the numbers are more worthless than a hand job from a quadriplegic with carpal tunnel disease as the Case Shiller index uses a fucking three month average so inflated home sales from April due to the now expired the government tax credit are still in the numbers.  What we do know is that home prices are at least 29% below their inflated peak from four years ago, foreclosured properties are at record highs, and Sofia Vergara is hot.

The market remains at a headscratchingly confusing time (though if it were Money McBags' head and Diora Baird doing the scratching, that would be a lot less confusing) with macro data continuing to be marginally bad at best and yet earnings coming in moderately good at worst.  So which is the leading indicator and which is the lagging?  It is a question that is proving to be a bigger conundrum than anything the Sphinx, Hamlet, or Andy Rooney ever asked (go to ~1:13 in the video).

In Europe, all but one of the 27 members of the EU agreed in principle to new BASEL regulations, with only Germany holding out as they wait for a bigger signing bonus, guaranteed playing time, and use of the EU locker room to entertain groupies during breaks in the negotiations.  The new proposal is less onerous than earlier proposals and give banks more leeway to define what counts as Tier 1 capital potentially including stakes in other banks, future tax benefits, and monopoly money.  Regulators are still debating the amount that banks will ultimately need to hold as reserves but Money McBags is pretty sure that whatever the number winds up being, it won't be enough for the next bubble.

Also internationally,  Germany’s consumer confidence from the GfK institute rose to 3.9  but as Money McBags doesn't use the metric system, he has no idea what that means.  That said, with Germany being Europe's largest and least funny economy, rising confidence can't be a bad thing.

In the market, DuPont (ticker DD) announced a good Q which was the second time today the market got excited about a set of double Ds with JWOWW having rung the opening bell.  DD earned $1.17 per share, beating analyst guesses of $.94 eps as a result of 26% revenue growth driven by a 33% increase in emerging market sales.  They also raised 2010 earnings guidance to $2.90 to $3.05 per share from $2.50 to $2.70 and told analysts to suck it.

Deutsche bank made analysts look like deutsche bags by putting up a big Q as well.  DB posted a 9% rise in earnings despite weak performance from their investment banking business which had to take a quarter off from manipulating the market while new regulations were being discussed.  That said, it was a good Q for the German bank who is still likely drunk and throwing out the saran wrap from their traditional German scat party as a way to celebrate having passed the europe bank stress tests last week (though the tests were about as vigorous as a Kirstie Alley workout video).

Finally, BP was down after posting a $17B second quarter loss thanks to creating the worse unnatural disaster since the Lohans failed to get an abortion 24 year ago.  And Apple will now be forced to allow third party software on the iPhones which means porn lovers everywhere just lost another 30 minutes of their day.  The real purpose of the ruling by the copyright office is to allow iPhone users the ability to unlock their phones without any repercussions and thus have the ablilty to change their wireless service provider from AT&T to something that works a little bit better, like smoke signals, shouting, or semaphore.

In small cap news, CTGX reports tonight and Money McBags expects an inline quarter at best with EMR still a few Qs away.  TSYS was up 4% plus and remember on 7/9 Money McBags said it was too cheap and would make a nice short term trade and it's up just under 20% since then so good for you if you picked up some shares but don't get too greedy as news on the company remains thinner than OJ's alibi and it has traded down for a year for a reason.

Last week EPAX, a small, overlooked, and horribly performing name which Money McBags thinks is an interesting company put up a Q as crappy as expected.  Money McBags broke down this company in quite a bit of detail a few months ago but they basically arrange for international student travel so little Jimmy can lose his virginity to an Amsterdamian hooker all under the guise of educational experiences.  The point is, the business sucks right now as if it were Jesse Jane on the set of Island Fever 4.  The company sells expensive, completely discretionary trips to Europe in the biggest recession in 70 years when in the internet age all one has to do to spend a night in Paris is steal their neighbor's wifi signal.  This last Q, gross margin was down ~15% and with operating costs flat at $12MM, eps was down ~20% to $.79 per share in what is traditionally the strongest Q for the company as it is right before the summer travel season.

Money McBags' estimate remains at $.49 eps for this year and the company released guidance for $.48 eps to $.52 eps (and yes, Money McBags' $.49 eps estimate was from way back in April when the street was still at ~$.60, look it up, so his 15 minute earnings model proved to be more precise than sell side analyst models which is less surprising than finding out that Gary Colemn didn't live to age 50).  The point is, the company is still struggling with enrollments down 17% and their recently launched Discover Adventure travel progam having underwhelmed like a bachelor party in which Mayim Bialik jumps out of the cake (or more precisely, eats her way out).

So why the fuck would Money McBags be interested in a company whose EPS is going to decline by 50% and is trading at >20x current year guidance?  Simple, volume.  Well, actually volume has little to do with it but cash does.  The company has $53MM in deployable cash and a market value of $210MM so ~25% of their value is in cash or roughly $2.50 per share.  Not only that but this company can scale quickly as they are already running a lean operation and until this year were able to maintain $1 in earnings power.

So the upside is that people become a little less freaked out about the economy in a year, EPAX buys back shares with some of their cash, and Hanna Hilton comes out of retirement and offers her fans free ice cream sundaes for continuing to have supported her in her down time (and yes that has very little to do with EPAX, but whatever).

This company is an interesting way to play a recovering economy and while Money McBags doesn't think that is going to happen anytime soon, it is a cheap way to hedge one's negative bets.  Money McBags doubts the stock does anything for at least another 3Qs and he doesn't own it nor is he going to buy it, but it pays ~2% yield and is one way to play a market recovery with some downside protection.

