Friday, February 26, 2010

2/26/10 Midafternoon Report: AIG loses more in Q4 than entire GDP of Malta, warns Botswana they're up next

The market is a bit mixed today like the drug cocktail found in Brittany Murphy's stomachSales of existing homes dropped for the second consecutive month, this time by 7.2% which is the second largest decline ever and is creating more of a buyers market than the internet did for newspapers.  The decline was caused by the government tax credit winding down, the high unemployment rate, and the disappearance of the barter system.  Economists actually expected existing home sales to rise so it's good to see they are once again about as good at their predictions as Stevie Wonder is at being the seeker in a game of hide and seek (or as he calls it "life").  An interesting data point is that 38% of all homes sold were distressed sales.  That is a remarkable number.  So homeowners, look to the house on your left and look to the house on your right, because on average one of those houses is being foreclosed upon and your new neighbors may be a few tax brackets below you.  In more positive macro news, business activity grew more than anticipated and its most since 2005 according to the Chicago Purchasing Managers Index, or as its now more commonly known as: "Fiction."  Unless the index was measuring coffee sold while waiting in line at the unemployment office or tickets sold for the proposed Julia Mancuso/Lindsey Vonn catfight (and Money McBags would love to ski down Julia Mancuso's hills), the data is perplexing to say the least.  Also, GDP was revised up to 5.9% growth from 5.7%  in the last Q.  However, most of that growth was a result of inventory restocking.  Looking at GDP without the change in private inventories, growth was a He Ping Ping-esque 1.9% and consumer spending was revised down from 2.0% to 1.7%.  The point of all of this is that the economy is about as healthy as Mark Sanford's marriage or Money McBags' new found love of Alice Eve so until jobs can be created, we are going to have more and more marginal to disappointing economic news.

European markets were off to a better start today as the British Statistics Office revised up their estimate of UK economic growth in the fourth quarter to 0.3% from 0.1% citing the long awaited introduction of dental floss, while Asian markets advanced after figures showed that Japanese factory output, rose by 2.5% in anticipation of Nintendo's new game console, tentatively called "Wii're Fucked."

The big stock news today is that investors are not down with AIG and their craptastic quarter.  AIG posted an $8.57B loss or to make it seem smaller, $65 per share (and remember, shares are currently trading at $25, so that is a neat fucking trick).  At least analysts were close as operating loss per share was estimated to be $3.94 and it just missed that number by coming in at whopping $53.23 a share.  So estimates were only off by a factor of 14ish or as they say in the forecasting business, a nut hair (that is if it were one of Lexington Steele's nut hairs, and not a regular Lexington Steele, but one who had grown to be 30 feet tall as a result of radiation poisoning from his last scene with Gianna Michaels).  Shareholders should have faith though as CEO Robert Benmosche said in a pre-recorded (in order to duck questions) call: "While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago...we believe we are on our way to regaining our stature as one of the world’s largest and most successful property-casualty insurance operations."  He then stated that he thinks Roman Polanksi is also on his way to regaining his stature as a successful babysitter and Bernie Madoff is on his way to regaining his stature as a first class investor.  While $6.2B of losses can be chalked up to paying back the government, the addition of $1.8B to their property-casualty reserves can be chalked up to being bad at the insurance business, whch would be fine, if insurance weren't their main fucking business.  Money McBags knows it's easy to kick someone when they are down, unless you're Oscar Pistorius (and in that case you just knee them), but AIG's situation is more convolutedly complex than the 11 dimensions needed in M-Theory or trying to figure out where the pictures come from for the still deliciously not safe for work Guesshermuff (and all my guesses remain "fantastic").  Trying to analyze AIG is a lot like taking your car to a mechanic, it's always something and you have no way to prove the guy wrong.  Money McBags is eagerly waiting AIG to come out and just blame their losses on a faulty johnson rod.  There are easier ways to make money so pay attention to AIG only for any market risk insight you may get.  In other stock news, C is replacing 3 of its directors as apparently Colombia Pictures has hired them back to shoot a remake of their long running hit Monkey Business.

In small cap news today RICK continues to show the market its tits by climbing another 3%.  CEO Eric Langan announced yesterday that he expects the VCGH deal to add $50MM of revenue by 2011 to bring RICK's revenues to $150MM.  He also said they would be consolidating brands in an attempt to streamline their image so they can better promote it through television commercials on such channels as ESPN.  Now look, Money McBags loves everything RICK is about, really he does, he loves the business, he loves the growth, and most of all he loves every coked-out part of their inventory.  That said, the idea of turning it into some Hooters-esque national chain is the worst thing they can do.  Strip clubs were not meant to be Walmarts or McDonalds and advertising them on prime TV channels is the wrong place and the wrong audience.  Anyone who wants to go to a strip club knows exactly where they are and which ones are best, they don't need a fucking TV commercial with some likely dopey jingle (Rick's Cabaret: Plop, plop, jizz, jizz, oh what a relief it is) reminding them that they love vagina.  So a TV ad campaign worries Money McBags like a parent learning their daughter will be going to Cancun for spring break.  This company should stick to what it knows and put marketing dollars into the girls, airport billboards, and hotel concierges' pockets.  Money McBags is still awaiting more detail on VCGH's financials, but the stock is nearing his price target.  In other small cap news, PMFG, a company that provides separation and filtration products mainly for natural gas and which Money McBags has followed off and on for the past couple of years announced a secondary offering today at a price a measly 30%ish below their close on Thursday causing investors to collectively utter a befuddled "What the fuck?"  They are selling 1.3MM shares for about 10% dilution at $11.50 and net proceeds from the offering will go towards repaying a portion of their outstanding borrowings in connection with their poorly timed acquisition of Nitram Energy, towards working capital, and also towards general corporate purposes such as settling the likely shareholder lawsuit to be filed against them for such a diltuive and poorly priced secondary.  Wow.  Money McBags is glad he doesn't currently own PMFG and can only scratch his well-coiffed head and wonder what is going on in their Dallas headquarters.

As always, enjoy the weekend and don't forget Money McBags is now on twitter.

Thursday, February 25, 2010

2/25/10 Midfternoon Report: Goldman Sachs seeks nobel prize for literature after (under)writing biggest Greek tragedy since Euripides

Greece's debt issues are once again scaring the market like the snake ridden visage of the famous gorgon from ancient Greek mythology known more familiarly as Lady GaGa.  Rising debt, a spiraling deficit, and a massive bidding up of CDS by traders betting against Greece has created somewhat of a Foucault current around the Greek islands which is now threatening to pull the entire EU and global economy in with it.  Greece hasn't been in such imminent trouble since the Battle of Thermopylae and they can only hope that the bankers whom they used for currency swaps did not run to the other side and push up the price of CDS with their inside knowledge of the obfuscated rising Greek debt and hence betray them like Ephialtes did in that same battle.  Moodys is now threatening to downgrade Greece (perhaps to Jamaica, or maybe even Puerto Rico), so the global markets are very skittish today, since we all know how great Moodys is at predicting debt defaults (except when they happened to miss something called the entire global financial system meltdown).  As if the Greek issue weren't bad enough, the EU came out today (luckily their parents already knew) and forecast 2010 to be a year of fragile growth, even more fragile than the tears of a newborn unicorn upon learning it is just the figment of someone's imagination.

In US macro news, orders for durable goods excluding transportation fell .6% which was below estimates of a 1% gain though they rose 3% when including the jump in aircraft orders.  While durable good orders may have been down, non-durable goods orders or as their better known as, "shit made in China," appear to still be doing very well.  The new claims for unemployment number was also out today and it was much worse than expectations as it was up by 22k to 496k people filing first time claims.  Luckily the labor department shrugged it off as being partially inflated by poor weather in the Northeast causing construction jobs to be cancelled over the past few weeks and also partially being inflated due to something else called employers laying a lot of fucking people off.  They said without the weather, new claims would have been down by a "healthy" 10k to 440k jobs lost and if 440k job losses is considered healthy, then the labor department must think Michael Jackson has "just a little breathing problem."

