Fly Buy: $GS

I started a new position in GS.

Disclaimer: If you buy GS because of this post, your wife will divorce you and take half. And, you may lose money.

Goldman’s numbers were absolutely fantastic.

Goldman Sachs beats by $1.96, beats on revs (135.59 )

Reports Q4 (Dec) earnings of $5.60 per share, $1.96 better than the Capital IQ Consensus Estimate of $3.64; revenues rose 52.7% year/year to $9.24 bln vs the $7.67 bln consensus.

IB Unit
Fourth Quarter Net revenues in Investment Banking were $1.41 billion for the fourth quarter of 2012, 64% higher than the fourth quarter of 2011 and 21% higher than the third quarter of 2012. Net revenues in Financial Advisory were $508 million, 8% higher than the fourth quarter of 2011, primarily reflecting an increase in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $897 million, more than double the amount in the fourth quarter of 2011. Net revenues in both debt underwriting and equity underwriting were significantly higher compared with the fourth quarter of 2011, primarily reflecting an increase in industry-wide activity.

Return on average common shareholders’ equity (ROE) was 10.7% for 2012.

ICS Unit
Fourth Quarter Net revenues in Institutional Client Services were $4.34 billion for the fourth quarter of 2012, 42% higher than the fourth quarter of 2011 and 4% higher than the third quarter of 2012. Net revenues in Fixed Income, Currency and Commodities Client Execution were $2.04 billion for the fourth quarter of 2012, 50% higher than the fourth quarter of 2011, reflecting significantly higher net revenues in credit products and mortgages compared with difficult market-making conditions during the fourth quarter of 2011, and higher net revenues in currencies. These increases were partially offset by significantly lower net revenues in commodities and lower net revenues in interest rate products.

During the fourth quarter of 2012, Fixed Income, Currency and Commodities Client Execution operated in an environment characterized by generally tighter credit spreads and improved activity levels in credit products and mortgages compared with the fourth quarter of 2011. Net revenues in Equities were $2.30 billion for the fourth quarter of 2012, 36% higher than the fourth quarter of 2011, reflecting significantly higher net revenues in securities services and equities client execution. The increase in securities services net revenues compared with the fourth quarter of 2011 reflected a gain of approximately $500 million on the sale of the firm’s hedge fund administration business. The increase in equities client execution net revenues compared with the fourth quarter of 2011 reflected significantly higher net revenues in derivatives and higher net revenues in reinsurance. These increases were partially offset by lower commissions and fees, reflecting lower market volumes. During the quarter, Equities operated in an environment generally characterized by low volatility levels and an increase in equity prices in Asia and Europe.

Capital
Book value per common share increased approximately 11% to $144.67 and tangible book value per common share increased approximately 12% to $134.06 compared with the end of 2011. The firm’s global core excess liquidity was $175 billion as of December 31, 2012. In addition, the firm’s Tier 1 capital ratio under Basel 1 was 16.7% (5) and the firm’s Tier 1 common ratio under Basel 1 was 14.5% (5) as of December 31, 2012.

Expenses
Compensation and Benefits Compensation and benefits expenses (including salaries, discretionary compensation, amortization of equity awards and other items such as benefits) were $12.94 billion for 2012, 6% higher than 2011. The ratio of compensation and benefits to net revenues for 2012 was 37.9% compared with 42.4% for 2011. Total staff (11) decreased 3% compared with the end of 2011.

Non- Compensation Expense: Fourth Quarter Non-compensation expenses were $2.95 billion for the fourth quarter of 2012, 14% higher than the fourth quarter of 2011 and 24% higher than the third quarter of 2012. The increase compared with the fourth quarter of 2011 was due to higher other expenses. The increase in other expenses primarily reflected higher net provisions for litigation and regulatory proceedings and higher charitable contributions.

(click on chart to grant its creator praise)

When Bill Ackman announced his short position in HLF, I was shocked that he revealed so much about his position size. It’s as if he believed he was infallible, above the market, and immune to ruin. Those who remember the great squeezes of the dot com era, or even obscure, but legendary, squeezes like Resorts International, know that to reveal your position size is equal to challenging your competitors to break you.

