10 Things Wells Fargo Wants You to Ignore
by Zero Hedge - February 28th, 2011 12:22 pm
Courtesy of Stone Street Advisors
This article originally appeared at Stone Street Advisors.
It has been well documented that Warren Buffett is Wells Fargo’s biggest fan – and largest shareholder (through Berkshire Hathaway). In fact, in his annual letter to shareholders he states that WFC is likely to increase its dividend the most among his common stock holdings. Given that WFC cut its dividend after taking TARP money, his prediction should not come as a surprise.
Another interesting comment from the Oracle of Omaha was his take on Black-Scholes. He writes that the model “produces WILDLY inappropriate values when applied to long-dated options” (emphasis mine). Then he wryly states that he “would rather be approximately right than precisely wrong.”
While I like the comment (during my days as an analyst, I often questioned the value of the 10th iteration of a 50 page model), I believe this is where misses the point – yes, he may be right in the end, but what if all management teams thought they were “approximately right?” Time to move on, this isn’t an article about Buffet.
The reason I raise the issue is because a well-known and respected bank analyst believes WFC is using this theory with regard to the quality of their loan book. In his report, Chris Whalen writes that he believes the management at WFC is engaging in a practice of “extend and pretend.” By extending repayment periods, management delays the time at which they must confess to investors and the markets the true scope of their losses. In March of 2009, Warren said he believes WFC will “do fine earning their way out” of their current problems. It seems WFC management agrees. I digress, on to the list. Where possible, I compared the results with those in 2008 when the world was a much darker place. As read each point, keep in mind that WFC has Tier 1 common equity of $81 billion.
1. I find it odd that the financials are incorporated by reference to the actual 10K. The other large banks put it all in one place. In the staid world of banking, why stand out from the crowd unless you’ve got something to hide?
2. In a jab to Obamacare, WFC reported an annual effective tax rate of 33.9%, up from 30.3% in 2009 “primarily due to the new health care legislation.”…
Facebook
Twitter
LinkedIn 
del.icio.us
Digg10 Things Wells Fargo Wants You to Ingore
by Zero Hedge - February 28th, 2011 12:22 pm
Courtesy of Stone Street Advisors
This article originally appeared at Stone Street Advisors.
It has been well documented that Warren Buffett is Wells Fargo’s biggest fan – and largest shareholder (through Berkshire Hathaway). In fact, in his annual letter to shareholders he states that WFC is likely to increase its dividend the most among his common stock holdings. Given that WFC cut its dividend after taking TARP money, his prediction should not come as a surprise.
Another interesting comment from the Oracle of Omaha was his take on Black-Scholes. He writes that the model “produces WILDLY inappropriate values when applied to long-dated options” (emphasis mine). Then he wryly states that he “would rather be approximately right than precisely wrong.” While I like the comment (during my days as an analyst, I often questioned the value of the 10th iteration of a 50 page model), I believe this is where misses the point – yes, he may be right in the end, but what if all management teams thought they were “approximately right?” Time to move on, this isn’t an article about Buffet.
The reason I raise the issue is because a well-known and respected bank analyst believes WFC is using this theory with regard to the quality of their loan book. In his report, Chris Whalen writes that he believes the management at WFC is engaging in a practice of “extend and pretend.” By extending repayment periods, management delays the time at which they must confess to investors and the markets the true scope of their losses. In March of 2009, Warren said he believes WFC will “do fine earning their way out” of their current problems. It seems WFC management agrees. I digress, on to the list. Where possible, I compared the results with those in 2008 when the world was a much darker place. As read each point, keep in mind that WFC has Tier 1 common equity of $81 billion.
1. I find it odd that the financials are incorporated by reference to the actual 10K. The other large banks put it all in one place. In the staid world of banking, why stand out from the crowd unless you’ve got something to hide?
2. In a jab to Obamacare, WFC reported an annual effective tax rate of 33.9%, up from 30.3% in 2009 “primarily due to the new health care legislation.”…
According To Goldman’s Jim O’Neill, The MENA Revolutions Are “Essentially Rather Bullish”
by Zero Hedge - February 28th, 2011 12:06 pm
Courtesy of Tyler Durden
It appears we may have misspoken earlier when we suggested that today’s peak-lunaticism will be that spouting from the mouth of one ex-Goldmanite Bill Dudley. Here is another current Goldmanite (whose recent GSAM P&L track record is in dire need of public dissemination), vying for today’s prize. “If I look at the whole region together, then just at Africa in general, MENA has the combined potential to be a BRIC-like economic group. In this spirit, and despite all the horrible things happening in some of these places, this revolution strikes me as being essentially rather bullish.” If it weren’t for my horse…
THE WORLD, THE MIDDLE EAST AND OIL.
