The market fell for most of the day before being bizarrely bailed out at the close for no reason other than to seemingly allow Money McBags to write that alliterative phrase. The big news was that the jobs report once again disappointed like the other side of a Goldman CDO deal or Tara Reid’s plastic surgeon. The July jobs report showed the economy lost 131k jobs driven by a 143k decline in temporary census workers, a 59k decline in other government workers, and a 99% decline in hope. The positive spin is that private employers added 71k jobs though that was below the 90k analysts guessed but up from the DOWNWARDLY REVISED June made up number of 31k (and that was DOWNWARDLY REVISED from the bogus 83k number which Money McBags eviscerated last month and means that at least 221k jobs were lost last month, not 125k, but what’s another 100k to the 16.4MM people unemployed?).
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With all of the revisions, the headlines and the numbers are less believable than Lawrence Fishburne ever being up for Father of the Year or the Laffer curve. Rather than trusting the headline, Money McBags once again went to the BLS’ actual press release (and as always the “L” in BLS is silent) to look at the numbers since headline writers and financial analysts treat due diligence as if it were going to give them herpes of the brain (and not regular herpes, but porn star herpes).
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The most interesting thing that Money McBags found is that the fictitious birth/death model, which may be the most famous black box Robert DeNiro has never entered, had little impact on the manipulated numbers. The birth/death model adjustment was only 6k so the 131k reported number was likely at worst 137k. That said, in breaking down the numbers we see that 59k non-census government jobs were lost, and those may or may not have been permanent and may or may not include Maxine Waters’ husbands’ bank auditors, but it is something that has been glossed over by the media. Sure seeing private sector job growth is important, but if it is at the same level as lost government jobs, we’re just robbing Peter to pay Paul or robbing Spitzer to pay Dupre (which actually, wouldn’t be so bad).
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Money McBags did find one discrepancy as the BLS report says that:
“Employment in professional and business services was little changed (-13,000) in July. The number of jobs in temporary help services showed little movement (-6,000) over the month.”
And as you can see in the above chart, Money McBags did not factor in the 6k reduction of temporary jobs, assuming them to have been grouped in with the professional and businesses services (though they weren’t last month), so one might be able to further increase the jobs lost number by 6k, but people care less about 6k more job losses than Economists care about how their ideas work in practice (the answer is not good) or Britney Spears cares about underwear.
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The unemployment rate remained at 9.5% thanks largely to another 350k people simply leaving the labor force (yes, the math is that convoluted) and thus causing that stagnant metric to be more misleading than the movie titled The Banger Sisters. But hey, as long as we keep losing jobs and the unemployment rate only gets better or stays the same, everything is fine. In fact, Money McBags suggests a radical, though more honest strategy, were everyone just leaves the fucking labor force by claiming they don’t want a job and thus the unemployment rate will artificially drop to zero and the government can pat themselves on their filibusters about what a great job they have done. Problem solved, election won.
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Anyway, the real unemployment rate which includes those people who have become more discouraged about finding a job than Sisyphus was pushing that fucking boulder or Heidi Montag’s singing coach was trying to teach her to sing on key, remained unchanged at 16.5%. So the economy remains about as healthy as Dick Cheney’s fictitious heart.
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Internationally, there wasn’t much news today other than that Russia continues to herd themselves some grains as the country faces it’s worst drought since Rasputin’s liver was fully functioning. The ban on exports of grain has caused a global spike in wheat prices and led to a rally among companies specialized in fertilizer (and Money McBags would love to fertilize her).
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In stock news, KFT put up a nice quarter with profit up 13% thanks to their recently acquired Cadbury business which saw gum sales bubble up in Latin America, chocolate sales sweeten in Asia, and loads of soggy biscuit sales metabolize in Europe. Taking out the Cadbury acquisition, sales were up 2.2% but the company moved the low end of their organic growth guidance from 4% to 3% due to aggressive promotions in the US and the fact that people don’t have any money.
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In other market news, AIG annonuced earnings and they either beat, missed, or came in-line with analyst guesses. The company’s financials remain more obfuscated than Caster Semenya’s gender and Money McBags would rather calculate pi to the 1MMth decimal using only a slide rule, a broken abacus, and Abe Vigoda’s nut hairs than analyze an AIG earnings release. The company claims their adjusted net income was $1.2MM on $2.2MM of operating earnings leaving adjusted eps of $1.99 but Money McBags trusts any of those adjustments about as much as he trusts Leprechauns.
