Michael Shulman

Why Wells Fargo Is a Great Buy

Have you looked at their balance sheet? See my post on Seeking Alpha -- they are short many tens of billions of core capital and are using purchase accounting to get through 2009 - and this must end on December 31 of this year. Their addition to reserves is coming at a significantly slower pace than their loan losses. They own the world's largest chunk or awful sub-prime loans not yet written down because they are on their books -- Wachovia wrote them, they are not in the form of bonds - and they also have almost $350 billion in commercial real estate loans on their books. Before writing about their operating earnings, which are mythical due to purchase accounting, you need to re-examine their balance sheet -- oh, and you failed to mention their $2 trillion in off balance sheet obligations, they claim only $115 billion must come on balance sheet in January due to new FASB regulations.

Four Biotech Stocks to Play the Sector Pullback

Several of these stocks -- notably Generex -- are trading vehicles, not investment vehicles. I have followed this and several of the other companies on your list and sadly do not think they have real potential given the paucity of marketing and trial partnerships. Antigenics is a fascinating play on intellectual property and will spike if Dendreon gets an approval for Provenge or collapse.

Still Missing the Last Green Shoot: Jobs

Why would you suggest the other green shoots are real? All the optimism and talk of "green shoots" revolves around the new buzzword on Wall Street -- the second derivative. Optimism based on the rate of decline slowing is based on a false premise.

More importantly, I urge yo to read publicly available data and take a look at mortgages, when they were let, when they reset and the slope of their defaults. Simple math says peak mortgage resets occur in July of 2011; the same math then puts peak defaults 305 months later; peak foreclosures 3-5 months after that; and peak additions of foreclosed homes to housing inventory 3-5 months after that. Translation - no stability in home prices and therefore consumer confidence until late 2012/2013. An exaggeration? The Fed's own data shows 95% of homeowner equity was wiped out in the past 2.5 years.

U.S. Housing: Are Better Days Ahead?

With all due respect, analysts who are unfamiliar with housing should not write about housing -- we are not close to a bottom. The key to home prices and values is supply, and that has three legs -- new homes, existing homes and the new leg, foreclosed homes. We are building half a million new homes a year -- halff of what used ot be called a "bottom" yet inventories are rising. Existing home sales perked up a bit - -and at the June rate of growth they will equal 2007 sales in 2020 -- more than one third of homeowners have listed or want to list their home for sales and that backlog is growing. Foreclosures have yet to peak -- they ar rising and will rise until 6-9 months after peak defaults, which in turn occurs 306 months after peak mortgage resets, and that occurs in July of 2011. This is all public information, by the way......

Has Housing Reached Bottom?

A housng bottom can only occur when foreclosures abate -- and foreclosures will peak in 2012. The math is simple -- peal mortgage resets will occur in July 2011; peak defaults three months later; please foreclosures three months after that; peak listings of foreclosed homes three months after that. The math is simple -- you actually back this stuff. Also, historically, home builder stocks bottom at a million starts -- and when the Street sees what I see in foreclosures and home prices and inventory - lions an tigers and bears, oh my - they will find the current and projected levels of housing starts more of a reason to short the builders rather than buy them. In my newsletter I recently shorted the XHB -- is it technically rolling over and the Street is beginning to wake up to housing reality.

The Citigroup Anomaly Lives On

The difference in price between the common and the preferred is quite simple -- short covering, the purchase of stock based on a value different than the calculation you are making.

Pending Home Sales Better: Is it Time to Buy Homebuilders?

I find the optimism amusing -- given the low base, existing inventory and the gigantic inventory overhang that is building. There are nineteen million vacant housing units in the US - only six million are listed. Banks are sitting on more than 600,000 homes they gave foreclosed but not listed, I am assuming they do not like current prices. Mortgage re-sets of funky mortgages - options ARMs and ALT-As - do not peak until mid- 2011 and these have unreal default rates -- Goldman Sachs puts the default rate for option ARMs at more than 60%. And defaults mean more foreclosures. Inventory will not stabilize until 2012 -- maybe -- this is a statistical anomaly. A green shoot. I have twin boys, and when they were infants you could see green shoots coming through their diapers -- seems to me they are the same thing.