In stock news, CCE is up 33% on a takeout offer from KO, while KO is down 4% on that same news.  KO's CEO and Chairman said the move was a way to convert "passive capital into active capital" and when asked to clarify what exactly he meant by that, he simply said "Chewbacca was a wookie."  While Money McBags is an owner of KO, and thus 4% less happy today than he was yesterday, the global sales growth trends and brand equity have not changed at all by the deal and thus he is content to hold and potentially add a bit as soon as he can get a hold of some numbers on the deal.  In other stocks reporting, SIRI somehow turned a profit this last quarter even if it was still less than $.01 per share.  Subscriber growth in satellite radio has largely been stagnant due to the recession and the hundreds of other ways to get music for cheaper prices.  With Howard Stern's contract ending at the end of the year, Sirius may be more fucked than Houston during her 500 man gang bang.  This company sells a product that is becoming outdated faster than the eight track or Jennifer Aniston (and take a few seconds on that pun, it will hit you in a bit, but e-mail me if you need help) as the prevelance of iPods, smart phones, and internet radio make paying a monthly fee for that same content as bad of a financial decision as the Olympics were for NBC or plastic surgery was for Greta Van Susteren.  Money McBags would stay further away from SIRI stock than he would a hemophiliac AIDS patient in the throes of leprosy.

In small cap news PALM annouced their smartphones aren't selling as well as they hoped as they have seemingly failed to put a dent in the duopoly that is the iPhone and the Blackberry (and honestly, taking on those two behemoths was about as smart of a move as introducing a soft drink to compete with Coke and Pepsi, a search engine to compete with Google and Yahoo!, or a cure for herpes to compete with Valtrex and staying 100 feet away from Paris Hilton).  Palm also said their sales will be "well below" their forecasts like Vern Troyer is "well below" the clown's hand to ride the roller coaster as apparently even a color blind lepidopterist is better at his/her job than Palm's head of strategy is at his.  Also Money McBags favorite WILC is up 10% today after a ridiculous and unwarranted sell-off over the past week.  WILC remains the most ridiculous, cheapest name Money McBags has ever run across which is a bit worrisome because the last thing he thought was too good to be true was marriage, so buyer beware.  And finally SMSI put up a decent Q and is up 14%.  SMSI is a pretty interesting name in that they sell software that allows netbooks internet connectivity and net books continue to grow faster than a steroid user also suffering from pituitary gigantism.  While the Board of Directors looks like they are waiting for the comet Hale-Bopp to hit the Earth, the company has done a decent job over the years of buying technologies in growing markets.  SMSI is pretty much a one-trick pony right now with that one trick being connectivity and the pony having been purchased, but they are relatively cheap.  Their wireless business grew 22% this year, though the pace slowed as the year wore on while overall topline growth was 9%.  They guided to around 20% top line growth for 2009 and estimates are for them to earn in low $.70s per share which is about what they earned this year but their tax rate will be going up.  The company has a nice balance sheet with $45MM of cash and no debt and is only trading at 12x estimates despite growing the topline 20%ish (again, profit growth may be negligible due to the tax rate increase).  The issue with this company is that they have missed guidance before, have really only one product/area of focus, and rely on acquisitions to find the next new technology.  While they have already wrapped up most of the big netbook producers as clients, competition is getting fiercer.  So it's not the best business model but it is moderately cheap with good prospects.  The jump today is likely short covering but it is worth reading the transcript of the call and figuring out if a good entry point will exist once the short covering is over.

Wednesday, February 24, 2010

2/24/10 Midafternoon Report: Bernanke channels his inner Greenspan and promises to keep rates low until the next bubble

Dizzam, Benny B went in front of the House Financial Services Commitee today and let everyone know that rates will be kept low for a more "extended period" than a menometrorrhagia sufferer.  Despite last week's back and forth between Bernanke and his henchman Thomas "T-Ho" Hoenig about the language used by the Fed in their minutes (and Money McBags would vote for Esperanto just to switch things up), Benny B held to his guns and let congress know he isn't going to raise rates until he sees the whites of the recovery's eyes (or the P in their GDP).  Bernanke also said he believes the recent uptick in business growth was just an inventory restocking which is exactly what Money McBags has been yelling through the gold-plated window of his ivory tower for the past several months.

Bernanke stated: “As the impetus provided by the inventory cycle is temporary, and as the fiscal support for economic growth likely will diminish later this year, a sustained recovery will depend on continued growth in private-sector final demand for goods and services." (Bolding is from Money McBags, multisyllabic, excessive, and painfully boring verbiage is from Bernanke as apparently he gets paid by the snore).

Bernanke cited the diminishing skills of workers who have been forced into long term unemployment, the current deficit, and Hannah Hilton's apparent cinematic retirement as concerns potentially inhibiting a full recovery.  He did say he expected the unemployment rate to drop to 7% by 2012, but he didn't say that it was likely going to be as a result of a massive numerator shift caused by those currently longterm unemployed workers starving to death in the new Dust Bowl, or aptly named for our times, The Capital One Mortgage Bowl:  What Used to Be in Your Wallet?  Bernanke also said that inflation would be "subdued" for some time as the US printed so much money that investors are still trying to count it to figure out exactly how much there is, so until that time, the market will remain blissfully ignorant.  Call it the "Too Big To Count" theory. 

In other macro news, prices of new homes fell surprising everyone except for the 15MM to 20MM unemployed Americans.  Despite the government extending the tax credit for first time home buyers, purchases still declined by 11% and fell to their all-time low as any first time home buyers had likely already taken advantage of the tax credit last year by rushing in to buy before the previous deadline.  Therefore extending the tax credit was like offering lunch to the Nathan's Hot Dog Eating Contest contestants immediately after the final gag sounded.  There is currently a 9 month inventory of houses on the market and 3MM more houses are forecast to be foreclosed upon this year which is great for vermin, but not so great for the economy.

In stock news, Dollar Tree destroyed their analyst estimates as if those estimates were Joanie's rectum and they were Chachi after a blue-balled night of doing body shots off of Pinky Tuscadero.  DLTR beat estimates of $1.44 eps by $.08 thanks to better gross margins and gave guidance well above analyst estimates for Q1 and the full year with EPS slated to be $3.96 to $4.23 for 2010.  They also generate a ton of cash and for those who have been on the planet Melmac for the past few years living off of toasted feline (and to be honest, if it were Jayde Nicole's "cat" being served on Melmac, Money McBags would immediately build a spaceship) and aren't familiar with the company, they sell incredibly cheap shit in a recessionary environment.  They are now trading at around 14x 2010 guidance but this environment for them should be as profitable as the guy operating the lifeboat booth on the Titanic or whoever was selling bullets at the Alamo.  Money McBags has not followed DLTR as closely as he should have, but the story makes sense and the valuation isn't horrible.  They'll probably trade down tomorrow after today's jump, but this stock is worth investigating further.

As for small caps, CTGX reported their quarter last night and it was inline but their guidance was better than Money McBags was expecting.  Money McBags previewed ther quarter the other day and was perfectly content with their release last night as he was just expecting more of the same for now in their core business and that is what he got.  Their revenue for the Q was down 19% with equal declines in their solutions and staffing business.  Honestly, Money McBags can't do anything but yawn about this as it is completly irrelevant to the story as he previously outlined.  As long as the core business doesn't blow up (and there is really no reason it should), the EMR business CTGX is in should provide the real growth for this company over the next 3 to 5 years.  This was Money McBags favorite quote from their press release (he'd quote their call, but it was fantastically bland, like a primetime sitcom or anything written by that Michael Crichton guy):

"Looking further out, with the billions of dollars in federal stimulus money for EMRs from ARRA, Medicare, and Medicaid still unspent, we expect demand for EMR implementation support will steadily accelerate as these funds become available and access to the credit markets opens up for providers.  Based on our deep EMR experience for large providers and communitywide health information exchanges, we are confident in our ability to secure significant new EMR work over the next three years, particularly as the 2014 deadline for having systems meeting meaningful use criteria in place draws closer."  (Bolding again from Money McBags).

