Thursday Wrap-Up

There are so many mergers and acquisitions they can't even wait until Monday anymore.

Now KKR and GS are buying stereo maker HAR in what I consider a real vote of confidence in the US consumer as they pay a 20% premium for the company,  which also makes JBL and Infinity speakers.

I find the timing interesting as Matsushita (Panasonic) just announced a 41% jump in profits as cost cutting enabled them to expand the bottom line despite stiff pricing competition and the declining US dollar (which hasn't declined as much against the Yen as other currencies).  Cutting costs and currency exchange has been a theme this earnings season and that's a good thing as it undercuts inflation concerns.

Microsoft pulled a gotcha on the analysts in the after hours.  They didn't get us, we've been onto the scam they've been running since 3/27 when I noticed the well-timed inconsistencies in Microsoft's various press statements where I said:

• "So I guess the question is:  Was Steve Ballmer lying on Jan 30th, or on Feb 16th, or was the company lying yesterday or is Steve just so out of touch with something as basic as shipping and sales of the company’s core product that he honestly can do a 180 on the numbers every couple of weeks?
• "Let’s give MSFT the benefit of the doubt and just say they are despicable market manipulators who callously move the Nasdaq on a whim, causing great economic upheaval and billions of dollars of investor losses simply to push forward their own agenda.  It’s not stupid at all to tank your stock while engaging in a massive buyback program, no sense in paying retail is there?  UPOD is one thing but it’s totally irresponsible to "play" the expectations game when your stock is the fulcrum that moves the broader markets."

It was our realization that Microsoft had been dogging their estimates that led us to making a lot of tech investments and we were in and out of a nice April MSFT play already and we just picked up those July calls yesterday, which should do quite well too!  MSFT announced a 65% increase in Q3 (for them) earnings and raised guidance and earnings included a large chunk of deferred revenue from Q2 due to the Vista coupons the company issued.  You would thing a top-notch CEO would be on top of those things but on Feb 16th:

• "Speaking at a meeting with analysts, Microsoft (MSFT) CEO Steve Ballmer warned that some analysts are being overly aggressive in their estimates for sales of Windows Vista in fiscal 2008. “We’re driving it hard, but I think some people have gotten a little over-excited,” Ballmer said in a conference call that is being broadcast over the Web." (MSFT gaps down 2.5% to $28.74 on 2/16, Nasdaq drops 140 points in next 10 days). 

LOL – good one Steve!  Thanks for messing with us, it's been fun.

The next company to mess with us is TZOO.  These fine gentlemen (see how civil I can be?), run a company that is 85% held by insiders with just 3M shares floated.  While management has been telling institutions to BUYBUYBUY (institutional ownership increased 29% last Q), on Tuesday they announced flat earnings and a big miss with little comment, triggering a 20% drop in share price as volume surged from 300,000 to 3.3M shares as retail shareholders ran for the exits (notice lack of block trading until the buy).  Then, at 2:39 pm today, after 2 days of relentless selling, TZOO announces a 1M share (30%) buyback program.

In other words, now that you've been selling your  stock for 2 days based on their poor earnings report, the company would like to inform you that it considers the shares undervalued and has already arranged to borrow $28M (because they sure don't have that kind of cash) to prop up the 85% of the stock they already hold.  Funny how they forgot to mention it to the 4.6M shares that were sold in the last 2 days.  Oh wait, I'm sorry, that's unfair, prior to 2:39 only 3.6M shares were sold, there was a massive spike at 2:37 and within minutes another million shares were bought from unsuspecting shareholder who may not have had a direct newsfeed regarding TZOO's buyback.

As we always say over at Phil's Stock World – we don't care if the game is rigged as long as we know how it's rigged!

The broader indices could have used some rigging today as they were fairly disappointing, especially the NYSE, which dropped 31 points with BF and GSK leading in down volume:

The Transports were led down by the airlines, who proved sensitive to $65 oil, as we expected.  With cost control being the theme of earnings this quarter, higher energy prices top investor concerns for Q2.

XOM continues to embody the winning strategy of selling less oil for much more money as Q1 profits were up 10%, even though total upstream revenues were down 5.4%.  Typical of our reporting companies, XOM trimmed capital spending substantially, to the lowest level since Q1 '05.   Exxon spent just $4.2Bn looking for and producing oil (they sell $90Bn a quarter) but spent $7Bn buying their own stock (7.5% of the total transaction) and another $1.8Bn on dividends.

No refineries are being built or upgraded by the World's largest producer, who marks up each barrel of oil 40% due to a refinery shortage.  Since costs are down overall we can assume it costs them little more to actually refine a $65 barrel of crude than it did to refine a $40 barrel of crude 2 years ago yet XOM and their peers find it necessary to charge you $28 a barrel on the "crack spread" vs. the $6 per barrel that made them "only" $25Bn in 2004.

If your company's performance was tied directly into the price of crude and you were paid to improve your company's performance – what would you do?

The dollar found some buyers at 81.50 and bounced .4% and gold did not like that one bit, falling 1.37% to $678 and looking like it may test $670 again.

It's all about the GDP tomorrow, which will trump Microsoft so tune in tomorrow for all the fun!