During more traditional times, hedge fund managers would do everything they could to keep their short positions secret. However, thanks to the manipulative successes of internet newsletters and media whoring sociopath fund managers, it’s become common practice for short sellers to disclose their positions and reasons why their targeted companies are going to zero. It has become a carnivale, fitting for the clowns on CNBC to perpetuate into a soap opera genre, marketed to fools wishing to depart from their money.

Bill “Mars Attacks” Ackman has about $11 billion under management and is short 26 million shares of HLF, making it a billion dollar position and a very public spectacle. The stock did drop when his report was issued; but has since rebounded following the rapid capitulation of the suckers, late comers– like Whitney Tilson–who piled in late. Shortly thereafter, Daniel Loeb from Third Point announced a large stake in HLF, pushing the stock up further. Since then, the stock has taken on the characteristics of undergoing an epic short squeeze, one that is hell-bent on ruining Bill Ackman–punishing him for exhibiting the most extreme display of hubris, stupidity and greed, since the fictional movie Wall Street–starring Gordon Gekko.

If HLF manages to smash earnings expectations this quarter, I suspect Mr. Ackman is going to find his existence to be a very lonely one, as all of his sheep flee the herd.

For every point up, Pershing Square is losing an astonishing $26 million dollars (that’s about $500 million since the lows of last month!). Herbalife might be a crappy company; but they’ve been ripping off suckers for a long, long time. I don’t think they’re anywhere close to going to zero, like Ackman predicts. He is in a lose-lose position here, only because he went public with an absurd and utterly ridiculous 300 page hit piece on HLF, hosted live in NYC, and launched a website–which is dedicated to the sole purpose of seeing the destruction of HLF. For reasons unbeknownst to me, he has tethered his reputation with the outcome of a shoddy multi-level marketing company, one that has managed to lure in suckers for over 30 years. Perhaps he got bored.

If he covers HLF before it goes to zero, his credibility will be badly tarnished and will be viewed as “the boy who cried wolf” from now on. If it goes to zero, he will be lauded and praised as the best investor of all-time. CNBC will make a bronze statue out of his likeness and place it on top of the iconic Wall Street bull. The only question is: How long can Mr. Ackman afford to lose $26 million per point before he succumbs to market forces? After all, it’s 10% of his holdings, not exactly a small stake.

What if the CEO of HLF starts issuing special divvies just to squeeze Ackman?

What if a consortium of hedge funds collude to make a run on Pershing Square by bidding up HLF to obscene levels ($150+), while shorting his weak longs–like FDO and JCP?

It can happen because it has happened before.

Mr. Ackman now finds himself in the untenable position of having his franks and beans placed firmly inside of a quickly moving Herbalife zipper.

Tomorrow, as citizens of this great nation, we will be treated to an “executive delight.” Our leader, Barack Obama, will take the initial steps to protect this expansive, peace-loving, nation against itself, in front of children who pleaded with him over the Newtown massacre to ban pistols. By executive decree, aka “law”, our leader will bless us with a series of new regulations and laws whose goal is to limit and eventually eliminate the private ownership of guns in America.

God bless the Lord!

Do not worry about burglars sneaking into your home for a late night rape, for the policemen of this country will still be armed. If you live in NYC, you are fully aware of the police presence, as they stroll about, gallantly, in their uniforms armed for war. There’s hardly any crime in NYC and most who receive acts of barbarity had it coming, in one way or another. Truth be told, may Jesus strike you with his cannon.

The authors of the constitution, small chaps, only wanted its citizens to carry muskets and explode bullets in their faces during backfires. Our founding fathers, or might I say “great, great, great grandfathers”, never intended to put the sword in the hands of its citizens to serve as a militia against a tyrannical government. Had they known about first shooter video games and violent cinema, they would have banned muskets the second someone used one on another human being!

With all of this happening, such joyous occasions of fantastical precedence, I am barely able to contain myself in my outer-garments.

The law of the land shall reign for another 20,000 years and its citizens will be grateful for it.

NOTE: If you’re holding SWHC/RGR, prepare for extreme volatility.

This for the bozos out there who pray at the altar of technical analysis.

The following stocks, provided by The PPT, have just broken the 20 day moving average, heavily burdened by short sellers and have superb technical scores. Naturally, this data changes all the time. This is merely a snap shot in time.

If you’re a trader, you have no business owning stocks into earnings. Remember who you are, a vagrant OTB guy betting on the horses. You are not known for thinking through your investment ideas. Who are you kidding?