That is pretty much all you need to know.  Now guidance for 2010 is for eps of $.46-$.56 on 11% revenue growth.  So they are trading at around 15.5x the midpoint of guidance and they actually see their staffing business picking up into the year and have begun hiring.  Also, their balance sheet is cleaner than the grout on germaphobe's tiled bathroom floor and they are buying back shares.  There is not much reason for the company to take off right now, but EMR is coming so this stock is the definition of buy and hold, especially as it isn't horribly priced (it isn't all that cheap though).

Tuesday, February 23, 2010

2/23/10 Midafternoon Report: Consumers are very confident in the economy getting shittier

The market has hit a speed bump today as consumer confidence fell to its lowest level in 10 months.  Consumers are now less confident than a slightly overweight 16 year old girl with bad acne and a spastic colon on her first day in a new school.  The confidence index dropped to 46, which is below the 56 economists were expecting, and Money McBags has no idea what 46 means but he is confident it is not good in the same way he is confident having one's ladyfriend say "we need to talk" is also not good.  While the consumer confidence index is a forward looking metric (and if you really want to look forward, just tape a picture of Kate Bosworth to your glasses), the measure of present conditions came in at its lowest level in 27 years.  Wow.  That is not an exaggeration.  People are not only finding jobs harder to get, but growth in the job market seems to be more stagnant than Bobby Jindal's political career (and as an aside, Money McBags doesn't give a fuck about politics because they are all the same person, just a different suit, but has any politician ever had a faster and bigger fall than this Bobby Jindal guy has had without mismanaging a war, getting caught in a crack house, or banging Peggy Eaton?  Jeesh, that guy has disappeared so fast he was on the back of my milk carton this morning).  Anyway, the point here is that investors are now worried that retail spending will be weaker than expectations with the drop in consumer confidence providing a swift kick to the nuts.  In slightly positive macro news, home prices declined but the annual pace of decline slowed from "holy shit" to "is it hot in here?"  The decline was .2% and was worse than the flat expectations, but only by a rounding error.  Interestingly, 15 of the 20 metro areas saw price declines and that sound you just heard was Money McBags throwing up in his mouth.  Ugh.  The market is now teetering after such a nice totter last week, but that is why this is called an inflection point.

In stock news, Home Depot followed competitor Lowe's strong quarter yesterday with solid results of their own including their first increase in same store sales since 2006.  Of course the comps for same store sales were much easier due to the fact that the only people buying anything at Home Depot in Q4 last year were repo men and the guys who strip empty houses of their copper wire, but still, a 1.4% increase is positive.  Home Depot also gave fairly rosy guidance and said they gained 100bps of market share which was likely a result of their November promotion "buy two shower heads, and we'll throw in a golden one for free."  In other stock news Barnes and Noble is down after posting an inline-ish quarter after they announced same store sales were down 5% and then blamed it on something called the fucking internet.  Sorry guys, but the classic brick and mortar book selling business is about to go the way of video rental stores, address books, and civility.  Sure Barnes and Noble had strong growth in their online business, but that is a fraction of their sales.

In small cap news, EBIX is getting a case of the dropsies again while ISLE crapped out on another quarter as people don't like gambling in run down casinos.  And yesterday, long time Money McBags reader and ninja assassin (and Money McBags loves any word with two "ass"es in it) Matty McSacks put up some solid thoughts on LOV in the comments section.  Matty treated the comments section like he was two girls and it was one cup with his mancrush on LOV.  Apparently he loves LOV so much that he is lobbying for them to start, where investors can go to WACC off while getting their shorts squeezed.  Anyway, Money McBags knew nothing of LOV until yesterday but he spent some time last night reading their 10Q, playing around on their site, and watching some Tori Black videos on Spankwire (and you may be asking what the Tori Black videos have to do with LOV, and the answer is absolutely nothing).  LOV apparently runs about 30 online dating sites with their crown jewel being JDate which accounts for 50% of the company's subscribers.  Now Money McBags lights the menorah but he never understood the appeal of JDate as he prefers his ladies to be over 5 foot 2 and without what I believe is referred to in medical circles as the "nag you to fucking death" gene.  Other sites LOV runs are,, and (ok, one of those is made up).  They also run a delicious dating site aimed at weight challenged people called which Matty claims is their fastest growing site and Money McBags only hopes that the pun was completely intended.  And while Money McBags loves this concept, he would have named it either or  Anyway, Matty values this stock at at least $5 based on $8MM-$10MM free cash flow per year and some brand value for JDate.  Hmmmmm.  Let's see.  They earned $.05 per share last Q and while there may have been a sequential lift in subscribers (unclear if that was seasonality), JDate still had a 6% decline on a year over year basis in lonely Jews and those who are looking for some gifelte fish on the side.  But here's the weird part, revenue declined by 16% in that segment which is more than subscribers declined which means they are either discounting more or are losing their premium clients (and it's unclear what their premium clients get, perhaps a chance to date the one Jewish girl who swallows, and again, Money McBags is a yid, so he can make those jokes).  Not only is their revenue dropping faster than they are losing subs, but their marketing cost went up as a % of income by 300bps.  And here is another red flag, industry sources have the online dating industry growing 10% to 15% a year (though that industry source is Piper Jaffray, so buyer beware as one should never trust anything from a person who chooses to live in Minnesota).  But let's assume that the number is directionally correct.  So the market is a moderate double digit grower and yet this great affinity site JDate is losing subscribers.  Something doesn't smell kosher.  The company claims to have had $8MM of adjusted EBITDA in the first 9 months but there was also $1.7MM of income from a legal judgment which I believe they included in that number.  So really closer to $6MM of EBITDA or an $8MM annual run rate.  That puts the company with it's very marginal balance sheet at a run rate of around 7.5x EV/EBITDA to go along with their 15x run rate p/e.  So the multiples aren't too high, but the investment in this company really has to come down to whether or not you think it can actually grow, especially with increasing competition from Facebook, Twiter, and the completely NSFW Guesshermuff.  JDate has been around for several years already and given that it has grown through word of mouth and the Jewish population is closer knit than a purl stitched willy warmer, there probably isn't much more free growth left.  The point being, 99.95% of Jews already know about JDate and if they haven't yet signed up, they are not going to do so.  As for the Jews just reaching dating age, they are simply using twitter and the like and not dropping $40 a month or whatever in order to have a mitzvah.  So I am very skeptical that the drop in JDate subscribers is just the economy and also very skeptical that they will be able to keep their spanktastic margins in that business because marketing costs simply have to go up.  You can only rely on word of mouth for so long, unless that mouth belongs to Faye Reagan and the word is "enter."  Anyway, having the stock 45% owned by a PE shop certainly doesn't hurt because we know PE funds rarely make mistakes (just ask Warburg Pincus about their MBIA investment), but the fundamentals of the business still remain weak.  Matty did a nice job on NLS last time so he does get mad props here for his calls on companies who are sucking and have yet to show things are getting better, but LOV just doesn't have the margin of safety to make Money McBags comfortable and he fears their business is going to continue to face headwinds.  If the company were to show some growth and get to an industry growth rate, then sure, Money McBags could see it trade up to $4 or $4.50 but until then, a $.20 eps annual run rate company with no growth and few barriers to entry should probably trade closer to 10x which would make this a $2 stock and thus leave us with 33% downside.  If you really want to invest in a shitty internet affinity play, why not just buy INET who at least has exhibited solid business growth?  Money McBags will monitor LOV, but he'd rather own a company like KITD right now that is trading at like 7x EV/EBITDA and growing 60% a year with 17% EBITDA margins.

