investorcluzo

Why Leveraged ETFs Are Bound to Deteriorate

"As you can see the net gain for the index was 5.87%, however all 4 of the leveraged ETFs did not perform as they were suppose to."

the etfs performed exactly as advertised - 2x or 3x the DAILY move of the selected index. these are not buy and hold securities (as you stated). I am not challenging your premise of decay over the long run (esp. if you believe in mean reversion), but let's not blaspheme these instruments which can be useful.

FAS/FAZ: Dangerously Crossing the Ultimate Pairs Trade

I agree with several of the comments above. FAS and FAZ have a negative bias. look at last week's performance - XLF was down 1.5%. one would have expected FAZ to have gained; however, that would be wrong as both FAS and FAZ were down on the week, -10% and -7%, respectively. there is a negative bias for these ETFs (ie. 10% up and 10% down, doesn't put humpty dumpty back together again - or FAS back to even). as you rightly point out - these are not long term instruments. full disclosure - I'm long FAS puts and short FAS calls.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

I'm not sure you can judge by just looking at purchases/sales. you need to know if these are significant. that hick ken lewis bought $1 million worth of shares on 2/4 – but he took home over $16 million in '07, is that significant? when you look at his other activity, you quickly see that this was a smoke screen:

biz.yahoo.com/t/09/380...

he exercised options worth $1.5 million less than 2 weeks later. if you're the ceo, it's your job to put a happy face on the situation - what better way than to say: "hey guys, look at me buying shares, we'll be fine". while I would agree insider activity is a good indicator, the sells are much more telling than the buys.


On Feb 22 06:43 PM Jolly_Rancher wrote:

> Take a look at insider buying in some of these shares.
>
> BAC - Huge significant buys over the last month Feb and Jan.
> RF - Large significant buys over the last month of FEb.
> USB - Large significant buys over the last month Feb
> STI - Large significant buys over the last month Feb.
> WFC - Large significant buys over the last month Jan
> C - Large significant buys last Dec 2008
> JPM - Two buys this Feb
> GS - Significant buys Dec and Jan.
>
> On the other hand there were very few sells in any of these. Pessimists
> love to say the banks need to come clean because we don't know what's
> on the books. The point is that WE DON'T KNOW. Is it possible the
> bankers are telling us that this latest sell-off is over done? I
> realize that insider buys can be a bad signal, in this case I don't
> thinks and wouldn't be a seller of banks at these prices.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

User 360877 - "As a Wells Fargo employee I'm baffled why our stock is getting drug down with these risky investment banking institutions? Wachovia was a gift."

please step away from the kool aid machine. wachovia is going to be the gift that keeps giving...like herpes. my bet is that you will see charges for the next few quarters as management writes down the purchase. wfc's tangible book value is ~$11 per share, most banks are trading at less than 1/2 their tbvs. look for your stock to trade toward $5.50 or below.

Malfactorius - "Perhaps I'm just a dumb country boy... but Wells paid only about 15B for Wachovia, right? Even if they take a 50% loss on all of WB's loans.. why is this such a terrible situation for Wells?"

please check your numbers. wells took on $498 billion, with a "B", in loans from wachovia. of that, they only marked the face value of the loans down by $74 billion. see page 11 of the presentation.

www.wellsfargo.com/dow...

if wfc, as you suggested, marked the loans down by 50%, it would wipe out all the common and preferred at the company and still leave a hole of $100 billion – but hey, they only paid $15 billion for it (right?)...but I didn't call you a dumb country boy.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

I don't recall where they stated the 133% ltv number (maybe the citi conference in nyc), but I do remember hearing the number and being shocked. that said, from the earnings transcript this is what they said about the pick-a-pay portfolio:

“The portion of the Pick-a-Pay portfolio that we did not mark, $57.7 billion, has dramatically better credit performance and characteristics. For example, the 30+ day delinquency ratio was only 10 basis points. Additionally, these borrowers have credit statistics that are more representative of Wachovia’s remaining consumer real estate portfolio with an average current FICO of 712 and an average current LTV of 80 percent at quarter end.” (see page 12)

www.wellsfargo.com/pdf...

it's been widely reported that housing prices have fallen, you pick the number - is it 15%, 20% - since the end of the year. even if the average ltv was 80% at 12/31, that is clearly not the case now. not to mention, those numbers are based on stale data.

I'm not sure why wfc wouldn't take the gov't money (or for that matter cut the dividend). maybe management is wearing rose colored glasses or perhaps it was a poor attempt to show strength when everyone around them was falling apart. this is no time to be a hero. the tax break they got isn’t going to be enough to save them. hopefully, they will set up a national “bad bank” – we could then get some price discovery and assets may begin to trade again. at that time, wells could “really” clean up their books and right the ship. until then, their balance sheet will be as murky as the others…

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

I'm not here to paint all banks with the same brush, but I have taken a deeper dive than most in looking at these banks. peeling back the onion and looking at the numbers - from charge-off's/npa's, reserves/loans, reserves/npa's, level 3 assets/total assets - several banks stand out, of which wells is one. don't get me wrong, I'm rooting for the home team (that would be the good ol' us of a, but being a polly-anna (cramer/kudlow) won't keep the lights on or pay the mortgage. it's time to take a hard sober look...