And remember, When Genius Prevailed is on Facebook and Twitter.

7/21/10 Midevening Report: Market "unusually certain" that it should go down

The market was chugging right along today like a Kennedy at a sorority mixer after Apple titillated the market with sales stronger than the breath of either of the world's foremost cunning linguists, the great Vladmir Nabokov and the greater Janine Lindemulder, until Ben Bernanke got up and threw his figurative Baby Ruth into the market's pool causing investors to run for safety.  Bennie B. got his best gangsta lean on and told the Senate Banking Committee, who never met a bubble they couldn't regulate after it had already deflated itself, that the recovery remains "unusually uncertain and shit" before repeatedly rhetorically axing "you know what I mean?"  His befuddling remarks caused the market to fall faster than Andrew Johnson's reputation in the Republican party after suceeding (or more appropriately, failing) Lincoln and thus negated a rare day where earnings were mostly positive.

While it's not entirely clear what "unusually uncertain" means, especially since Money McBags finds all uncertainties a bit unusual, he believes the term is Fed-bonics for "We have less of a fucking clue about what is happening than we usually do."  Bernanke did say the Fed is ready to step in as needed and while he didn't say what those steps may be, one can assume they include keeping rates low (for an extended period like a metrorrhagia sufferer), manipulating the Fed's balance sheet, and the Charleston.

Prior to Bennie B. unleashing his pimp hand and treating the market like his bottom bitch, President Obama signed the financial legislation bill which after two years of debate has been watered down more than a virgin bloody mary without the tomato juice or tobasco (though he signed it "Alan Smithee", so it's not clear if the bill will hold).  The most worrisome part of the bill is that many of the details are more open ended than Alexis Texas right before filming Buttwoman which leaves regulators plenty of wiggle room to fuck more shit up.  As far as Money McBags is concerned the bill didn't go far enough in regulating the use of derivatives, in limiting the size of banks, or in raising reserve requirements and making banks responsible for their greed which led to credit scoring models to be less frequently used than MySpace (does anyone remember that piece of crap?).

In macro news, mortgage applications jumped last week for the first time in five weeks in what surely is a fictitious number, or a typo.  What is more believable is that refi applications were at 14 month highs as record low mortgage rates of 4.59% have led homeowners to lower their interest payments faster than the Stoughton, MA police department lowered the boom on one of their officers who was just doing a little (and Money McBags stresses "little") due diligence. 

The real story of the day (other than Bennie B.'s uncertain uncertainty) was Apple's Q in which they sold what is known in the retail space as "a fuckload of shit" and put up a huge earnings number.  Apple's net income rose by 78% by selling 3.3MM iPads, 8.4MM iPhones despite people waiting until the end of the Q for the iPhone 4 launch in order to be able to make use of the front facing camera while masturbating for strangers on chatroulette from work bathroom stalls everywhere, and a whopping and quarterly high 3.5MM Macintosh computers making everyone loudly say "Apple sells computers?"  Revenue was up 60% to $15.7B, beating analyst guesses by $1B, and putting the company only $4B away from world domination.  Steve Jobs also defended the iPhone antenna problem by simply saying "deal with it.  And if you don't like it, go by one of those Blackberries and make sure it matches your 8-track player and Jams."  That said, Lenovo is set to launch a challenger to the iPad using GOOG's Android system and they are referring to it as "LePad" because apparently "LeThingThatIsn'tGoingToSell" was already taken.

In other strong earnings news, MS put up a ginormous Q, harkening back to the pre-2006 days when investment banks ruled the markets like Jessica Simpson ruled the short bus in her elementary school days.  Revenue grew 53% to $7.95B and beat analyst guesses of $7.93B driven by MS' trading business which earned $4.1B in operating profits after trading their souls for three more months of manipulating the markets and a good night kiss from Rose Huntington Whiteley.  Also, KO put up a good quarter on the heels of PEP's outperformance yesteray once again reinforcing the demand inelasticity of sugar and water.  KO earned $1.06 per share, beating analyst guesses of $1.03 per share, and saw 5% growth worldwide led by international growth ex. Europe of 6%.  Money McBags is a longterm owner of KO because it is a cheap aspirational brand that appeals to emerging markets that will continue to grow as the US slogs its way towards mediocrity (though mediocrity would be a good thing).  Finally, YHOO dropped 8% on a disappointing earnings report as revenue growth remains more challenging than Sudoku for a dyslexia sufferer.

In small cap news, Money McBags mentioned CRUS yesterday but he was in such a time rush that he missed their quarterly earnings release from earlier in the day which turned out to be more positive than Robin Williams' herpes test.  The company earned $.29 per share in the quarter on 118% y/y revenue growth and margins going to 57% from 52% last year and 56% last Q.  Most surprisingly, their energy business jumped up to $28MM from $22MM as a result of the both the power meter business and their energy exploration business.  On the call, they talked about this business but gave fewer useful details as to what is driving it than a republican strategist gives details about their plan to fix the economy.

That said, it's really CRUS' consumer audio business that has investors drooling over this company as if it were Hayley Atwell as they provide an audio chip for the iPhone and that segment absolutely killed it.  Revenue was up 32% sequentially in that segment with Apple moving to 35% of their overall revenues.  Company guidance was also stellar with next Q predicted to have at the midpoints $102MM in revenues, 57% gross margins, and $27MM non-Gaap op ex. and while Money McBags is no maffematecian (he only counts to two when told to turn his head and cough), those number should get them to ~$.44 eps as they still have more NOLs than Money McBags has broken dreams.

