Wells Fargo And Stuff
As I wrote before Wells Fargo earnings came better than expected. I gave gone through the material and I have to say the the way management presents the data gave me a sort of the confidence that they know their job, but when I reviewed the details the seen has only scared me. Presentation.
Highlights. Positive effects from purchase accounting for Wachovia acquisition all across the statements. High CRE exposure to few of the hardest hit states; combined California and Florida account for 32% of CRE portfolio. CRE portfolio total at 91 billion. Option ARM portfolio of 87.8 billion down 10 billion on modification from start of the year. Time bomb in my view, managements claims problems under control. I would say that modification only delays default. 90+ day default rate for the unmodified part of the portfolio almost doubled from 3.21% to 5.23%. Credit card portfolio running at 6% 30+ days default rate. Option ARM and CRE portfolio combined total of 178.8 billion + 1-4 family first mortgage portfolio of 143.2 billion and Credit Card portfolio of 23.6 billion vs. Tier 1 common equity of 53 billion. Off balance sheet exposure of 848.5 billion.
It goes to the short opportunities list together with Citi and Bank of America.
Morgan Stanley also released their earnings. Reuters story: Morgan Stanley profit ends losing streak. The worst among the ex. investment banks is earning money, maybe a contrarian signal.
U.S. dollar again got hammered. Oil has hit another high (thanks God that we have stop loss orders). VIX got a crazy day with new low; monstrous spread and ending higher.
Source: StockCharts.com
EIA reported its Petroleum statistic for the previous week. Crude oil stockpiles up 1.3 million barrels; gasoline draw of 5.5 millon barrels. Net imports at 9.2 million barrels; from the 2001 only three weeks with lower reading. Refinery utilization of 81.1%. The demand is crushed, but declining dollar and make believe stockpiles decline fuel the rally.
Quote from the David Rosenberg note yesterday on oil price effects on economic growth:
It’s amazing that the oil price does not get more attention — now that it is about to test $80/bbl. Crude is already up more than 150% this year and if sustained would mean a 2.5 percentage points drain on GDP at an annual rate.
Maybe not right now bur it’s only mater of time when the equity/dollar/crude perfect correlations will be crushed. The question is only how to play it?
Bank of America, Citigroup (C), David Rosenberg, Morgan Stanley, Wells Fargo