New Year, Same Meltdown Mess

Well we turned the page on the calendar and I am feeling much better. Perhaps it was that extra leap second scientists gave us to synchronize the clocks with the planet or maybe just having some time off for the holidays. Either way, I am feeling at least a second younger. Go figure. Nonetheless, the recession is still with us - get used to it.

Won the Battle, Lost theWar

Wells Fargo (WFC) fought tooth-and-nail to win Wachovia (WB) from Citigroup (C). I have read that the FDIC arranged the Citigroup/Wachovia deal as a stealth way to prop up Citigroup (too complicated to go there now, and I do not recall all the details but it was a good read). Wells Fargo, on the other hand, saw an oppotunity to take advantage of the Wachovia losses to gain some tax benefits (thanks to a perhaps illegal IRS statement allowing them to do so) so it was all gung-ho to take Wachovia from Citigroup's grasp. Well, Wells Fargo won that battle.

Yet the war wages on and obviously the risk takers at Wells Fargo have not been reading my blog. Wachovia was well within the top five rank for subprime and option ARMs. The latter has yet to peak in foreclosures and will spell trouble well through 2009. All one needs to do is follow Calcuated Risk to understand this. They have very nice charts there showing it all in graphic detail. I highly recommend the site (especially to the folks at Wells Fargo).

Nonetheless, Wells Fargo - a financial company that until the Wachovia deal was faring the storm fairly well - rushed in to fight for a company worth fighting to avoid, and it got what it thought it wanted. Now things do not seem to be so nice and rosy. Go figure. I intended to put a put option on Wells Fargo at the time but options, in both directions, are too over-priced right now. Still, I could have made some money on that one.

The question you have to ask yourself is how many other major purchases/mergers this past year will lead to problems beyond what was anticipated. There are at least a couple of financial behemoths that are going to face some challenges this year. Don't worry though, Paulson will save the day.

Goldilocks and the Four Bad Bears

I mentioned above that Calculated Risk has some nifty charts. They have a few right now comparing the current decline to other notable bear markets. Seems we may have a bit to go to keep up with bears of the past. If my predictions for 2009 are accurate, we will get there.

Comment Response

One of my new challenges is to review comments on my blog and at Seeking Alpha, where some of my posts get published. One that just showed up on Seeking Alpha recommended raw materials and financial companies as an investment. Raw materials are all over the board right now so make up your own mind. Eventually they will return but you need to define for yourself "eventually."

While I try very hard not to opine on any individual stock, I am not so shy when it comes to a sector. On the financial industry, decide for yourself, but here are some considerations:

• Foreclosures will continue through 2009 and housing has not reached a bottom;
• Commercial real estate is sinking fast and is lagging the decline in non-commercial;
• The traditional way for financial companies to garner big fees are gone or at least not happening right now, so they are not making money;
• CDSs will continue to plague them throughout 2009;
• The government, hopefully, will wise up and dissolve some of these companies; and
• With so many good companies with stock prices so low right now, why would you bother.

You decide.

Disclosures: None.

Comments

[Paul Bishop:]

Not for publication, but I have an interest in Both World Savings and Wachovia, now Wells ( lots of liability, not much upside) I don't think Wells adequately assessed the risk inherent with Wachovia, there are some very serious class action lawsuits wending their way through the courts. All have very serious potential and most are going to pass the Summary judgement easily. While Lerach and Co. caused the bar to be raised, there will be some serious Security class action suits, all will have merit, this liability is in the Billions. I'm curious as to your thought's on Herb Sandler's remarks as recently as 12/25/2008 in the NYT / Michael Moss. He makes some seemingly reckless statements, as if he were immune from prosecution. The change at the Whitehouse is the only thing I can see that is preventing the justice dept. from getting heavily involved, which will be the deathknell.

Jan 02 05:36 AM

[orlando app...:]

How far behind is commercial real estate?

Jan 02 08:29 AM