I returned from a very nice vacation in Florida this morning, having watched the markets interplay with the remarkable events unfolding in the Middle East. I also read and watched many discussions about the issues. It seems to me that there are essentially two main forces at work. The first is the eruption of protests against the “status quo” and the desire by the citizens of many countries across the Middle East and North Africa (MENA) for a better life. In my view, this is essentially a positive development, and has the potential to be a very bullish story. The second force is the perennial oil price issue, and concerns about where prices are now headed and how much damage these rising prices (and possible reduced supply) will cause. This issue is unpredictable but has the potential to be quite damaging.
On the first issue, a useful independent source of ongoing analysis can be read from Maplecroft, an independent risk mapping company, www.maplecroft.com. I should disclose that I am an investor in this company. Their set of analytics had highlighted the risks of trouble in some places, placing Egypt and Libya as high risk, and Yemen as extreme. This weekend, their CEO, Alyson Warhurst cites three issues when I quiz her to think about it. One, the scope for further contagion to countries in the region that have avoided the protests to date. (And, by implication, further disruption to oil prices amongst other things.) Two, the considerable business interests of a number of Western countries, which is understandably why these countries want the troubles to be brought to an end as soon as possible. And finally three, the terrorist issue and the need for…
Primary Dealers Violently Expel Just Auctioned Off Three Year Bond, As Fed Monetizes Over Half PD Holdings In Under Two Weeks
by Zero Hedge - February 28th, 2011 11:35 am
Courtesy of Tyler Durden
Today’s POMO closed with the Fed monetizing its usual fare of $6.69 billion in various 3 Year bonds, at a 5.81 Submitted-Accepted ratio. The surge in the S/A ratio is not surprising: a quick look at the internals shows just what the reason for the Primary Dealers’ urgency was. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury not even 2 weeks ago represented a whopping 81.1% of the operation. Observant readers will recall that this was the Cusip that was massively monetized ten days ago, when $5.3 billion of QH6 was purchased by the Fed. In other words, in under two weeks, the Primary Dealers have flipped over 50% of their original take down of the auction, or $19,890,840,000! In other words, had the Primary Dealers indicated their true interest in the bond, not accounting for expectations of an immediate flip back to the Fed, the auction would have been a failure. In this way, the Fed has now monetized 33.5% of the 3 Year that was sold to the unwitting public and foreign banks. Luckily, there is a 35% SOMA limit on Treasury holdings. Oh wait, that was scrapped as part of QE2.
Today’s POMO summary: note the highlighted QH6 monetization.
And compare it to that from the last 3 Year POMO as of February 18:
US Military Says Repositioning Forces In Area Around Libya To Be Able To Provide Flexibility And Options
by Zero Hedge - February 28th, 2011 11:04 am
Courtesy of Tyler Durden
Just perfectly anticipated headlines from Reuters for now.
US MILITARY SAYS REPOSITIONING FORCES IN AREA AROUND LIBYA TO BE ABLE TO PROVIDE FLEXIBILITY, OPTIONS
Whatever happened to stretching exercises? More as we see it. This week’s US naval update on Wednesday afternoon should be interesting.
Dallas Fed Provides Latest Confirmation Of Corporate Margin Collapse, As Prices Paid-Received Difference Hits Fresh Record
by Zero Hedge - February 28th, 2011 10:55 am
Courtesy of Tyler Durden
Everywhere one looks (assuming one is more than just a market momentum, block order frontrunning algorithm… or a Deutsche Bank “strategist” of course), one sees relentless evidence of collapsing margins. Most recently, this was the Philly Fed, whose Price Paid less Prices Received index spread came at the highest since 1979. Well, at least it wasn’t a record the Koolaiders said. Alas, that rebuttal will not work for the Dallas Fed. The latest diffusion index, which came at 17.5, on expectations of 13.0, confirmed two very much expected things: i) economic “growth” continues to be predicated on inventory stockpiling, as has been the case for the past two years, which is nothing but a highly speculative bet that demand will eventually pick up (and we pray the Dallas Fed respondents use FIFO not LIFO accounting), and ii) margins are getting crushed. Recreating the Philly Fed Prices Paid less Prices Received index shows that the differential of 45.50 is now at all time wides. Notably, the last time the spread was at or above 45 was in early 2008 following which everything went to hell. Expect to see many more diffusion indices confirm the relentless erosion in corporate margins, which in turn will result in either accelerating end-user inflation (unlikely), or imminent margin and EPS downside guidance, which even a reluctant Wall Street will have no choice but to take into account over the next several weeks.