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

360350 - wfc added $9 billion of gw between sept and dec (I presume acquisition related). as I said before, tce is NOT the only metric. please explain to me how $57 billion of pick-a-pay mortgages - widely regarded as the worse than subprime - can be quote unquote "good"? think about it, if your house had a ltv of 133% and you couldn't afford the payments: would you (a) turn in the keys or (b) keep servicing the loan even if it meant you couldn't eat for 3 days a week? now, how does management look anyone straight in the eye and tell them that, despite the loans having a ltv of 133%, they carry said "assets" on their books for 85% of face (which is exactly what they did on the earnings call)?

as for a solution, I wish I had an answer for you. unfortunately, the approach the gov't is taking is ad hoc and not well thought out. how else do you explain the market's precipitous decline ever since tarp 1 and tarp 2 were announced? perhaps they should take a page from mbia’s playbook.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

User 360350 - torture the statistics long enough and they'll confess to anything...I'm not saying that you should focus solely on tce. there are plenty of other factors to consider. for one, look at the business model. bk doesn't do any investment banking - in fact, they have more of a fee based model as opposed to the lending model at bac, c, and wfc. so apples and oranges. however, you might not be far off with your comment that the entire banking system is insolvent...

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

everyothercatstaken - is that you stumpf? did you forget about all those great assets you picked up in the wachovia transaction (sans government help, I might add)? they had investment banking – or did you forget? as for underwriting standards, did you forget about those golden west assets that wachovia picked up before wfc bought them? as I said, sans the acquisition, you may have a case. however, they are now just as bad as the rest. as for your “let’s not look at TCE” argument (you too user 360350), I have a question: do you remember what wachovia paid for ag edwards? here’s a hint – wells paid less than that for all of wachovia. seems to me that all that “goodwill” turned out to be not so good…let’s not even discuss the value of the msr’s (roughly equal to 20% of common equity)…

The Wells Fargo / Wachovia Story from 1994 to 2012

everyothercatstaken - is that you stumpf? did you forget about all those great assets you picked up in the wachovia transaction (sans government help, I might add)? they had investment banking – or did you forget? as for underwriting standards, did you forget about those golden west assets that wachovia picked up before wfc bought them? as I said, sans the acquisition, you may have a case. however, they are now just as bad as the rest. as for your “let’s not look at TCE” argument, I have a question: do you remember what wachovia paid for ag edwards? here’s a hint – wells paid less than that for all of wachovia. seems to me that all that “goodwill” turned out to be not so good…let’s not even discuss the value of the msr’s (roughly equal to 20% of common equity)…

sabre_jenn - serial acquirers only mask the true (un)profitability of their "franchises". ken lewis is now being exposed for all of the bad deals he did in the past. the big regionals knew long ago that they couldn't continue to grow organically, so they made deal after deal with the devil. now they are finding out who the junior partner is...

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

I'm going to argue that you are way off on wells. the bank is no better than bac (and marginally better than c). if you are going to put those two in the zombie category, I would submit that three's company – add the stagecoach:

(a) everyone buys the stock because "warren" owns it. hello, anyone try to ride his coattails on ge? welcome to the down 50%+ club. needless to say (but I’m going to anyway), owning a stock because someone else does is not sufficient.

(b) ca/fl exposure. it’s clear that wfc has as much (or more) exposure to the two worst housing markets in this country as any other bank out there. tell me how a state with unemployment headed to the mid-teens can support the overbuilding that occurred over the past 5 years? did anyone else watch "house of cards" on cnbc? just about everyone profiled lived in california.

(c) pick-a-pay mortgages. I wasn't aware that there were "good" pick-a-pay loans. apparently, wfc management believes they have $57 billion worth. nonetheless, they stated in their earnings "call" (it was pre-recorded, no question please and thanks) that the ltv on these loans were 133% based on current estimates - yet they are held on the books for 85% of face. anyone else see a disconnect?

(d) tangible common ratio. funny how they don't report this number. by all estimates, wfc clocks in at roughly 2.43%. when you take into account that the bank needs to write down the value of some of the "assets" on its books (which would directly hit the equity account), there is little - if any - margin for error.

(e) valuation. wfc has a current market cap of ~$52 bn, it’s not clear to me that they should be valued more than bac and c combined (which is $40 bn). for that matter, I would say that goldman and morgan stanley have better chances at turning a profit than wells, yet both have market caps well below our friends on the left coast.

perhaps if they had left wachovia in the clutches of citi, the story would be different. just because there is a different name on the door doesn't mean all those golden west assets will magically turn into gold (why do you think wb ran into trouble?). my bet, wells is about the catch the wave...make that, get hit by the rushing tide that is the tsunami of our financial system...