Monday, February 22, 2010

2/22/10 Midday Report: M&A picking up as small companies take out their diaphrams hoping to trap acquirers before rates increase

The market is running in place today as it awaits further earnings and macro news later this week.  The big M&A news today is that Schlumberger is buying Smith International for $11B, while the big T&A news today is that Rhian Sugden is hot.  Schlumberger, which sounds like what is served for lunch in Berlin on the set of scat films in order to best prepare actors for their upcoming scenes, is purchasing Smith to improve their drilling technology.  Wow, $11B seems like a lot of dough to get better at drilling when if they really wanted to learn how to drill better they could have just rented a Peter North compilation video for $5 and gone on their way (thanks, I'll be here all week, enjoy the soup).  This is the biggest M&A deal of the year so far and with rates as low as they are and only likely to go up (since it's unlikely Bernanke would lower them below zero and thus pervert the entire financial system like Roman Polanksi on the set of High School Musical 4: Who Ordered the Pizza?), Money McBags is betting the M&A market only heats up from here so it is worth looking at small take-out candidates (like KITD or Meredith Eaton).

In international news, the Euro continues to sell off as investors grow more worried about Europe slipping back in to recession as a result of the potential Greek bail out.  The WSJ has a long and narcolepsy curing expose today on Europe's clandestine use of complex financial instruments to prop up their economy over the past few years which served to hide the actual amount of debt and deficit on the continent.  Apparently European countries used currency swaps like a tranny uses a gaff to doll themselves up and make themselves presentable.  Well with Greece leading the debt spiral, Europe's adam's apple is beginning to show and those investors who put money into Europe and quietly wondered why Europe would only give them moderate returns (oral) are now finding out exactly why that was.  Things are still a bit dodgy overseas which will likely cause further market volatility over the next few weeks, but it could also offer some solid opportunities.

In market news, Lowe's put up a good Q with top line revenue growth of 2% and 27% growth in earnings as they beat estimates by $.02.  Lowe's CEO said the results ''suggest the worst of the economic cycle is likely behind us" and cited an uptick in the sale of big ticket items, like bulldozers to demolish foreclosed upon houses and storage sheds to keep one's valuables while the owners huddle in masses of cardboard boxes yearning to breathe air free from pollutants and disease.  Lowe's gave conflicting guidance saying they expect the recovery to boost sales but that the spring quarter's profit will be below expectations and as a result, the stock is flatter than the singing voice of an American Idol contestant or the state of Illinois.

In the small cap space RICK is shaking off their awful quarter (which Money McBags broke down for you last week) and is up 10%.  Now loyal readers know Money McBags was more disappointed with Rick's quarter than Abraham Lincoln was with General McClellan's slow pace in 1861, but somehow investors seem to be buying into the VCGH deal.  Money McBags was considering selling some RICK after the Q, but he is glad he held on for now.  That said, his target price was $16 and as RICK inches closer to that Money McBags will be reevaluating the company more often than Elin Woods reevalutes marriage or Christopher Reeve reevaluated riding horse back.  In other small cap stocks, CTGX (a holdng of Money McBags) is due to report this week.  CTGX has two businesses, one of them is basic, boring, and less sexy than Betty White in a GMILF video, and the other one has the potential to be hotter than any of the great Janine Lindemulder's classic Where The Boys Aren't movies.  Their boring business is basically staffing and solutions to IBM for IBM's server installation business.  CTGX provides people and knowledge to allow IBM to outsource this function.  It's more boring than a Jane Austen novel and they have less control over it than an incontinent has over their urethra after drinking a 7-11 Big Gulp.  Basically, if IBM is installing servers, CTGX gets work, if not, there is nothing they can do about it.  The problem with this is that the staffing business has 3% margins and is 2/3 of their revenues with IBM being about 1/2 of that (and for you non-maffematicians, 1/2 of 2/3 is 1/3).  Plus that business has been down 40ish% due to the economic decline.  This is one of the reasons they started a new strategy a few years ago to focus on the health care IT market.  The most exciting part of this strategy has been their foray into the electronic medical records business.  Say what you want about Obama-care, but EMR is coming and the government will be funding it.  CTGX's health care IT business is now 25% of their revenues and growing (with EMR being about 1/3 of that).  They are one of only 8 companies that can install EMR systems and they focus on the smaller hospitals and charge on the order of 40% less than competition (which of course means they can move their price up as the demand picks up).  The goverment is already giving big monetary incentives to hospitals to install EMR but are mandating that hospitals have these systems up and running by 2015.  Now look, Money McBags is not a health care expert but he does know there are a fuckload of hospitals and only 8% of them currently have adequate EMR systems.  So the demand is going to be huge while the supply is shorter than a Britney Spears mini-skirt or an Ogden Nash couplet (for example, the government thinks it will take 212k people over ten years to install adequate systems and there are currently only 10k people trained to do this).  CTGX won 6 new EMR deals last Q but they say the market is still slow as hospitals are having trouble getting funding due to banks tightening up on lending.  That should pass and government incentives are picking up and CTGX thinks this business will take off in 2011.  The company is trading at around 20x 2010 earnings estimates which is hella expensive for a 3% operating margin staffing business, but their health care business has higher margins and is growing.  CTGX is basically an option right now.  As long as their staffing business doesn't completely fall off (and it appears to have stabilized), they should earn enough in the next few years to support their EMR busines while it continues to grow.  It's a small position for Money McBags as it is a bit early, but it will be interesting to see if their core business was able to maintain in the past quarter.

Friday, February 19, 2010

2/19/10 Midafternoon Report: Core inflation tame, good news for those who don't eat or use energy

The market hung in there today despite Ben Bernanke's surprising discount rate raise after the market closed yesterday.  Bernanke continues to think outside of the box in managing the economy (and as long as it isn't Hannah Hilton's box, then Money McBags is fully on board because one should only think inside her box, never outside of it).  There is no telling what Bernanke will do next as a Federal Reserve Chairman hasn't done anything as radical as he has since Marriner S. Eccles wore black shoes with a brown belt on day back in 1937.  Money McBags is all in favor of the proactivity of the Fed and anxiously awaits their next move, whether it be reducing their balance sheet, paying interest on bank loans, or having the head of the Cleveland branch of the Fed, Sandra Pianalto, man the kissing booth at the Fed's next holiday party (what, you'd prefer Janet Yellen?).

The Dollar is now at its nine month high against the Euro, reaching $1.35 to the Euro, thanks to the Fed actions which means that all of the unemployed people who couldn't afford to book vacations to see the leaning tower of Pisa this winter can now hypothetically be able to at least afford to check a bag.  CPI data also came out today and showed inflation to be less than expected except for a couple of small things called energy and food.  Excluding food and fuel costs, prices fell .1% which was the first decline in over 25 years.  So as long as you don't eat or go anywhere in the fucking car which you probably have to sell anyway to make the mortgage payments on the house you couldn't afford but were able to get a loan for so the endowment fund at the University of My Left Nut (go fighting Ballhawks!) could get a little extra yield on their fixed income portfolio by having bankers slice up pools of those mortgages which enabled those same bankers to buy even more coke and purchase hookers with fewer diseases, everything should be ok.  For fucksake, we're not hunter-gatherers anymore (though if we were, I would hunt and gather me some Amanda Seyfried) and thus excluding food and fuel costs from the CPI is like excluding money shots from bukakke films or excluding General Winfield Scott from a list of greatest guys with the first name Winfield (and a big shout out to Old Fuss and Feathers, all the Whigs in the house give me a "hell yeah!").