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In small cap news, TMRK traded off after a big jump yesterday on it’s quarterly earnings release. Money McBags wrote about TMRK yesterday and thinks it is an attractive long term hold (though not as attractive of a long term hold as Alice Eve), so he certainly likes today’s entry point better than yesterday’s which was likely inflated a bit by short covering. Like he said in his analysis, he is unconcerned by quarterly or even daily fluctuations as this is a core small cap position. QCOR also sold off today before recovering near the end of the day as the market is basically punishing any company that ran up on good earnings. Keep an eye on QCOR as you may get a very attractive entry point (though not as attractive of an entry point as Jenn Sterger‘s mouth).
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In other small cap news, a tiny little company which Money McBags has written about before, FHCO (use the search box for his break out of their last Q and earlier company deep dive), announced their earnings today and the number was so bad that not even an FC2 could prevent it from giving someone AIDS. Revenue was down ~70% in the Q to $1.8MM and operating income was down 99% to $21k leaving the company with a whopping $0.00 eps. Wow. That sounds worse than the melodic stylings of Celine Dion and yet the company was only down ~5% because according to the company 2 big orders simply got pushed back. Whew.
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The good news is that the the company said Q4 is proceeding as expected and that “the two pending orders represent significantly larger quantities than the customers’ most recent previous orders.” So in every thing but practice, the top line should be growing.
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The bad news is that it’s not clear when the delayed orders will actually hit the bottom or top line as management also said “The Company cannot predict when the pending orders will be received or which quarters they will impact.” In addition to saying: “Delays such as these, which are usually due to bureaucratic issues, politics and/or changes in personnel, generally may last from 3-4 weeks to 6 or more months.” Money McBags likes that explanation a fuck load less than if they could have just said “we’ll send those orders out in Q4″ because it highlights that they have about zero control of their sales process as they are dealing with large public sector entities who either have or don’t have the funding. Since they have no idea when these orders will come in, they dropped their operating earnings growth from 30%-40% for 2010 to 10%-20%.
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Again, Money McBags finds this to be an interesting, yet highly bizarre little company that actually has a decent business model and should start seeing some earnings momentum with the switch to the lower cost product. Their gross margins went up from 48% last year to 54% in this Q, though they were down from 58% last Q which Money McBags will assume is the result of underutilized factories due to having orders pushed back, but one should keep an eye on that (one should also keep an eye on Sofia Vergara).
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Anyway, lets assume the company is telling the truth and the delayed orders are some bureaucratic snag because dealing with governments and public sector funding is more of a pain in the ass than a thrombosed hemorrhoid. The company was earning ~$7MM per Q in revenue but on the call they said an order of 12MM units had doubled to 24MM units so there is some growth to the top line. Therefore, let’s say they hit no more delays and can earn ~7.5MM in revenue per Q at a 54% margin with operating costs of ~$2MM (slightly higher than where they have been) and the company still doesn’t paying taxes. With those numbers, the company should earn ~$.28 next fiscal year (excluding any increase from these delayed orders being shipped in 2011) and it’s now trading at ~17x that but they pay a $.05 quarterly dividend (~4% yield) and have a decent enough balance sheet with $3.9MM in cash and no debt (though if orders keep getting pushed out, it will become harder to pay that quarterly dividend).
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Last quarter when the stock was trading >30% above where it is today, Money McBags said “this stock is a bit ahead of itself unless they can continue to grow earnings at 20%+” so he certainly is a lot more interested in the company now than he was then, but the delayed orders do make him nervous enough to not yet take a position in the name (unless that position is reverse cowboy and the name is Sara Jean Underwood), so he’s going to hold off again on this low liquidity stock while the economy gets worse. In theory, they should actually do well in a bad economy because their funding is set, but Money McBags would rather buy it when their delays are fixed and he’s not left wondering if they will have the capacity to make up for the delayed orders while filling their new increased orders. If it gets to <$4, Money McBags will likely take a closer look at buying a position.
Anyway, have a good weekend and remember to tell a friend or 10k about Money McBags and the award winning When Genius Prevailed.