The hard part is forecasting this company since they are obviously a play on the iPhone and AAPL could find a new suplier or put more pricing pressure on them at any time.  Now look, Money McBags doesn't think that will happen anytime soon as their chip is supposed to provide the best audio quality and they are continually investing in R&D, but it is something of which investors should be aware.  Money McBags' previous estimate for fiscal year EPS was $1.20 but with CRUS earning $.29 per share  in Q1 and guiding for $.44 per share in Q2, $1.20 seems like it is lower than Andy Rooney's balls.  So Money McBags is going to get a bit conservative here and estimate that the energy business falls to ~$24MM quarterly run rate, the non-AAPL consumer business stays flat, and the AAPL business only grows 10% sequentially.

Doing that (and using 55% margins which may be on the low end and $110MM op ex), Money McBags gets an estimate of $1.47 which is about double what they should earn in the first half of the fiscal year.  Of course, those are very low end estimates as the AAPL business has been growing 30%+ sequentially and gross margins have been above 55%, so at the hgh end we could be looking at closer to $1.70 EPS for the fiscal year.

Either way, the stock is now trading at ~$19 which is ~13x Money McBags' low end estimate and the company has ~$2.50 in cash on the balance sheet and 13x for a company growing this fast is just way too fucking cheap.  If you want, throw a 20x on $1.47 and get to ~$30 for a target price.  As long as Apple doesn't pull the rug out from under these guys, there is plenty of room to move up even though it has already had a better run than a roidal Ben Johnson.

7/19/10 Midevening Report: Stocks higher as earnings more highly anticipated than the last thing that wound up disappointing everyone

The market sagged today like a droopy catenary with a very low value of "a" or Uma Thurman on vacation, before gaining some steam in the afternoon.  With earnings season started, macro data was lighter than Ben Stein's reputation as an economist or sales of Liberace's last book: "How not to get AIDS and die."  Homebuilder confidence dropped to it's lowest level in over a year as The National Association of Home Builder's index slipped to 14, with readings lower than 50 meaning more respondents said conditions were poor, and readings lower than 20 meaning we're completely fucked.  At blame for the drop was the governement tax credit running out, foreclosures continuing to increase, and pessimism proving to be higher than if Arthur Schopenhauer were trying to sell a mansion in Detroit at full price.

Alternatively, some made up organization called the National Association for Business Economics (and Money McBags would love to see the charts and graphs they pull out of their asses) said hiring picked up in the economy with 31% of businesses increasing payrolls while only 14% decreased payrolls.  What they negelcted to say is that of the 82 businesses which they survey, 31% are in the reposession business and 55% are fictitious.   

Internationally, Moody's cut their ratings on Ireland from a little drunk to fucking sloshed as a result of a weakening banking system, increasing deficits, and way to much puke still littering the streets from St. Patrick's day.  The downgrade was a full notch lower to Aa2 which as always means absolutely nothing to Money McBags since he knows Moody's is more fraudulent than a Lou Pearlmen business venture or Jamie Lee Curtis's vagina and he has no idea what the difference is between Aa2, Aa1, and Baa other than that two of them are ridiculous and one of them is the noise Roseanne Barr makes when taking it from behind.


Now look, Money McBags is no Donnie Deutsch (and not just because he has no idea who Donny Deutsch actually is, but also because he's not completely full of shit), but it doesn't take a marketing guru to understand that if you are selling something, those buying it should assume it works and also understand what the fuck it is they are buying.  Since Moody's obviously has failed step 1, they can at least have their ratings be understandable.  Thus if Money McBags were in charge of Moody's, the first thing he would do is fire everyone, the second thing he would do is hire Ines Sainz as his personal assistant (actually, he would do that first and fire everyone second, but whatever), and the third thing he would do is get rid of the stupid rating system and only have three categories companies could fall in to:  No Problems, Shit is getting a bit scary, and Stay the Fuck Away.

And it's not just Ireland in the international news today, but Hungary is starving for attention as the government refused further austerity measures which caused the IMF and the EU to get their panties all in a bunch (which wouldn't be a problem if the IMF were Sofia Vergara and the EU were Jessica Biel).  The government's stance has apparently called off offers of further aid for the country from the EU/IMF which has led to yields on Hungarian bonds to shoot up like Chris Farley after reading a review of Beverly Hills Ninja.

In stock news, after being swallowed by Nokia and spit out as a JV, Siemens* is sticking to a deal to purchase a Motorola unit that makes telecommunications equipment.  The company hopes that upgrading their equipment will help the company grow and thus lead to a stronger, and perhaps better aimed and placed, Siemens' strategy.  Also, Apple continues to fall despite saying they will give iPhone 4 users a free case to correct the call dropping problem that happens when holding the phone with a bare hand (also known as phonetile dysfunction).  In order to plug the gap in the antenna, the case comes with plenty of lube and a lifetime supply of viagra.

In small cap news, JOEZ sold off again today and remains either cheap or expensive depending on if you think management can go against previous performance and figure out how to turn growing revenue in to something called profits.  One company that Money McBags would like to highlight is IBKR which has earnings later this week.  Money McBags has talked about IBKR a few times on this blog (just throw it into the search function) and has consistently brought up the statement from their CEO, who owns 80% of the stock, that the company has $2 of annual earnings power, which it earned in 2008.