In stock news today, DELL apparently has been spending way too much time trying to find the Erin Andrews peephole video and apparently downloaded a virus in the process as they are down 6% on last night's disappointing quarter.  Revenue grew 11% while profit dropped 4.8%.  We have a word for that on When Genius Prevailed, it's called "bad fucking business" (and yes Money McBags knows that is actually three words but like DELL, he is giving you 200% more for the same price).  Dell's continued reliance on discounting is good for consumers (assuming they wanted a shitty Dell computer with customer service so bad that it that makes Britney Spears teaching you bernouilli distributions seem helpful), but not good for shareholders.  Granted all PCs not starting with an "i" are essentially commodities so price competition is inherrent to the market, but negative operating leverage for a business is like a female with a hairy ass, it's uninteresting, unbecoming, and frankly unnatural.  In other large cap news FSLR reported a decent quarter, beating analyst estimates but then guided to increased margin pressure in the second half of the year as apparently their main source of energy, the sun, is free.  Solar stocks are being eclipsed by the market today as a result.

In small cap news, JOEZ continues to rally (and Money McBags broke down JOEZ quarter a couple of weeks ago) while for some reason HIL continues to crumble like poorly installed dry wall (and that is punny because HIL oversees commercial construction).  Money McBags has been a fan of HIL as they are diversified globally, have had solid performance, and don't take on any building risk.  They are hired to litigate and to manage the building process.  The company is now trading at 10x estimates, around 1.5x book value, and close to 8.5x EV/EBITDA.  They have been acquiring companies in geographies they are not in and think their claims business should start coming back.  The stock is down by close to 1/3 in he past four months and now it seems to be fairly cheap.  Money McBags is unsure why it has been hit so badly as it offers a nice way to diversify into real estate without taking the building balance sheet risk.  So your homework for the weekend, other than taking out the trash, is to figure out what is going on with HIL.  Money McBags will dig into it a bit more next week and see if he can't find a reason for the four month sell off because if there is nothing nefarious going on (like a Goldman Sachs Greek bond placement and currency swap or a Heidi Montag record promotion) then this could be a good entry point.

So enjoy the weekend and Money McBags will be back on Monday.

Thursday, February 18, 2010

2/18/10 Midevening Report : Bernanke preemptively raises discount rate, causes Alan Greenspan to roll over in his grave

Aw shit, it is now on like donkey kong as the Fed is getting serious about some shit.  This ain't your Greenspan pushover, lolligagging, lobster tails and blow jobs for everyone, bubble creating Federal Reserve.  No siree, this Bernanke guy is a straight up pimp and will bitch slap the market back to reality and remind them not to take daddy's money before they get too uppity on him.  With the markets running off of a 3 day orgy filled with earnings, mediocre economic news, and a potential bailout to get the EU out of the greek headlock in which they have been painfully trapped, Bernanke had had enough.  We all remember when the fed minutes were released yesterday and one of Bernanke's henchman, T-Ho (Fed Reserve of KC bank president Thomas Hoenig) started to warn Ben about getting high off his own supply by keeping rates too low.  Well Benny B took that to heart and after the market closed he took out his pimp hand and smacked the shit out of the market by surprisingly raising the discount rate to 75bps while yelling "That's right market, don't forget, I'm you're daddy.  Come on, say it.  Who's your daddy?  Let me hear it.  You know you want it tight in the discount window."  This is the first time the rate has been increased in three years and will likely halt the market's rally tomorrow.

Aside from Bernanke trying to win his cock-off with the market, macro news was mixed today with the Philly Fed saying manufacturing had picked up again and new orders are at their highest levels in 5 years (of course in Philly, those new orders are for Uzis, Butterscotch Krimpets, and fecal matter to make the city even shittier than it is).  New claims for unemployment also came out today and were worse than expectations, rising by 31k to 473k as opposed to falling as analysts had expected.  Money McBags has been through this before, but if you're an analyst, can you at least get the direction correct?  For fucksake you have a 50% chance, I mean it's not like the 33% chance you have in guessing "man, woman, or tranny?" with Kathleen Turner.  Finally the PPI came out today (as opposed to the pee pee eye that landed R Kelly on trial) and was up 1.4% signalling inflation.  While the core rate was only up .3%, it was still worse than the .1% expectation.  The point is, inflation is coming and it's a good thing Bernanke looks to be proactive about it.

WMT had their earnings announcement today and beat earnings expectations yet had negative same store sales growth as a result of declining traffic.  Their guidance for Q1 was also almost as bleak as John Tyler's 1844 re-election campaign or Heidi Montag's Celebrity Jeopardy! prospects as they said it will be a challenging quarter.  The stock was down moderately today but if Bernanke is determined to quiet the market, shares of WMT may become more interesting if they fall another 5%.

Finally in small cap news WILC was down 10%.  Really?  No, really?   There are people who want to puke out a company trading at less than 4x EV/EBITDA, less than 10x earnings (or 5x earnings if you take out the 50% cash they have on the balance sheet), with growth prospects to potentially double revenues?  Seriously?  Unless you think CEO Gee Willi Zwi Williger is blowing smoke out of his shofar and is fooling his auditors and submitting his financials in crayon on the back of a discarded yarmulke, there is absoltuely no fucking reason to be selling this stock here.  It is still cheaper than a pail of salt water on the sunken island of Atlantis or the self respect of an 18 year old wanna be model on her first Hollywood casting couch.  Yeah, Money McBags knows it is a weird fucking company (he broke it all down for you way back in 2009) and he also knows that the volume on this stock tends to be thinner than a bulimic with an oversensitive gag reflex, but for fucksake, what is it going to trade down to?  Cash?  A business earning money with no debt and growing is going to trade down to cash (which is only 50% downside from here)?  If that's the case than Money McBags clearly has no idea what he is doing and needs to get of this business and into whatever idiots do, like maybe politics, making oven mitts, or running the LA Clippers.  Unless this company is completely full of shit like a constipated political consultant, it is a fucking screaming buy.  And yes Money McBags owns it, so yes he is talking up his book.  Full fucking disclosure, as always.

Wednesday, February 17, 2010

2/17/10 Midevening Report: Fed hints at reversing stimulus, starts by canceling Bernanke's Playboy subscription

The market was up today like a hooker's skirt in Tiger Wood's SUV.  The rally was driven by earnings, earnings, earnings and some macro data.  Apparently people are still building houses as housing starts hit their 6-month high, rising 2.8% to an annual rate of 591k.  This marginally beat expectations and should be a good sign for the economy, even if half of the houses were built from legos and the other half have already been forelcosed on.  In other macro news, the Fed announced that industrial output grew .9% which also beat expectations with capacity utilization coming in at 72%, 8% below the average from the last 37 years.  So there is still room for the economy to rebound and thus produce more of those delightful "For Sale" signs to go in front yards, printers to print out resumes, and muzzles to put over Lady Gaga's face.  Also, import prices rose by 1.4% signalling inflation may be on the way (and for those of you who need a less subtle signal: INFLATION IS COMING!!  And Ben Bernanke is going to have to make inflation think long and hard about baseball for him to try to stop it from coming).  Many analysts were unphased by the rise in import prices claiming oil and natural gas drove up prices, so I guess it's good we don't rely on those fuels at all or else we might have to worry a bit more about the dollar.  Phew.

