Press conferences coming this morning at 8am..
Part 1:
Part 2:
The FDIC deposit insurance raise is a no brainer and should have been done years ago. This seems like a better way than just buying massive amounts of debt because it removes the “value” issue of the loans they were buying.
Disclosure (“none” means no position):
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Tolerance, TV, 1929, Election
– I love it …..liberal “tolerance” on display
– Best TV moment ever compliments of the Newlywed Game
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– A good election overview
Disclosure (“none” means no position):
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This is the fourth such purchase for Wells Fargo in the insurance field this fall.
Wells Fargo Insurance Services — part of Wells Fargo & Company (NYSE:WFC) — said today it has acquired the EMAR Group, one of the nation’s largest independently-owned commercial insurance agencies, headquartered in Livingston, New Jersey, with an office in Florida. Terms of the agreement were not disclosed.
Founded in 1971 by Emil Solimine in New Jersey, EMAR is a leading local agency in the Tri-state Region. It serves middle market and upper middle market clients as well as risk management customers. The agency works with businesses in diversified industries with a significant concentration in transportation, construction, real estate, and financial institutions industries. EMAR also has access to specialty market programs in small business niches including the limousine services and restaurant industries.
“Risk management is a key product area for our middle market customers and large corporate clients,” said Dave Zuercher, head of Wells Fargo’s International and Insurance Services Group. “EMAR will significantly expand and build on our commercial insurance capabilities on the east coast. It’s another opportunity for Wells Fargo to gain new customers and to achieve our vision of satisfying all of our customers’ financial needs and help them succeed financially.”
“Joining up with the EMAR team will increase our presence significantly in New Jersey,” said Gary Tully, head of Wells Fargo Insurance Services Northeast, Inc. “With our recent acquisition of Herder-Terricone Associates in Three Bridges and the expansion of Wells Fargo Regional Commercial Banking in the Tri-state region, we’re in a strong position to meet even more of the financial needs of New Jersey companies and consumers.”
“We’ve reached a point in the development of our agency that the breadth of products and services provided by Wells Fargo will help bring our business to the next level,” said Solimine. “The majority of our customers have been with us a long time because we bring honest, experienced people to every relationship, a practice we know we can continue as part of Wells Fargo.”
Solimine and his son, David, will continue bringing the EMAR relationship business model to companies in Florida and New Jersey.
Wells Fargo Insurance Services, Inc. (wellsfargo.com/wfis) is the fifth-largest insurance brokerage in the world with 170 offices in 37 states. Its 7,200 insurance professionals place $11.5 billion of risk premiums with expertise in property, casualty, benefits, international, personal lines and life products.
This current banking malaise will pass and when it does, after the Wachovia (WB) buy and these insurance moves, Wells Fargo will be a monster.
JP Morgan (JPM) will be the class of the industry and Citi (C) and Bank of America (BAC) will be the second tier institutions. BAC will struggle with the ramifications of the awful decision to double down on a losing multi billion dollar investment in Coutrywide (CFC) and Citi, well until Citi becomes far less bloated, it will struggle.
Disclosure (“none” means no position):Long WFC, C, none
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May not sound like a lot but it could boost eps 10%.
Silicon.com Reports
Fibreglass giant Owens Corning claims it will boost company profits by $20m in one year using a new data warehouse and business intelligence system.
The company has spent $3m on the 60 day implementation of the data warehousing system from Kalido, which was spun-off from its parent company Shell last year.
Klaus Mikkelsen, global development leader of information systems at Owens Corning, told silicon.com the system will help improve profit margins by some $20m.
“We expect that to be over the first 12 months of operation,” he said.
The new technology will underpin Owens Corning’s Information Access Project (IAP), which will provide more accurate reporting and analysis of which business processes have the biggest impact on gross margins.
Mikkelsen said the IAP has already been used to identify products that were being sold at a loss or very low margins and provided data for managers to identify the problems.
The system is now used by 600 employees and Mikkelsen said the functionality will also be extended throughout the year.
“One of the things we have just completed is the sourcing of sales data. We have also moved forward with sales planning and production statistics,” he said.
Owens Corning (OC) has done a brilliant job diversifying away from housing to composites. Any stabilization in housing will lead to a surge in eps as composite are growing double digits.
Disclosure (“none” means no position):Long OC
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Don’t believe me……in his own words..
Faber, editor of the “Gloom and Doom” reports talks about the current state of affairs. He says US Treasuries are the next “shoe to drop”
Part 1
Part 2
I have been reading like a fiend lately on 1929, the 60’s, late 90’s and obviously today. One theme is a constant….greed, margin, debt then a reckoning..
Each episode had its roots, not in corporate greed or lack of “regulation”, although there were certainly elements of them in each, but of the greed of the public. What follows is a basic overview of each and their similarities.
The 1920’s featured the barber and the paperboy speculating on stocks with money they did not have using margin. It was common for people to buy stock using 90% to 95% borrowed money. This rush of investor funds drove prices up to stratospheric levels. When they peaked and inevitably fell, margin calls exacerbated to fall and wiped out investors.