The problem is that this company has been more of a value trap than Alyssa Milano's crotch and it has done nothing but go down since it went public in 2007.  The company has two basic businesses, they are a market maker for listed options and they have an online brokerage.  In the market making business, they take no counter party risk and in times of volatility also take no profits as when volatility is low, the bid/ask spread gets compressed with competition increasing.  This kills margins in that business worse than cheating on your cancer stricken wife, having a baby with the person you are cheating with, and then claiming the baby is not yours, kills a political career.  Margins in the market making business dropped to 7% last Q thanks to actual volatility coming in lower than implied volatility which hurts them since they are long volatility like Lexington Steele is long dongability.  So net income in the segment dropped from $118MM to $5MM which is a bigger drop than Mel Gibson's popularity after a few late night booty calls to his wife.

IBKR's other business is an online brokerage unit for daytraders that has had strong growth.  The business continues to grow accounts by 25%+ and grew net income from $45MM to $65MM last Q.  That said, no one really gives a fuck about this business yet because it doesn't drive the business.

Anyway, the reason Money McBags thinks this is an interesting company right now is that volatilty in the last Q has been spiking like KaKa's popularity in Brazil, and last year when volatility was this high, the company earned $.30 per share.  Check out the chart of the VIX below which Money McBags is using as a volatility proxy:

So look, Money McBags has no idea how to forecast this Q for IBKR since their quarters are lumpier than Dolly Parton lying on her back but the business is set up to perform well in volatile times and their earnings in theory should smooth out over the long run (which as Money McBags said in an earlier post, may be eons).

That said, they have proved that they can earn $2 per share and if they can achieve that again, they are trading at 8.5x that which is hella fucking cheap for their growth.  Plus, since the economy is teetering on the brink of shitting its pants for the second time, volatility should only increase in the long run and thus IBKR should start to grow their earnings power.  Anyway, if ever IBKR were going to put up a good q again, this should be it, so buying a few short term call options may not be the worst idea here.  Though to be fair, Money McBags has yet to meet a value investor who has not angrily urinated on their tattered copy of Securities Analysis while cursing Benjamin Graham's margin of safety after investing in IBKR, so buyer beware.

 *Money McBags knows it was Siemens Networks and not Siemens, but sometimes we must sacrifice for the joke.

7/13/10 Midafternoon Report: The market is AA-ok as Alcoa foils bears

The market was off to the races today as if it the races were going to feature Usain Bolt taking on Sara Jane Underwood in the 100 meter dash with the loser having to run a lap in the buff.  The big news of course was that Alcoa started off the earnings season by destroying analyst guesses of $.12 eps by earning a whopping $.13 per share in the last Q.  That's right, the fact that a whole extra penny (with rounding) is the difference between a down market and an up 2% market makes as much sense as the theory that gravity is an illusion or candwiches.

Making it even more ridiculous is that as ZeroHedge points out, just last month Bloomberg showed consensus analyst guesses of $.16 for AA's Q.  So with analysts lowering their guesses before the quarter, AA is now back to where it was when guesses were for $.16 so the would have been $.03 miss has been mitigated by strategic downgrades.  Brilliant stuff.  As the late great Kurt Vonnegut would say, "No damn cat, and no damn cradle."  Analysts are now quickly dropping their guesses on companies across the board because they only get paid when the market goes up and with unemployment benefits going away, they need to keep their jobs like Kathy Griffin needs to keep off of HDTV.  That said, AA did raise their guidance for aluminum consumption for the year from 10% to 12% and revenue was up 22% despite cratering aluminum prices as a result of demand slowing down and oversupply given that aluminum is the 3rd most prevalent element in the earth, behind only oxygen and whatever medal Mr. T wears around his neck.  That said, the declining prices and rising energy costs are hurting overall profitability but with foreclosures up, demand may surge as the recently homeless grab sheet aluminum to build shanty towns to be known to future generations as WhothefucklentthosepeopleallofthatmoneyVilles or for short Goldmanvilles.

In macro news today, the US trade gap widened to 4.8% or $42B, which is the largest since November 2008 and a gap wider than between the antenna on a new Apple iPhone or the gap between Paris Hilton's legs on a Sunday morning.  Not surprisingly, a trade gap is the exact opposite of what economists had guessed and thus once again proves that "economist" is not a real job, like rap music spell checker.  Imports were up 3% thanks to a 12% increase in imports from China which, as pointed out yesterday, was driven by people not having any money and thus only being able to afford the cheap shit made overseas.  US exports continued to see strength, which is a bit surprising given the weakness in the Euro last Q, as they were up 2.4% which was their best month since September 2008 when the US instituted buy one get one free Wednesdays for foreign countries.

And finally, the National Federation of Independent Business (known better as NFIB or "irrelevant") said optimism declined among small businesses by 3.2% in their monthly survey to which no one pays attention to anyway.  NFIB's chief economist William Dunkelberg (who is still smarting from his decision to leave his hosting gig at Small Business Idol to pursue other career opportunities) opined that: “Confidence is lacking and the news out of Washington is discouraging. Until this changes, don’t expect small businesses to start hiring.”  He then went and stole an ice cream cone from a little kid, told his wife she looked fat in those jeans, and ordered a ton of coal so he'll be prepared to adequately fill the stockings of everyone at the NFIB during Christmas time.

