Friday, April 10, 2009

The World Is Saved!!!

Don't you feel better? I know I sure do. Everything is wondrous and great in the world again. Overnight I can feel alot better after a 1 page press release from Wells Fargo. YIPPEE

You would not believe the emails, the phone calls, the conversations I have had in the last 48 hours. All of a sudden people want to buy bank stocks. Those toxic hated securities are now the hot item. People want to be apart of the game, they want to make a fortune. It is unbelievable. All on what? I still think we have higher to go, I don't think yesterday is the peak (though it may be) but the psychology has changed enough that we can start looking for the signs of the roll over. In late February and early March was the time to get rid of short exposure. Everyone thought the world was doomed. Less than 2 months later everyone and there dog wants to own bank stocks. Mind boggling.

One of my more educated friends sent me this:

I read your post this AM. I think you'll see a capital raise out of these guys in the next day or two, which seems like the only reason you would preanounce now. The odds are really stacked in the banks favor these days, at least from a reporting perspective. You underreserve, write-up the MSR, pro forma the new mark-to-market rules,etc. then come out with a press release with no details and then raise capital. I think your point is well taken that if this was going the other way (i.e. short) hell would be raised. But I'm not bitter or anything.

The thing with WFC really bothers me. The company is distorting economic reality and then lets assume goes and raises capital. Is that not fraud? Oh well.

As an example, the NCO (net charge off as a percentage of assets) rate was likely ~1.55% vs. 2.72% in 4Q08, 1.98% in 3Q08, and 1.55% in 2Q08. To me that just seems highly unlikely.

Did you get that. Tell me what the economy has done since Q2 2008? Has it gone up? Are defaults lower? Are borrowers paying back their debt at a higher rate? No, no, and no. And yet, if you parse through the press release, you know just enough to get to a 1.55% NCO charge off estimate. That is hilarious. So, as my friend points out, you undereserve, make you numbers look good, get a huge jump in the stock price, and then sell a huge block of stock diluting shareholders. Its crazy and fraudulent but allowed. Goldman Sachs isn't wasting any time. According to the WSJ Goldman is planning a multi billion share sell. As some of the savviest traders on the street, I am sure they have timed this share sell pretty well. Enjoy it America, your getting screwed just like you did in the housing debacle. The thing is, your choosing to do it but you will hate Wall St. once it happens and act like your a victim.

One more thing about this Wells Fargo thing. How many times have I heard people cooing about the net interest margin number Wells Fargo indicated of 4.1%? It is a good number but do people stop and think or are we just one massive blob that somebody starts saying how amazing that is and nobody stops to think if it is really amazing or not??? Read the press release from Q1 2008. Really, it is not that hard to read something, to do your own research, to think for yourself. It won't hurt you, I promise. In case you don't want to do that, I will tell you what it says. Wells Fargo had "net interest margin of 4.69%, up 7 basis points from prior quarter." Did you just read that??? That is 59 basis points, .59% higher a year ago than the pre-release number indicates it was for Q1 2009. I am being over dramatic. To be fair this new 4.1% includes poorer earning Wachovia assets. Wachovia was over a full 1% below Wells Fargo in NIM so that 4.1% is better than it appears on the surface if you consider the weighted average nature of these assets. Just don't think this 4.1% is some sort of record.

Well, I am out for the rest of the weekend. Going to a lake house and messing around the South Central Texas area. I do think we most likely have further to go. I am not loading up on shorts yet but this is the ying to March lows yang. At some point I am confident we will start heading lower once again. Time will tell if I am wrong and the world is once again is saved.

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