There was one piece of macro news which caused a brief sell-off before the market put back on its pearl necklace and returned to the ball (and yes, all of those were very bad puns).  The minutes came out today from the last FOMC meeting and the head of the Kansas City branch of the Fed, Thomas Hoenig (known at the Fed as T-Ho), was the one dissenting vote on interest rates.  T-Ho got all up in Benny B's grill and axed him why they needed to say the fed funds rate would remain low for an "extended period," preferring to change the language to say the fed funds rate would remain low for "some time, and shit."  The minutes also revealed that the Fed is starting to look at downsizing their balance sheet and selling into the market the toxic assets, I mean mortgages, they previously bought.  The key message here being that further stimulus to help the economy may be less likely than Brooklyn Decker dumping Andy Roddick for the first guy eliminated from next season's The Biggest Loser.  The Fed might actually be doing something smart here by looking to get in front of a bubble and stopping it before it happens rather than pulling an Alan Greenspan and blowing hot air into it like it was Andrea Mitchell's rectum.

In earnings news, Deere's profit climbed 19% and they raised forecasts thanks to strength in "large ag equipment", or what's more commonly known as: "Rosie O'Donnell's dildos."  Also, WFMI not only had a kashi-tastic quarter as Money McBags predicted yesterday, but is was double fiber kashi-tastic.  WFMI same store sales were up 3.5% and they gave total revenue guidance for 10.5% growth in 2010 while raising full year earnings guidance to $1.20 to $1.25 per share, about 10% above current estimates.  Yeah, it was a good Q but they are now trading at around 25x 2011 earnings which wouldn't be so bad if they were growing by more than 10%.  Of course, EBITDA was up 25% and they raised EBITDA guidance by about 5% to $635MM-$685MM for 2010 which means they're trading at around 7x to 7.5x 2010 EV/EBITDA which actually isn't all that unreasonable.  Money McBag's guess is that there was a whole lot of short covering today and in the next couple of weeks WFMI will come down a bit, but it is still trendier than Jessica Biel giving free blow jobs to bloggers (and trust me, that is going to be a huge trend).

In small cap news, RICK reported yesterday and they managed to not only shit the bed, but then they announced they were going to buy VCGH and shit all over their bed too (though to be fair, VCGH's bed was plenty shitty to begin with). Money McBags never thought he would be unhappy getting fucked by someone at RICK, and RICK not only fucked him, but they sent the 40 year old C-section showing, needle marks in the arm having, 2pm shift D-team dancer to do the job.  Jeesh.  Could they at least kiss me next time before they fuck me?  Actually, scratch that.  I mean I love the lovely ladies at Rick's who express themselves through dance to pay their college tuition, but they probably have more lip herpes than Richard Simmons has anal warts, so they can hold off on the kissing.  Anyway, RICK reported the quarter that Money McBags had feared since they bought their Las Vegas club.  You see, in order to win business in Vegas, Rick's pays the fuck out of cab drivers to bring patrons to their club.  It is labeled as marketing costs, but it is payment of cash to cab drivers as clubs compete for traffic.  All of the clubs kind of collude to keep that price to around $20, but to gain business and to slap their cocks on the table and let other club owners know they are serious, RICK had been occasionally upping the ante to as much as $100.  Well it looks like in this quarter that occasional upped ante was both not occasional and was so far up that it gave itself a cerebral edema from hypobaropathy.  Rick's marketing costs soared by $1.7MM to $2.9MM and treated their earnings like an Alabama professor after learning she wouldn't be tenured.  Now on the call they said the marketing increase was related to more than just the Vegas club and that the Vegas club turned a profit in January and should be profitable for this Q, so that makes Money McBags feel a bit better, like how Jessica Simpson felt when she learned stupidity wasn't contagious, but it is a huge red flag.  Their earnings missed the high end by $.08 which is actually slightly less than the uptick in marketing costs.  Revenue was up a healthy 16.5% but it was achieved in the most unhealthy way, by paying people/cab drivers to show up.  To Money McBags it is a huge concern and kept him out of the stock until a few months ago.  Now on top of their shittastic performance, they announced a $45MM cash and stock acquisition of VCGH which will make them the largest strip club operator in the world.  While Money McBags is a firm believer in bigger is better (such as the fine backsides of Carmen Kinsley and Alexis Texas), this deal has a ton of dilution as Rick is going to have to issue somwhere around 2.5MM shares and thus increase their share count by 25%.  Rick's maintins that they will benefit from synergies such as corporate overhead, regional management, and shared thongs, and thinks EBITDA will be $25MM for the combined company.  They also reaffirmed guidance for 2010 without VCGH of $.90 to $1.05 per share, so they are still fairly cheap on a p/e basis.  The biggest problem is that Money McBags can't really analyze this deal because VCGH stopped filing financials months ago so there is no way to understand if their clubs are even remotely profitable.  So you have a shitty quarter, a questionable deal, and a stock that has been on the move but is still cheap if you believe the marketing uptick was a one-time offense (and Money McBags has no idea about that).  If you own RICK, it might not be a bad idea to trim a bit here, and if you're at Rick's, it might not be a bad idea to see some trim there.  Alot of questions remain after this call such as will decreasing marketing costs hurt top line, what does Rick's new cap structure look like, and can a brother get a table dance?  Unfortunately, after this quarter there will be no sex in Money McBags' champagne room and for those RICK's owners, you should really due some more work.  Money McBags is holding for now, but leaning towards selling some as it's unclear how RICK will still hit their guidance for the year after missing this Q and how they will grow if they lower marketing costs, since if lower marketing costs were to allow them to grow, why wouldn't they have been lower this Q?  Damn you logic.

Tuesday, February 16, 2010

2/16/10 Midnight Report: Commodities rise as NBC giving out medals to anyone who will watch the Winter Olympics

Money McBags is on the road this week like Jack Kerouac (though without the gay sex, pot smoking, acid dropping, and melodious run on sentences).  As a result of Money McBags' travels, daily updates may be shorter and sparser than Vern Troyer at a Mensa convention or blow jobs to a married man as the years go by.  That said, the markets are still open and even though this is a short week (and Money McBags poured some out yesterday for all the dead presidents, except for Andrew Johnson, he can eat a shit sandwich with an extra helping of "fuck you"), we still need to make profits, so while the updates may be more sporadic than a bulimic's bowel movements, they will be here, so continue to check in during the day for updates.  And if any of you have any ideas you'd like Money McBags to analyze, put them in the comments section and they will be tended to with the utmost care and proficiency.

As for the markets, the US was off on Monday but the rest of the world was open for business and markets were largely up led by commodities and Asia which has been rallying like Burt Reynolds in the 1980s (you know, when he was banging a still hot Loni Anderson and drawing the fuck out of some charades on Win, Lose or Draw).  Asia was up for the 5th time in 6 days likely causing Jim Chanos' erection to point due North as he can now short China at higher prices.  Australian companies continued to put up good earnings as their second biggest lender, Westpac (unrelated to their second biggest rear ender, Fudgepac), saw a drop in defaults while profits rose by 33%.  Australia's economy continues to be healthier than an organic sprout sandwich with a side of extra bland at a Whole Foods or Carmen Kinsley's ample backside.

And speaking of Whole Foods, they report today and the big question is what their organic growth will be like (bad and easy pun completely intended).  Money McBags loves him some quality ingredients, but do people really need to pay a 50% premium for organic green beans?  More to the point could those people even tell you what the difference between organic and regular food is other than Oprah said it's better?  Money McBags is willing to bet his high functioning sigmoid colon that the average WFMI shopper couldn't tell you the difference between Carrot Top and a carrot top (the key difference being a carrot top is green, and funnier) and remains largely skeptical of most things organic, wondering how long WFMI can ride this trend especially as unemployment stays high and people get poor.  That said, Money McBags would not be surprised by WFMI putting up a Kashi-tastic quarter even with reduced traffic due to all of the Prius recalls because the organic trend is still stronger than Tom Arnold's breath after he went down on Roseanne in the late 1980s to get his career started or Money McBags' feelings for that Heidi Montag train wreck's new boobs.  That said, unless WFMI raises estimates for 2010 to $1.70, Money McBags is going to stay away because there is no need for this company to trade at greater than 18x.