Internationally, Moody's cut Portugal's debt rating by two whole notches which means absolutely nothing to Money McBags as he cares what Moody's has to say about rating debt as much as he cares what Art Laffer has to say about tax policy,  Jeffrey Dahmer has to say about cuisine, or Mel Gibson has to say about anything.  Moody's dowgrade stems from Portugal's national debt having risen sharply relative to GDP as a result of stimulus measures and the 168 siesta hour work week.  Moody's also warned that weak growth would weigh on government finances for two or three more years while Portugal warned that weak analysis would weigh on Moody's finances for eternity.  European markets are up on this news as even they realize that Moody's is worse at their job than a eunuch sperm donor or Alan Greenspan.

In large cap stocks, just about everything was up as we move in to earnings season with INTC, C, BAC, and GOOG to report this week so hopefully analysts already lowered their guesses in order to keep the market moving.  One interesting stock to note is AAPL as the company is down after Consumer Reports said it will not recommend the new iPhone 4 due to reception glitches, and Steve Jobs simply being a dick.  In their defense, Apple maintains that any cellphone will lose reception if held a certain way, like in a toilet, at the bottom of Lechuguilla Cave, or up Candice Swanepoel's well chiseled buttocks (and Money McBags is volunteering to test that theory out) so there is really no big deal.  Plus, to fix the problem, AAPL claims all one needs to do is wrap some duct tape around the iPhone where the gap in the antenna is and who doesn't want a piece of metallic tape draped around their sleek and expensive gadget?  It would almost be like fixing a tear in the Mona Lisa by putting a SpongeBob Squarepants band aid over it.

In small cap news, LHCG was down ~6% today after competitor AMED announced a shitactular Q and dropped nearly 25%.  Money McBags broke LHCG down the other week after the SEC announced they were investigating AMED and AFAM for potential shadiness in how they were charging medicare for visits that may not ever have happened or visits that were unneeded.  Anyway, guesses for AMED were for quarterly earnings of $1.37 per share and today they said that earnings will be closer to $1.12 which makes it almost as big of a miss as the Edsel or Glitter.  Money McBags did not hear AMED's call but it is reported they said that their client base changed and they will need to reevaluate their structure and will hold off on full-year forecasts.  Now look, without further color Money McBags isn't sure how this will affect LHCG because he has no idea what AMED means by their "client base changing" because either they stopped treating sick people (which would seem a silly thing to do for a home fucking healthcare company) or they started treating fewer sick people and thus had fewer home visits (which is a more likely scenario, especially with the SEC all in their business about charging for too many medicare visits).  More concerning though is that shareholders have filed a suit against LHCG for an investigation from April into LHCG's reimbursement procedures, so fuck Money McBags on that one.

The industry makes sense longterm, the cost savings to insurance companies are too great, and home care is simply better, so it remains a good way to play the aging population trend but there is way too much fucking noise right now for an investor without access to industry insiders to get a leg up on the billing practices.  As a result, Money McBags would stay the fuck away from this sector even though a few days ago he said LHCG was an interesting longterm buy (and it still remains that way but Money McBags needs more information to be able to make a sensible decision about the SEC investigations).  Anyway, with all of this uncertainty, there are easier ways to make money (like TMRK which is a great takeout candidate and is getting a boost with MSFT's entry into cloud computing ) so keep watching LHCG but you probably want to avoid going long in the short term unless you have better contacts in the industry than Money McBags has.  In times of turmoil, money can be made, but to do so, one needs to be confident that they have all of the information, so do your work here carefully.

7/9/2010 Midafternoon Report: Investors get excited and take off their shorts to allow long exposure to grow

It's a quiet day newswise and thus the market is deader than the Cleveland Cavaliers as it awaits the start of earnings season next week.  Dominating the news today are non-financial matters like LeBron James betraying his home town team (and Cavs owner Dan Gilbert is said to have slept with his johnson in a freezer as he has promised revenge and literally believes in the old adage that it is a dish best served cold), the US and Russia are trading captured spies (and it's a good thing Money McBags never ran in to accused spy Anna Chapman because he would have spilled his state secrets right to her face, and her chest), and as always, Hannah Hilton remains retired.

The only US macro data released today was slightly positive (unless you actually read the release and not just the headline) as wholesale inventories rose by .5%, though that will likely be revised downward like last month's number (and every other data point released in the past two years) which was revised down from .4% to .2%.  The good news is that the inventory to sales ratio is only 1.14 which is near a record low, the bad news is that people aren't buying shit because they don't have jobs and their money is becoming more worthless by the day.  While the headlines tout the increase in wholesale inventories (which is mildly positive), they bury the part about wholesale sales decreasing by .3%, and yes Money McBags understands the difference between a leading indicator and a lagging indicator, but this is the first decline in over a year so is likely the reason why inventories to sales remain so low (ie. the people in charge of stocking up see sales slumping in the future and thus are keeping inventories thinner than OJ's alibi or an Olsen twin) .

Internationally, other than a sumo wrestling gambling scandal throwing Japan in to a tizzy (and Money McBags would hate to be the officer in charge of the cavity searches in that case), news remains light.  Jean-Claude Trichet was out talking again about the EU's financial crisis and he said that it is too early to claim the crisis is over, that bank stress tests should help the recovery process (wink, wink), and that there needs to be stricter penalties for countries who ignore the EU's deficit limits such as having to move to Latvia, having to hand copy the entire novel Pride and Prejudice while listening to the melodic soul singing of Celine Dion, and having all pictures of Zita Gorog taken away.  Most interestingly, Monsieur Trichet maintained that austerity measures and cutting government spending will not hinder economic growth thereby figuratively pissing on John Maynard Keynes' ashes and Paul Krugman's soul (though Krugman clearly sold his soul to Mephistopheles years ago as it is the only way to explain his ascent to NYTimes columnist).