Huge “Upside Wick” in Oil a sign?
by Chart School - February 28th, 2011 10:41 am
Courtesy of Chris Kimble
CLICK ON CHART TO ENLARGE
One of the largest "upside wicks" in the past 13 years took place in Crude Oil this past week at (1), while it was facing the Fibonacci 61% resistance level and the top of a rising wedge. This "Power of the Pattern" situation suggests a roughly two thirds chance that Crude Oil will be soft for a while. Speculators could attempt to score on defense here with a stop on an upside breakout.
Even though the Patterns suggest a short-term high is in Crude, an upside breakout of Fib and the wedge could free up Oil to reach the top of the channel, which currently stands around $140….Ouch!!!
Food Shortages In East Libya Imminent
by Zero Hedge - February 28th, 2011 10:38 am
Courtesy of Tyler Durden
It was fun and games so far, with the occasional 10,000 deaths here and there. Now comes the hunger. Reuters quotes a Libyan public health volunteer who says “Rebel-held eastern Libya will start to experience serious food and medical shortages within three weeks. The unrest is disrupting imports, the local supply of fresh food and domestic manufacturing, people in Libya’s second city of Benghazi say, with many shops and factories there still closed since the city fell to protesters a week ago. “We will have serious shortages of food, drink, medicine and medical equipment in two weeks, three weeks maximum. We need outside help,” said Khalifa el-Faituri, a volunteer with qualifications in public health and pharmacology.” So what was merely your 2011 garden variety revolution is about to get really ugly. Somehow we doubt the Libyans will be happy to find that in the past month or so most food prices have increased by 25% or so. The question is who they riot against next?
More from Reuters on what could become the next humanitarian crisis-cum-civil war:
It was unclear just how much supply routes and manufacturing had been disrupted — Benghazi’s port was open, as was east Libya’s land border with Egypt.
The shops that were still open were well stocked with snacks, tinned goods and other non-perishable items, but fresh food was scarce.
Thousands of migrant workers from Egypt, Nepal, Bangladesh and other countries who may have worked in food supply chains — such as vegetable growing and bread baking — have left the country, which could explain the shortages.
There is a growing sense of unease in Benghazi over food supplies, and some people complained of not being able to find bread and other goods.
“I’m struggling to find basics for my family. Bread, vegetables. Prices have gone up by 75 percent,” said restaurant waiter Ayman Ahmed, 50.
It was the same story outside the city.
“Since the uprising there’s been no sugar, no pasta, no rice, no fruit. We’ve got enough to keep us going for a week, but God knows after that,” said shopkeeper Naji Othman, in the village of Sultan. His shelves were poorly stocked with mainly packet and tinned food, the fresh produce corner empty.
The Dance of the Dollar and Euro
by Chart School - February 28th, 2011 10:35 am
Courtesy of Doug Short
Technical analyst Chris Kimble starts off the business week with a look at the Dollar and Euro.
Chris comments: Very important situation/set up is at hand in the currencies this morning! The outcome could affect many markets, especially the precious metals complex.
For the most up-to-date Kimble analysis, check out Chris’s blog: Kimble Charting Solutions.
As Dollar Poleaxing Continues, Silver Takes Off
by Zero Hedge - February 28th, 2011 10:16 am
Courtesy of Tyler Durden
As the dollar is getting its daily dose of poleaxing, the natural currency substitutes do their usual thing.
And some updated thoughts from FMX on the next steps for gold.
Gold Momentum Indicator Triggered. Breakout Imminent above $1412.00
Last week we stated that Gold was on our radar to trigger a move higher using our Trend-Vol system, possibly as high as 1550 within 8 weeks. The indicator combines implied, historical and Bollinger Band levels into an oscillator that generates volatility based risk-reward scenarios. Last week, we had to settle above 14.15 for the trigger to go off. It did not. But this week the number is 1412.
Each oval below was a trigger moment. We are at one of those now.
This week the market has to settle above 1412, which we are currently over. The alert is triggering. This is a weekly settlement price to be a true trigger, but we are not comfortable waiting for Friday’s settlement. We are also not interested in disobeying our own rules too much. So here is our compromise.
Here is what we are doing in our personal accounts:
1. Every day we settle above 1412 we are buying into 20% of our position with expectations of being fully “in” by Friday. (We prefer options)
2. If we settle under 1412 on any of these days, we won’t add
3. Consider decreasing or closing positions if we settle under 1412
4. The signal will be negated if we settle under 1412 for the week.
This system uses volatility to determine if a move will follow though. It tries to catch the moment when volatility is reversing. Expect to buy into strength if it is right. Buying dips is not a good sign.
If we get a settle above 1412 this week, there is a high likelihood of a strong follow through to the upside over the next month starting with an initial spike higher 2 weeks from now.
Once this week is over and if we have our full position on, our stop loss will be the previous week’s settlement area of 1409 settlement
Good Luck.
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(