But if you insist on owning stocks through earnings, there are some you must avoid.

First off, get yourself a Briefing.com subscription so that you can utilize its search function to do research. When researching your holdings, look through the earnings notes for the past 2 years to ascertain their respective track records with regards to meeting expectations. By no means should you hold a name into earnings that missed last quarter. Don’t be tricked into believing that if XYZ warned last quarter, they must’ve lowered expectations to a level where they can easily beat them.

WRONG.

A loser is a loser is a loser.

Look at the gross margins and inventory levels. If margins are eroding and the company’s inventory levels are expanding, that can be an early warning sign of end user demand weakness. You want to avoid those names.

Granted, if a company missed earnings the previous quarter then smashes them the next, more often than not the share price will explode on the upside surprise, like EXPR. But for every EXPR there are 5 BODY’s.

If your company is losing money and in the midst of a turn around, the earnings may not affect the share price. Speculative IP and biotech stocks do not pop and drop on earnings. They are event driven stocks, beholden to courtrooms and FDA hearings.

In summary, if you’re not in a stock for its fundamentals, you have no business owning it through earnings. Sell it and go buy yourself a week’s worth of bath salts, so you can sniff it all up and go on a zombie face eating binge.

I’m not even going to acknowledge this morning’s euro/yen/dollar action and get sucked into a conversation about topping out markets. The market will never “top out” because we only go higher.

Thus far this month, the S&P 500 is +3.2%– almost matching last year’s +4.6% return. In 2011 we were up +2.33% in January, which snapped a 3 year losing streak for the first month of the new year.

Providing the market can sustain a gain in January, typically it’s a very good omen for the markets.

Since 2011, here is what the market has done from Feb-May.

2011

Feb

+3.47%

March

+0.02%

April 

+2.9%

May

-1.13%

2012

Feb

+4.34%

March

+3.22%

April

-0.66%

May

-6.0%

As you can see, based upon recent history (I promise you older history looks the same), the market is in for some smooth sailing until late March. You fine gentlemen can take your glasses of Basil Hayden and head over to the hammock for a little R&R until then. There is nothing that can derail this market, not even self-inflicted, purposeful and an utterly childish national default.

Even though the GOP wants to destroy the credit of the United Steaks, they still love the country in the same manner that an African Black Eagle loves its discarded young (if you don’t know, you don’t know).

I will not entertain any ideas from the reading class on this site. Please cease and desist offering advice of the financial nature until the month of April.

Thank You.

I’m up 5.66% for the year, thus far. Gains in VHC have propelled me, being 30% of my book. Naturally the plan is to reduce the size of the position into strength. I’ve been buying the stock for over 6 months now and have intertwix myself with the outcome of their litigatory claims.

Being on the long side of such a heavily shorted stock requires one to endure a certain level of vulgarity with respect to the prospects of the company. There are numerous parties attempting to derail my efforts to attain “extreme luxury” by peppering the news wires with ridiculous stories and pecking away at the price through 100 share sell orders. Soon the good judge, Leonard Davis, will put an end to this mortifying conference and slap an injunction on the hucksters over at AAPL.

Last year this time, “The Fly” had lofty goals, designs to make triple digits in the markets–mostly through sheer will. The outcome was one of a milquetoast rollercoaster ride, booking just 11% in 2012. For 2013, I only expect to beat the SPY by 2x. Gone are the days when I’d take an imperious stance against the natural order of the market. It has ruined scores of men throughout time and will continue to do so, as long as expectations remain great, unreasonable, and out of reach.

This is exactly the type of market that produces epic short squeezes, as the wall of worry and disbelief grows larger.

Naturally, my top pick is VHC.

The criteria is as follows:

-Stock price underperformance over the past 3 years
-Market Caps between $1-25 billion
-Net Cash per share/price ratios above 0.1 (meaning its net cash is 10%+ of market cap)
-Ex out financials, healthcare and ridiculous Chinese burrito scams
-Profitable

Here are my top candidates to go private and help generous bankers leverage up the balance sheets in order to, umm, generously pay themselves dividends under the shroud of secrecy.

VECO
NVDA
MRVL
NTAP
SYNA
PLCM
DLB
LRCX
CREE
MSTR
FWLT
MDR
JNPR
LOGI
EA
CAJ
ERIC
ISIL
IM
GLW
GVA
ADTN
GES
ADBE
SLAB