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David White
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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • Don't Be Too Distracted by the Glitzy Stress Tests. Pay Attention to the Nuts and Bolts

    A lot is being made of the stress test results that are coming out later this week. They are important; but so is some data that has drawn little attention of late, the unemployment rate number. Unemployment is supposed to rise to the 8.9%-9.0% level. Why is this so significant for banks? The charge off rates on credit card debt generally follow the unemployment rate. If the unemployment rate reported later this week is in the 9% area, the charge off rate will likley be in the 9% area. Remember COF reported an 8.4% charge off rate for Q1, but it reported a 9.3% charge off rate for March 2009. Given this I expect COF's charge off rate to be 9% or above for April. Other banks in this industry are likley in the same boat. Plus MA reported a 10% decline in total US dollar value charged in its latest quarterly results. These two factors should be a double whammy. They should ensure that the credit card businesses of the banks involved will all be losing money for this quarter (and likely many to come). Don't forget that BAC CEO, Ken Lewis, warned recently that the credit card business is souring rapidly. When everyone gets over looking at the media darling stress test results, they may start to pay attention to the nuts and bolts of this industry like the credit card business. Those are looking increasingly ill. Add to this the fact that the rising unemployment rate also means there will be more NPL's in the near future. Then the banking picture starts to look very gloomy indeed. Keep in mind that the stress tests are likely a gimmick to make the banks seem more solid than they really are. Even the lawmakers have already said that the stress tests are too close to our current conditions to provide much reassurance about banks' stability. Looks at those nuts and bolts this week. Eventually the markets will be paying attention to them also. Banks like COF, C, and BAC should be particularly hard hit by the unemployment numb...

    May 04 9:43 AM | Link | 1 Comment
  • It might be time to short Toyata Motors (TM)

    The automakers reported April sales numbers today. They all showed year over year losses. However,Ford and Honda seemed to stand out as the better performers. They showed the least decreases in their sales numbers (-31.5% and -25.3% respectively). TM on the other hand had relatively dismal results (-41.9%). This was even significantly worse than GM (-33.2%). This clearly puts TM on my short list. It has a very high stock price. It has a reasonable TTM PE of 18.78 (Yahoo Finance). However, it has no FPE (i.e. it is expected to lose money in the future). These latest numbers likely mean that ti will lose even more money than many people had expected. I have written a previous article on TM if you want more information. Today's numbers could be the trigger for a big down movement in TM stock. This will still likely be dependent on overall market action. However, with this result the likelihood of such a move has increased dramatically.

    Tags: TM, F, GM, HMC
    May 01 3:47 PM | Link | Comment!
  • TCE may be driving COF higher, but should it be?

    COF keeps going higher in this mostly sideways market. The stress testsonly required a TCE of 3. COF's TCE rose from 4.6 to 4.8 with the inclusion of its recent purchase of Chevy Chase bank. This might seem to put it in good position. However, there are other factors which make me think this is not so. COF number of NPL's is increasing significantly. It is especially having problems in New York with its high priced real estate there. Chevy Chase Bank may have added to COF's TCE, but its loans are also forecast to give COF a lot of NPL problems in the near future. The charge off rates in the credit card business have been going up dramatically. Normally they tend to mirror the rate of unemployment. In March the COF's charge off rate was 9.3%; and it is expected to increase much further. Plus COF doesn't really have any liquid assets to pay off extra bills. It will have to sell stock or bonds to get the money to fund its coming losses. When the credit card business starts losing money (extremely likely in Q2-Q4 of this year), COF's TCE will not save it from having to raise capital. Plus the NPL's are also likely to become an increasingly bigger problem for COF in the coming quarters. Looking at this stock on its own, I can see no real force pushing it to the upside. Just the opposite, I see forces pushing it down. Yet it has risen dramtically today.

    Let's look at some of the other things happening in the sector today. A big one was the Chrysler bankruptcy yesterday, which should be negative for all banks. AXP's creidt rating was downgraded to junk. Mitsubishi UFJ (Japan's biggest bank) lowered its 2009 earnings guidance to a loss of -$2.6B from its Feb. 6 guidance of +$0.5B for the year. MA reported lower earnings. It reported 6% more transactions; but it reported 10% less in total dollar charges. This might indicate that COF's credit card business will be even less profitable (less income with higher charge off rate). Plus the stress tests supposedly indicate that a number of banks will have to raise more capital. This will lead to further share dilution (i.e. banking stock prices will likely go down). This is without even considering that the lawmakers may be correct in saying that the stress tests are too close to the current conditions (i.e. not stressful enough). In other words, after the government requires banks to raise capital in the very short term, it may require them to again raise capital several months from now. Then too there is the wildcard of the Swine Flu. If a pandemic actually occurs, some have estimated that this could cost the world economy $4T or more. Imagine what this would do to most banks. This picture does not make it look like banking stocks should be going up. Many of them are not. JPM, BAC, C, WFC, AXP are all down today. If COF is going up based on its TCE, my own thought is that this is crazy!!!

    Tags: COF, C, BAC, WFC, JPM, AXP
    May 01 3:09 PM | Link | 2 Comments
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