In the market, China renewed Google's license to operate in the country instead of revoking it or simply giving it to Sum Dum Gai.  Google could have been forced to shut down their chinese operations but instead they will continue to allow users to opt-in to receive either censored or NSFW uncensored search results.  In other news, RIMM is rocketing up today as NTP has filed a lawsuit against AAPL, GOOG, and others claiming their wireless handsets infringe on NTP's patent of awesomeness.  RIMM had settled previously with NTP for $612MM so they are free from this round of lawsuits and thus, for a day at least, can enjoy their declining market share and substandard product in peace.

In small cap news, two ridiculously cheap stocks that Money McBags has written about before have started rallying proving the old value investor theory that what goes down, must go up (unless it's ZAGG).  One of those is NTZ which a month ago and 20% above its open today, Money McBags said: 

"buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson.  You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets."

As Money McBags explained before, NTZ (or more commonly known to longterm holders as NTZero) sells high end furniture, mainly in Europe, and seeing as how Europe is instituting a little something called austerity measures and high end furniture is a more expensive and discretionary purchase than caviar infused lobster tails or a night with Heather Vandeven, that doesn't bode well for the company.  That said, NTZ is trading at <3.5x EV/EBITDA and has 1/3 of their market cap in cash (even though they burned some last Q).  The point remains that this company is either going to blow through their cash and go out of business (5% chance), is eventually going to come out of this and be worth a fuckload more than it is today (70% chance), or is a total fraud since Italy's version of the SEC is likely more hands off than Richard Simmons at a Rick's Cabaret (25% chance).  Money McBags will wager a couple of Vietnamese dongs (as always, his currency of choice) that this is a real company and while he has absolutely no idea when it will turn around, has no faith in the global economy rebounding, and still thinks owning a high end furniture maker in a global recession/depression is as wise as covering yourself in chocolate and shouting "fire" while standing in the doorway of a crowded theatre filled with overweight arsonphobia sufferers, at some point this stock should trade for at least 7x EV/EBITDA which makes it a double from here (unless the EBITDA falls off a cliff, though if it does, there is more of a cusion right now than in Jessica Biel's pants) but that may not happen until 2025, so act accordingly.

The other name that is runnning now is TSYS and Money McBags first wrote about them in February and since then they have done nothing but go down like they were auditioning for a role in The Curious Taste of Benjamin's Button.  Their last quarter was decent enough and their guidance has been fine but margins have been compressing, there has been concern about government spending drying up, and it is harder to get one's arms around their business than it is for a young lass to get her arms around Whitezilla's "business" (and you can google that at your own risk).  They have a number of sort of related yet disparate businesses including a mobile location based software business, a text message enabling license selling business, and a government satellite communications software business.  The company announced a new deal with the Army last night that could pay them as much as $9.8MM through 8/2011.  TSYS's EV is ~$325MM and their guidance remains for $80MM-$85MM EBITDA, so it is currently trading at ~4x EV/EBIDTA and oh by the way, they just grew EBITDA by 45% last Q and revenue was up by 30% (though most of it was driven by acquisitions in the commercial segment).  Again, this is a bit of a confusing company and portfolio managers just don't want to spend the time learning the different businesses and the complicated way in which results are reported (honestly, try reading one of their quarterly earnings releases, it makes Thomas Pynchon seem like Dr. fucking Seuss).  That said, it is ridiculously cheap and with the new contract, perhaps there is more faith that government spending for their technology will continue.  The stock has pretty much spent all of 2010 dropping but it may finally have bottomed out (because how much lower can it really go?) so this might make a nice short term trade.

With the market rallying, if you're itching to go long it's best to pick up these already beaten down names than ones that can still fall when the rally ends next week.  So if Money McBags were you, the first thing he would do is empty your bank account and take one hella long trip to Vegas, but the second thing he would do is spend some time this weekend trying to get a better handle on TSYS because there is a very good chance of a solid return at these levels.

So enjoy your weekend and remember to follow WGP on Facebook and Twitter.

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.

6/8/10 Midevening Report: Bernanke speech fails to significantly rally the market, says he'll overpromise more next time

The market was relatively quiet today as there was a lack of macro news though Fed Chairman Ben Bernanke was out late Monday saying: "My best guess is that we’ll have a continued recovery, but it won’t feel terrific like a blumpkin from Sara Varone followed by a nice wipe with that oh so soft aloe infused Cottonelle.  Instead, it will feel more like having your nut hairs pulled out while listening to the smooth adult contemporary sounds of Sade".  Ok, Money McBags made part of that up but that's not the point, the point is, Bernanke is hedging on this recovery like he just bought FAZ in his IRA.   While he says the economy won't likely have a double dip recession, he did not say it wouldn't have a single dip recession followed by a falling off the cliff depression, so it's merely a matter of semantics.  Bernanke also dusted off his Phillips curve (though it wasn't as curvy as Kimberly Phillips) and added that the central bank would raise rates before the economy returns to full employment, which should be any century now.  That's great, but Money McBags would like to know what the full employment rate is?  Is it 4%, 6%, or whatever proof the whiskey was that Milton Friedman was drinking when he came up with NAIRU (seriously Milt, you couldn't have come up with a catchier name than the Non-Accelerating Inflation Rate of Unemployment?  Really?  That name could put Ritalin out of business because just reading it has to make even the most hyperactive person drowsy.)?  The point is, the full employment rate is a bogus hurdle as there is no set rate so saying rates will rise before we reach that level is as helpful as saying you'll stop running when you catch the horizon.   With the stimulus funds coming to an end over the next few quarters and the economy already starting to show signs of coming down from its stimulus induced bender where it got drunk off of bail outs and hand outs and now finds itself waking up in a pool of its own spending while dry humping Greece's Aegean coast to the sweet whisperings of Benjamin S. Bernanke and and his magical money making machine, the economy is in a precarious position (though not as precarious of a position as Kirstie Alley's girdle).    