The 1960’s featured investors blindly throwing money into mutual funds at unprecedented rates. Again, the rush of funds drove asset levels up to untenable levels. The result was a fall in the market and investor disillusionment in stocks, a psychology that lasted until the 1980’s.
The late 1990’s again featured investors who had never thought about the stock market wildly chasing stock prices to ever higher levels. Conversation everywhere was about the latest IPO issue and newest tech stock that was rocking upward for no fundamental reason. Everyone knew someone who “hit it big” in a tech stock and people rushed to join the fray. Of course eventually the necessary funds for continued stock appreciation ran out as the economy began to slow an then stock prices began to fall. Again, as huge amounts were bought on margin in companies that had no earnings (or any prospects for them), the fall was fast and furious.
Now…one word, housing. Rather than stock prices being inflated, now it is housing and consumers borrowing far too much to purchase homes. Yes, the banks were complicit in their lax lending standards but when all is said and done, it is you who sign on the bottom line buying the 4,000 sq. ft. house with granite kitchen counters when all you really could afford was 2,000 sq. ft. and formica. The collapse in housing has caused a liquidation of the most salable asset, stocks. Investors selling stocks for liquidity and redemptions at mutual funds have cause a rush to sell and stock price collapse.
In all the above episodes there are outlying factors many of which has to do with the gov’ts response at the time, corporate scandals, accounting “issues” and others. But, the constant theme in them all and the primary reason for the inflated bubbles that then popped was the consumer and their borrowing. Without the consumer rushing blindly and without hesitation into the hot investment, the rise in prices that then collapsed would not have been possible. Whether it be margin for stocks or mortgages for houses, investors continually have borrowed to excess chasing rising prices that when they began to fall, took investors with them.
Will “we learn” and not repeat these mistake again? No. In housing perhaps as prices there ought to take a decade or more to reach prior levels and that by itself ought to dampen enthusiasm for the asset class. As for stocks? If history tell us anything, it will happen again. Here is the scenario. Burned investors will sit idly by as stocks eventually bottom and begin their ascent. Fear of a repeat will keep them out of the market initially though. Now, they have will have been hearing from various sources that they ought to be buying now but fear caused them to sell.E veryone will now know somebody will have been buying now (I am) and they will be hearing stories of the wealth it will have created or the paper lossed that were erased and turned into gains.
Like a dog looking at another dog with a bone, the one thing that is irresistible to an investor is watching another make money while they sit on the sidelines (the dog will always drop their bone for the other). Regretting they “got out of the game” they will jump back in…fast and we will start the whole dance over again.
How long will it take? Who knows. One thing is for sure. The internet is allowing information to travel at speeds measured in seconds, not days or weeks like in the past. I think that will have the effect of shortening the time between and the steepening of the ascension and descent of prices in these episodes. It also means that for the investor who can take a step back and see where we are in the cycle, there is plenty of money to be made and losses to be avoided.
Yes, there are fundamental reasons why we are where we are today but the current sell-off is just way overdone. I know people who are pulling money out of stocks “because”. That is the reason, “because”. That is just unadulterated fear and void of any rational thought. Times like this offer spectacular opportunities for those will to step in and buy. Stocks are off 40% for the year. Thinking of buying a summer home? Many such areas are selling those home 40% to 50% cheaper that they did a year ago.
There are tons of opportunities out there….if you have the patience and clarity of thought. If you think I am full of it, just listen to history’s greatest investor, Berkshire’s (BRK.A) Warren Buffett. He has always said “buy fear and sell greed”. If you think this is not fear in the market, think again. What has Warren been doing? Buying..in a big way. Buying stakes in Dow Chemical (DOW), Goldman Sachs (GS), GE (GE) and others for a cool $40 BILLION in investments..
Warren has watched his investments in Coke (KO), Wal-Mart (WMT) and Home Depot (HD) fall just like you have have. The difference is that he has not sold and cemented those losses. He has held on and will pocket the rebound in prices. He has also realized that when things are on sale, it is then the best time to be a buyer.
Here is the suggested reading list
“Once in Golconda” (1929)
“The Go-Go Years” (60’s)
“Origins of the Crash” (Late 90’s)
Mr. Market Miscalculates (today)
Disclosure (“none” means no position):Long GS, DOW, GE, None
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Without question the strongest Fed Head we have had talks about the current crisis and possible solutions. This is a great discussion..
This is a bit anticlimactic but coming tonight may help tomorrow
Press Release
Federal Reserve Press Release
Release Date: October 12, 2008
For immediate release
The Federal Reserve Board on Sunday announced its approval of the application and notice under sections 3 and 4 of the Bank Holding Company Act by Wells Fargo & Company (WFC), San Francisco, California, to acquire Wachovia Corporation and its subsidiary banks, Wachovia Bank (WB), National Association, both of Charlotte, North Carolina, and Wachovia Bank Delaware, National Association, Wilmington, Delaware, and the nonbanking subsidiaries of Wachovia Corporation.