Friday, February 12, 2010

2/12/2010 Pre-Market Report: China tired of Greece stealing headlines, raises reserve rate to try to be January's Economist centerfold, promises to show their Shanghai if selected

It's a travel day for Money McBags so we'll get to the market news early.  The big story which should give pause to the market (and by pause, I mean send it into a bit of a downward hissy fit like someone at Fox News after trying to spell USA without a teleprompter) is that China is raising their bank reserve requirement once again in order to put a damper on growth.  China has been fueling the global recovery as they not only provide cheap, flimsy, and lead ridden goods for the world, but they are growing internally faster than a metastasizing anal fissure.  This is the second time in month China is raising this reserve rate in their attempt to show the world that they are not fucking around and will try to avoid Greenspan's folly.

Also likely to send the market down today is Europe's recovery being more stagnant than Demond Wilson's acting career.  GDP rose .1% in Europe which was only slightly below the .3% estimate but traders will likely overreact because volatilty to them is like spinach to Popeye or like Amanda Seyfried to Money McBag's "popping eye" (and yes that is a very bad euphemism, but you get for what you pay).  This slow down in Europe's economy could not come at a worse time as markets are still trying to figure out when/how the EU intends to bail out Greece.  It's like the EU has hired the underpants gnomes to solve the potential debt crisis.  Step 1:  Hint that you will bail out Greece.  Step 3: Recover.  Unfortunately, those people with actual working cerebral cortexes (Which rules out the delightful Carrie Prejean and the guy who invented Nuts 'n Gum) understand that there has to be a more substanial plan (and as an aside is the plural of cortex, cortexes or corti?  Can someone exhume William Safire and get a ruling on this?  Money McBags is not always a cunning linguist).  Money McBags is sure that the EU will come to Greece's aid, because the Euro is not going anywhere, so until then, traders will just have their fun by continuing to bring volatility to the market.

There's not a lot of stock news yet but Berkshire Hathaway will be entering the S&P 500 today which should nudge it up a bit higher and maybe even cause Warren Buffet to take off his trifocals, pull up his breeches, tighten his cravat and gingerly smile before going back to his game of whist.  In small caps, EHTH announced their quarter and revenue was a bit light on application growth struggles.  EHTH is an interesting name in that they provide a network for people who do not have employee sponsored health care to get health insurance.  The company should be booming right now with so many people signing up for Cobra that GI Joe may get slaughtered (and yes, that was an unfunny and terrible joke).  EHTH has had a solid balance sheet, great ROEs, and a terrific business model, but Money McBags is a bit confused as to why they haven't been able to see stronger growth and if they are not booming in this environment, when will they?  Money McBags has not had a chance to go through their quarter yet or listen to their call, but will be surprised if they don't sell off today.

Enjoy the weekend.

Thursday, February 11, 2010

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

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

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

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

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

Wednesday, February 10, 2010

2/10/10 Midday Report: Bernanke's statement stuns meteorologists, causes it to rain on market's parade in the middle of a snowstorm

The big news moving the market down today was the statement from Ben Bernanke about the FED's future policy plans.  Bernanke was supposed to testify in front of the House Financial Services Committee but the snow storm in Washington caused the hearing to be postponed giving Barney Frank more time to make snow angels and less time to suck at his job.  Bernanke did release his full statement which serves to make Crime and Punishment read like a fucking Dr. Seuss book (I will kill her with an axe, I will kill her with hot wax. It will be an act of enormous enormance! No rational performer's performed this performance!).  I'm not saying it was boring to read, but Ambien is said to be suing Bernanke's statement for patent infringement.  However, since Money McBags is here to serve the people, he made it through the whole statement and can sum it up in fourteen words: "We did a bunch of shit, now we are going to try other shit."  The important parts are that eventually rates will rise (duh), though not in the immediate future, and in the meantime, the FED will investigate other ways to control interest rates and bank lending, such as paying banks interest on reserve balances held at the FED.  Below are Bernanke's actual words on this (no jokes, real information):

"By increasing the interest rate on reserves, the Federal Reserve will be able to put significant upward pressure on all short-term interest rates, as banks will not supply short-term funds to the money markets at rates significantly below what they can earn by holding reserves at the Federal Reserve Banks. Actual and prospective increases in short-term interest rates will be reflected in turn in longer- term interest rates and in financial conditions more generally"
The FED has also been developing a number of additional tools to use to reduce the large quantity of reserves held by the banking system.  Those tools include offering term deposits, selling securities, and using reverse repos and their more deliciously effective cousin, the reverse cowboy.

In macro news, the US trade deficit increased, widening to $40B as both exports and imports increased.  However, the rise in the dollar over the last couple of months may be hurting export growth in a classic Catch-22 situation, like mark to market accounting for bank balance sheets in a declining asset economy or finding Gia Carangi in your bed in 1985 and not having any condoms.  While the trade gap was driven to some degree by a larger quantity of petroleum being imported, and while a 3% growth in exports is still growth, the US needs exports to take off like a young Milton Friedman in the mid 1940s in the University of Chicago Economics department where he proved the hypothesis that chicks dig rising permanent income (generally speaking).

Internationally, China's exports grew 21% while imports grew 85%.  Container companies were said to have raised their shipping rates as export growth is causing steel containers to become more scarce in China than Andrew Johnson supporters in 1867 or female smurfs.  The export growth in China has increased the calls to unpeg the renminbi and let it float to reflect its actual value, of course if it were up to Money McBags, he would just peg all currency to the the Vietnamese Dong (and yes, learning that Vietnam's currency is named the dong was pure comic gold for Money McBags, like whe he ran in to Tiger Wang on linkedin.  Of course it does make Money McBags wonder if Lexington Steele would be the richest man in Vietnam due to the amount of dong he carries.  Thanks, and don't forget to tip the waitress, though not too much because she has a bit of vertigo).

And we can't forget about Greece where civil servants went on strike and walked off the job for 24 hours thus shutting down airports, hospitals, and schools, in their attempt to become Camden, New Jersey.  The EU's bailout will force the country to freeze salaries, raise the retirement age, and require citizens to purchase deodorant.  But it's nice to see the workers protesting these cuts becuase I am sure they didn't receive any benefits from the enormous amount of debt taken on by the Greek government (and yes that was sarcasm).

In stock news, The New York Times had a quarter that beat expectations but the company continues to run a declining and outdated business.  Their newspaper advertising revenue was down 17%, slightly better than the 30% decline from the first three quarters of the year, but still about as good as Emo Phillips hosting a Def Comedy Jam remake or  Jennifer Love Hewitt's ass.  New director of strategy, Phil Von Werescrewed, said "we expect the newspaper advertising revenue to level out any quarter now, unfortunately that level is going to be zero, so we're actively looking at new ways to be profitable, like shutting down, or restarting out dauggerotype business."  In comparison to the Times' 1940's business, BIDU announced first quarter revenues to be above estimates as they gained advertising dollars from Google's potential pull out of China (which would make GOOG the most famous thing to pull out of Chyna since Triple H).

In small cap news, DFZ continues to rise after their huge Q which  Money McBags broke down for you yesterday.  Money McBags did have a chance to go through their call last night and it all sounded pretty good.  They did say they expect to be unprofitable for the next six months which is consistent with previous years as the first six months of the calendar year is mostly replacement and replenishment business (hence their desire to make an acquisition to counter the seasonality of the slipper business).  However, they did guide for slight revenue growth, though to be somewhat offset by an increase in marketing, but gross margins should be over 40% for the year, operating margins between 10% and 12%, and they are having no input pricing issues in China.  The company has earned $.95 so far this year, so let's just call it $.90 in total for the fiscal year assuming a loss of $.05 in the next two quarters (though Money McBags thinks they might actually earn a profit with international sales increasing and the Dearfoam brand getting increased marketing, but whatever).  They are now trading at 11x this number which is for the fiscal year ending in June (so not even really forward earnings).  That is a ridiculously low multiple for a cheap growing company with a solid balance sheet.  Money McBags thinks this is at a minimum at $12 stock but could easily see $15 if they continue to execute.