Internationally, the new government in Hungary has announced a set of austerity measures aimed at solving their debt crisis.  The austerity measures include cutting public wages, overhauling the tax system, banning mortgage lending in foreign currencies, and stopping free cookie day at the National Assembly.  Also, the European Union's finance ministers met in Luxembourg with the most important outcomes being an agreement to allow tighter oversight on countries suspected of falsifying economic data and an agreement that Ginger Spice was the hottest of the Spice Girls.

In stock news, AAPL introduced a $199 iPhone which has a front facing camera that should now allow users to masturbate on chatroulette wherever they may be.  The new iPhone is slimmer than the previous version, has better picture quality, and doesn't insist on cuddling when you are done with it.  In other stock news, MCD had better than guessed at growth for the month of May of 4.8% worldwide thanks to the fact that they sell cheap shit and people can only afford to eat cheap shit.  The company announced the falling Euro would impact yearly earnings but announced that to make up for those lost earning they are forming a partnership with American Heart Association to get a portion of the profits from all angiograms caused by eating their food.  Finally, analysts were busy today with INTC downgraded by SIG to neutral because the analyst had to do something to try to drum up trading business for SIG and Dick Bove, who never saw a financial stock he didn't like and didn't understand, cut his price target at JP Morgan from jizztastic to just ballticklingly good.

In small cap stocks, Money McBags favorite KITD continues to get pounded like Alexis Texas on payday.  With ~70% of their revenues coming from Europe, topline should be impacted by the 15%-20% drop in the Euro with investors seemingly betting on worse.  Given that, it is difficult to come up with a short term valuation for KITD as the Euro appears to be falling off worse than proper grammar or Britney Spears' top.  Last Q, the $/Euro exchange rate was somewhere around $1.38 and this Q, it's likely going to be around $1.25, and after that, who knows?  So lets take a worse case scenario where we assume the exchange goes to parity.  So that would be a 28% drop in the exchange rate from last Q.  Money McBags thinks at the high end KITD can do $150MM of revenue next year, but let's call it $130MM because of the global uncertainty.  The thing is, that number was derived off of the old $/EU exchange so if we knock 70% of their revenue (their EU exposed revenue) by 28%, revenue decreases by ~$25MM.  So insted of $130MM, a worst case scenario yields revenue of $105MM and at 20% EBITDA margins, that is ~$21MM EBITDA.  The company currently has a market cap of $210MM but they have somewhere around $30MM in cash after their last deal so they have an enterprise value of roughly $180MM and thus are currently at a worst case scenario of ~9x EV/EBITDA and topline growth in that scenario would still be ~20% (and dollar euro parity is almost as bad a scenario for the financial markets as having your daughter bring home Jordan Van Der Sloot for Thanksgiving Break).  Of course all of this assumes that their costs and revenue are tied together so if the euro drops by 28% the associated costs with that will drop by 28% and thus margins will remain intact.  The point is, Money McBags still likes this company longterm as they are in a rapidly growing space that is going to continue to grow for several years, but there are certainly short term currency issues.  However, they are diversifying their revenues in to the US and Asia so as to become less dependent on Europe so while things look bad now, in the long run this company should be fine.  With uncertainty comes opportunity and it is getting to the point where this company is just getting stupid cheap.

6/1/10 Midafternoon Report: Market adopts new tagline "Sell the rumor, sell the news"

Stocks bounced around today like BP's excuses for the Gulf oil spill or like Kelly Brook's "oil domes" while she jumps on a trampoline.  Solid US economic data pushed the market in to positive territory in the morning, giving investors a slight glimmer of hope before that hope was flushed away like a 3 story building in a Guatelamian sink hole or the Sears Tower in Paris Hilton's pants.  Leading off the slew of economic reports was that manufacturing in the US grew at a faster pace than analysts guessed with the ISM index coming in at 59.7, a whopping .7 above expectations.  The rounding error was driven by increased demand for exports which will clearly be short lived as the dollar strengthens against the Euro.  That said, the ISM's employment gauge climbed to its highest level since May 2004 when the subprime boom was still just a twinkle in Alan Greenspan's eye.  Factories did add 101k workers through the first four months of the year which is likely a huge relief for the 20MM americans still unemployed, and yes, that was sarcasm.  Construction spend in the US also rose by 2.7% which was the most since April of 2000 but it was likely spurred by the ending of the first time home buyers tax credit so it is more likely an outlier (like the straight Wiggle) than a sign of real recovery.