Disclosure (“none” means no position):Long WFC, none
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Since I can’t watch my Bills today (bye weeks suck), some listening for us fans…
Received this from reader Justin and thought it put some thingd in perspective..
Over the past few months, the media has discovered another story to strike fear into the hearts of America, and incidentally to sell newspapers and airtime. This time it’s not SARS, terrorists, or once-in-a-lifetime hurricanes (which seem to happen every year or so), it’s the Great Depression. I do not want to make light of the current economic situation because it is serious, and likely the most serious of our lifetime. However, as part of justifying my continued buying into the current market, I did some research to understand if perhaps this time the world was really coming to an end. Here’s what I’ve found regarding the Great Depression:
* S&P 500 PE multiple over 30
* 25% unemployment
* 5000+ bank failures with numerous panicked bank runs resulting in $140 billion lost by depositors (no FDIC insurance)
* 30% GNP contraction
* 50% duties on imports
* Huge drought that led to the Dustbowl in an economy heavily dependent upon agriculture
* No unemployment benefits
* No social security
* Severely delayed government interventions
Where are we today?
* Current S&P 500 PE 18
* 6.1% unemployment
* Under 20 bank failures with not a penny lost by depositors and an increased FDIC insurance
* 2008 GDP is up
* No Smoot-Hawley
* More diversified economy
* Increased unemployment benefits, which means they are spending money even if they aren’t working
* Numerous, ongoing domestic and international initiatives
Math of current situation:
Financial loss estimates (Jan Hatzius, Goldman Sachs; Nouriel Roubini, NYU) – -$2 trillion
US Govt. intervention (stimulus pkg, “bailout”, AIG loan) – +$1trillion
Private sector (SOV funds, Hedge Funds, Buffet, etc.) – +500 billion
___________
Potential Unrealized Losses -$500 billion
Actual losses (US Stocks $8 trillion; US Home Equity $4 trillion) ($12 trillion)
The $12 trillion loss appears to be an overshoot to the downside. How do I explain it? There are 2 answers I’ve come up with. First, in my opinion, the majority of these are paper losses, which will be “written up” over time, which is why I’m buying equities. I think the market will soon realize that companies are reporting solid earnings, and that there is pent up, quality consumer demand for cars and homes, albeit at lower levels than 2007. Second, it’s pure irrational fear, ie the best time to buy. Here’s a simple analogy to drive home my perspective. Someone yells “fire!” at the local movie theater. You have 2 choices. You can follow Jim Cramer and run for the exit, or you can sneak in with Warren Buffet and watch the movie for free in an empty theater. I think I’ll stay for the double feature.
Disclosure (“none” means no position):None
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Just days after selling puts on 1.3 million shares of Burlington Northern (BNI), Berkshire’s (BRK.A) Warren Buffett is at it again..
This time he sold puts on Burlington Northern:
$80 strike, 1.1 million shares, expiring 12/08 for $7.03
$75 strike, 761k shares, expiring 12/08 at $5.78
1. The put options were written by National Indemnity Company (?NICO?), a subsidiary of OBH, Inc. (?OBH?). OBH is a subsidiary of Berkshire Hathaway Inc. (?Berkshire?). As OBH and Berkshire are each in the chain of ownership of NICO, each of Berkshire and OBH may be deemed presently to both beneficially own and have a pecuniary interest in all securities of Burlington Northern presently owned by NICO. Warren E. Buffett, as the controlling stockholder of Berkshire, may be deemed presently to beneficially own, but only to the extent he has a pecuniary interest in, the Burlington Northern securities presently owned by NICO. Mr. Buffett disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein.
Disclosure (“none” means no position):None
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From the guy who predicted the housing bubble….and its popping..
This is hard to believe…he has been buying shares on margin???? Millions worth….
OKLAHOMA CITY–(BUSINESS WIRE)–Chesapeake Energy Corporation (NYSE:CHK) today disclosed that its Chief Executive Officer, Aubrey K. McClendon, involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan calls.
Management Comments
Mr. McClendon commented, “I am very disappointed to have been required to sell substantially all of my shares of Chesapeake. These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis. In no way do these sales reflect my view of the company’s financial position or my view of Chesapeake’s future performance potential. I have been the company’s largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company’s strategy and assets. My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead.”
Chesapeake Energy Corporation is the largest producer of natural gas in the U.S. Headquartered in Oklahoma City, the company’s operations are focused on exploratory and developmental drilling and corporate and property acquisitions in the Fort Worth Barnett Shale, Haynesville Shale, Fayetteville Shale, Anadarko Basin, Arkoma Basin, Appalachian Basin, Permian Basin, Delaware Basin, South Texas, Texas Gulf Coast and Ark-La-Tex regions of the United States.
Does anyone want to know why the market is crashing???MARGIN… and forced selling
People….there are huge bargains here…huge…
Disclosure (“none” means no position):None
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