Tuesday, February 9, 2010

2/9/10 Midday Report: Greece once again open for business, no longer a Euro school dropout

The market is up strongly this morning after EU Bank president Jean-Claude Trichet decided to leave Australia where he was attending the Reserve Bank of Australia’s 50th Anniversary Symposium which was a party likely as raucous as a staring contest between Bea Arthur and JD Salinger (mainly because they're both dead).  Even so, we are told things got a little out of control when the bankers let their toupees down and played a little game of "name your favorite currency" with Vietnam's Dong easily winning out even if it is not as big as the other currencies.  Trichet flew back to Europe where he was invited to a summit of European leaders called by the deligthfully named Herman Van Rompuy (and Money McBags is calling bullshit on this whole thing because no one is named Herman Van Rompuy).  This is leading to speculation that the EU has a plan to bail out Greece, and Portugal, and Spain, and maybe Italy, and then maybe even Freedonia (where time flies like an arrow and fruit flies like a banana).  As one analyst said: “The markets are smelling a deal for Greece, and for that reason, we’re seeing some stabilization."  Of course, that smell could actually be Greece and not a deal for Greece but Money McBags remains optimistic because as he has been saying all along, the Euro is not going away, it's just not.  Now it's unclear how the EU plans to deal with the struggling countries, whether it's a good old fasion bail out, some kind of debt guarantee, or a lifetime ban on Nia Vardalos movies, but help is on the way.

In US macro news, there's not a whole lot of new information.  Wholesale inventories unexpectedly dropped by .8% in December while sales rose .8%.  Both numbers were marginally below estimates yet close enough that the market let out a collective yawn.  Inventories bear watching though as we've made it through the obvious restocking and now we're at the point where they need to at least maintain their new level in order to signal new steady state or some real growth.

In stock news, KO had a blow out quarter as earnings rose 55% thanks to India and China who love them some sugary water.  Overall revenues were up by 5.4% even though they were down 4.5% in the US thanks to some people apparently giving a shit about not being fat.  Luckily, developing countries haven't yet reached the point where they have large middle classes whose teenage girls read People magaine and stress about weight from the caloric intake of soft drinks and thus KO benefitted from 19% growth in Latin America, 29% in China, and 20% in India.  Coke also annonuced they bought back $1.5B (known colloquially as a "shitload") of their own stock last year which was $500MM more than they committed.  Money McBags is an owner of KO for the simple reason that it has ginormous brand equity in developing countries and is a relatively cheap product that people can buy to feel like they are part of American/pop culture (kind of like Paris Hilton's vagina).   MCD, another longtime holding of Money McBags came out with their monthly sales numbers which featured a 2.9% rise in same store sales driven by a 4.3% increase overseas.  Sure, people were disappointed that US same store sales were down .7% but people were also disappointed that the Kim Kardashian sex tape was a bit grainy.  So as always, you can't please everyone (unless you are Blake Lively and are manning the free blumpkin and waffles booth at the local greeting center), but you can be happy with MCD's numbers and Money McBags owns them for the exact reason he owns KO.  They sell cheap shit with huge brand equity that developing countries love the fuck out of (and this will be the first sentence in When Genius Prevails' short and illustrious history that will end in a preposition).  Also, ERTS put up a terrible quarter as their attempt to take on the Grand Theft Auto franchise with Moral Theft: Vatican City failed to generate sales while damning them all to hell (or as it is more commonly known, the guest audience of The View).

In small cap news, two companies Money McBags follows reported today with TMRK putting up a marginal quarter with lackadaisical guidance and DFZ slipping it's quarter some ruphies and having their way with it like a young Charlie Sheen at the Viper Room.  DFZ has been a small holding of Money McBags for a few quarters because it has been cheaper than Valtrex at Lindsay Lohan's house in addition to being a well run company with growth prospects completely under the radar of investors because their business is more boring than a Jane Austen novel or watching two pieces of lint hump (and now that I think about it, watching lint hump may not be so boring afterall, so scratch that).  They are the market leader in slippers, yeah, you know, the things your significant other bought you that you never wear.  The point is that even though the market is small (about $300MM), they dominate it like Nipsey Russell dominated the 1970s Hollywood game show circuit.  They have 35% of the market and are the sole owner (pun intended) of the slipper business for a little company called Walmart.  DFZ continues to win business from smaller players as their supply chain and logistics management give them an advantage in winning business by giving buyers confidence in their ability to easily handle a relatively unimportant vertical.  Since turning the business around, they have had yearly EBITDA no worse than $12MM and had been trading at 6x that trough EBITDA even though prior to their announcement last night, they guided for slight growth.  In the quarter released last night, they earned $.74 per share, which was around 30% growth on sales growth of nearly 15% ($56MM compared to $49MM) thanks to margins moving from 39% to 43%.  Cash on hand was up to $37.5MM and they have no debt so they are now trading at around 4x to 5x EV/EBITDA depending on how much credit you want to give them for growth in the second half of the year (Money McBags has not had a chance to listen to their conference call yet).  Before this huge Q, Money McBags was pegging them to earn $.80 per share this fiscal year by maintaining a 41% margin but they almost beat that $.80 number just this quarter.  Now it's likely they'll earn closer to $1 (again, Money McBags has not listened to their call yet to know if there was any guidance) so they are trading at less than 10x fiscal year 2010 earnings and they have a June Q so they are probaly closer to 8x full year 2010 earnings.  The company is so cheap it makes my balls hurt, or in the case of DFZ, it makes the balls of my feet hurt which can be soothed by slipping on my DFZ made Dearfoams.  Not only are they cheap, but they have been rumored to be in talks with WMT's international business to expand there and were actively looking to get into Payless/DSW/other shoe stores and to be honest, Money McBags is shocked they are not already in those stores.  The other rumor is that they are looking at acquisitions, potentially of a sandal or flip flop company to help smooth out the seasonality of the slipper business.  They also recently launched a Levis brand and earlier last year turned down a take out offer of $7.50 per share for the company, so we have some good downside protection in cash and in potential buyers if this company were to shit the bed.  There is no reason this company shouldn't trade for at least 12x earnings which would yield at a minimum a $12 stock price and it is currently trading for $9.50 (and this is not even to mention the now stupid multiple of EBITDA for which it currently trades).  The downside is that it is a tiny company with little institutional ownership and almost no coverage, but that is more of an opportunity than a concern.  Money McBags is happy with his current position and may buy more should it dip down tomorrow or after he goes through their call.

As for TMRK, they gave guidance for $95MM to $100MM 2011 EBITDA so despite a decent quarter, they are already trading at around 8x 2011 EBITDA.  While that is cheaper than competitors, and while TMRK is in a terrific growth market as Money McBags believes more in the growth of cloud computing and colocation than he does in the existence of Hanna Hilton (and as he watched about 22 hours of her terrific performances yesterday, he is 99.87% sure she is real),  they do carry around a large amount of debt and have significant cap ex.  This was Money McBags analysis of TMRK from last month and he stands by it (especially as TMRK was trading at around where it fell back to today).  The growth targets announced this Q are a bit below expectations but if the stock continues to drop, Money McBags will likely start a position.  No need to get involved today as the momentum buyers fly out, but worth watching.

Monday, February 8, 2010

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 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 He has no idea if he will ever use it, but it is there.