While US economic reports were as positive as a Pam Anderson hepatitis test, international macro data was as negative as an antithalian at a county fair.  Leading the way was data on unemployment in Europe where the 16 countries who use the Euro saw unemployment rise from 10% to 10.1% with Spain coming in at a robust 19.7%.  Making matter worse was that the Euro fell to a four year low against the dollar, though it claims it is just low because it is practicing its limbo technique for its 18th birthday bash also honoring the Treaty of Maastricht and Kaya Scodelario.  The Euro remains on shakier ground than Al Gore's marriage as it drops towards $1.20.  In other international developments, China's manufacturing grew at a slower pace than guessed as the government tries to curb its bubblicious growth.  China's Purchasing Manager's Index fell to 53.9 which was lower than the 54.5 estimates even though it included an ample dose of MSG.  The government is said to be introducing taxes on property holdings, cutting back loans provided by state owned banks, and only allowing one chopstick to be used at all meals.  China has simply grown too fast as the government unleashed huge spending programs last year so efforts to reign in the economy now are better than trying to do it later when it's too late, you hear that Bernanke?  Finally, the Bank of Canada raised the country's interest rate by 25 bps to 50bps causing the loonie to weaken a bit against the US dollar.  It was the first rate hike by Canada in three years and Canada now becomes the first G7 country to raise rates as inflation begins to rear its ugly head.

In stock news, HP is set to cut 9k jobs due to automation and CEO Mark Hurd's cold heart while AAPL is rising on reports that it has sold 2MM iPads and those are just the ones purchased by Steve Jobs' ego.  GOOG is also up today and they announced that they will only allow employees to use Linux operating systems blaming the overall crappiness of MSFT Windows for their Chinese operations being hacked.  The dumping of MSFT has made Bill Gates feel like he was back in high school.  Finally, BP is getting shit canned again, as they should be, with their "top kill" attempt to stop the oil leak failing worse than Gary Coleman's liver (what, still too soon?).  Money McBags has avoided writing about this catastrophe because thinking about it makes him wonder if he has been incorrectly using the word "clusterfuck" for all of his years.

In small cap news, QCOR continues to rally with investors awaiting FDA approval for QCOR to be able to market their Acthar drug to the infantile spasm market.  You know, the market in which they already have the leading fucking market share.  Money McBags has broken down this stock many times (just put QCOR into the fancy search box up top) and is excited for their nascent NS market but he is still confused as to why their Net Sales were such a high % of their Gross Sales last Q.  Also, a small crappy company Money McBags follows yet has been embarrassed to bring up before, NTZ, put up a decent quarter on Friday but is now continuing its slide to $0.  NTZ produces high end upholstered furniture like sofas, love seats, and bondage benches (ok, maybe not the last one but the definition of "love seat" can be so nebulous).  But here's the kicker, NTZ is an Italian company with ~50% of their sales coming from Europe.  So it sells a high end, highly discretionary consumer product targeted to european clients with Europe in the midst of bail outs, a crumbling Euro, and record unemployment.  Wow.  Investing in this company is like those old SNL Bad Idea Jeans commercials.  Honestly, buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson.  You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets.  So why is Money McBags following/writing about this company seeing as how it is apparently more fucked than Taylor Rain in a Monsters of Cock video?  Simple, because it is cheaper than balls in the Castro.  The company just put up a quarter where they actually had revenue growth, but to be fair, revenue had fallen more than Eliot Spitzer's dignity after emptying his "mini-bar" at the Hotel Mayflower so the comps were easier than winning a spelling bee on a short bus.  Their net sales grew 14% to 126 Euro and their margin was up y/y from 25.5% to 38.5% which was inline with last Q.  This was enough to give them a .5MM euro operating income which is still piss awful (and not regular piss, but burning gonorrhea piss), but at least it is positive.  Of course, after taxes they lost 1.3 euro but tax rates in Italy are about as predictable as Lindsay Lohan's behavior after taking a powder break and as far as Money McBags can tell more spuriously correlated to profits than the market currently is to company fundamentals.  So lets throw out the taxes and look at EBITDA.  NTZ had ~8MM euro of EBITDA this Q and translating that to dollars is about $.99 or enough to buy a pack of M&Ms.  Actually, with the Euro now settling in around $1.20, that would be ~$9.6MM in EBITDA and the company has a $196MM market cap and $66MM of net cash (55MM euro) so ~$130MM enterprise value.  So if you annualize their EBITDA, it's trading at ~3.5 EV/EBITDA and less than .5 sales.  Sure they burned through a little cash this quarter, sure annualizing that EBITDA is giving them credit they may not deserve, sure they have one year of profitability in the last five, and sure they are selling one of the stupidest fucking items in one of the worst possible markets in the last 100 years, but how much worse can things get?  They cut selling expenses by ~15% for the year last year and are running at about that same rate so they have seen nice operating improvement and if sales can level off, there is no reason this company shouldn't trade at more than 3.5x EBITDA.  The point is, despite their CEO dropping another turd in the punchbowl by saying on the quarterly call that "the economic crisis and the worsening market conditions are not yet over and the Group order flows for the first months of 2010 with respect to the last months of 2009 confirm a slow down as compared to the previous positive trend," this company is trading as if its business is going to zero, which may well be the case, but they still have $66MM net cash and decent brand equity.  Even if Europe crumbles like Alan Greenspan's reputation, rich people are still going to spend on shit they don't need and as long as this company can stay afloat and keep their cash burn to a minimum, there should be long term upside.  Money McBags is not saying you should buy today, or even ever, but this is a stock that will shoot up faster than a heroin addict going through the DTs if and when the global economy stabilizes.  So put this on your watch list, be glad you haven't owned it, but be ready to pounce if shit starts gettting better.

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

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

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

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

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

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

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

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

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

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

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