Biotech Opportunities: Look for Decent Pipeline, Big Pharma Partnerships

You may have missed the common with the best partnership imaginable, very promising technology extensive to many cancer tumor types with several trials underway - Curis (CRIS). The partner is Genentech/Roche and the normally button downed biotech giant is so confident of Curis Hedgehog technology it has listed its first indication -- basal cell melanoma - as a 2011 launch based on a successful Phase II -- yes, Phase II - pivotal trial. Curis is also on the verge of licensing another molecule. For purposes of disclosure I own the stock.

The Anti-Stock Rhetoric Is Overblown

John:

C'mon, John, you are one of the smartest men I have met in our business with little ego and a true concern for clients. You are talking markets, and markets alone -- what about economic fundamentals? They are weak to bad to terrible,l depending on your industry and where you live, and they are getting worse. Bulls continue to emphasize the "second derivative" -- the rate of decline is slowing -- is that a reason to think things are getting better? And your historical analyses did not include one simple fact -- markets always regress to the mean of corporate earnings, and they are going down and even though the market may not stay there, the market has to do this, based on HISTORICAL comparisons, so that means an S+P 600 or much worse.

Let's argue this over drinks at the Money Show in Las Vegas, if possible.

Michael Shulman

Geithner's Plan Fits Perfectly with New Mark to Market

The net impact of Geithner plus a new MtoM accounting standard will be increased, and, for some banks, unwanted transparency. Banks will have to distinguish what is written down due to impairment and what is being held due to illiquidity. Once the auctions begin, banks unwilling to participate and keeping assets in the illiquid category will be seen as having marks too high -- and privtae investors will react accordingly. The banks that take the hit, either mark their assets down to where they belong and/or sell them at auction will be the first in line to receive private capital. I am no fan of Geithner's plan but in combination with the new MtoM rules, and stress testing, banks will begin to fall into various categories of "investor worthiness" -- private investor, that is.

Corporate Welfare for Homebuilders?

The larger issue -- why do we need national home builders? The don't export, they actually use less labor than local contractors, their previous access to cheaper credit led to speculation and they are in part to blame for the housing crisis. Simply put, national home builders do nothing for the economy that cannot be replaced by local contractors much more in touch with local conditions and local banks. Notice the word local. That being said, if they go bankrupt, their assets will be dumped on the market even faster than if they receive this tax rebate.

Five Reasons Citi's Worth the Long Risk

I find it highly irresponsible you should publish an article advocating a position and you next to nothing about the company or its financial situation. Citi not only has to shrink a broken $2 trillion balance sheet -- it is unsustainable -- it has to manage down $1.2 trillion dollars in off balance sheet assets buried in entities with acronyms last made famous by Enron. The company had the gall to say more than $800 billion were not a problem based on changes in accounting rules. Over time Citi will be broken up, th question is whether any value will be left for shareholders after the government and preferred investors get paid. Probably not. But let me repeat -- th sound of your own voice is excellent only in the shower when you really are unable to carry a tune or you don;t know the words to the song.

Latest Bank Leverage Stats - Some Still High

THis does not include off balance sheet assets....Citi has $1.2 trillion.

Playing the Financial Crisis Blame Game Again

This began in a three month period in 1999 when a) Goldman Sachs went public b) Glass Steagall was repealed and c) Greenspan printed money fearful of a Y2K problem in the banking sector. In a few months CEOs and board members of all the other banks said "Wow! Look at the profits and return on equity at Goldman, let's do that." And there was no regulatory infrastructure to prevent them from using FDIC insured deposits to expand leverage from 12 to 1 to more than 30 to 1 and try to emulate Goldman. And money was cheap in part because of Greendspan and in part because China entered the WTO in 2001 and combined their surpluses Japan's to reduce the cost of money even more. Problem is, there was and is only one Goldman when it comes to risk management -- and in modern markets, the best risk manager changes the game for all other players, making their investments riskier, a zero sum game. The rest is history, with more to be written

Thursday Outlook: Commodities, Emerging Markets

You can draw all the charts you want -- markets regress to the mean, over time, based on fundamentals. Always. S+P earnings this year will be between $35-$50, the high end of the range and giving the current market a multiple of 16 plus. Multiples in non growth markets are closer to ten, in steep recessions below that number. Just do your third grade math -- and forget the noise about the S+P dividend yield being above T Bill yield as a mitigating factor. These dividends are coming down and the real comparison is corporate yields -- and the dividend yield right now is less than half the yield of corporate bonds.