Gerald Greene     taipaninvestor.info/blog       

Wells Fargo is faced with a terrible exposure to the weakening economy and rising rates of delinquencies on housing related mortgage and credit card debt.

The outlook for the entire financial sector industry is grim and WFC will not be spared. There are those who think the turmoil in the financial services industry has already peaked. I disagree.

Currently, just with subprime portfolios banks around the world, have written down about $238 billion of toxic waste debt. Before all of the confessions have been made public there will probably be over one trillion in writedowns. This is a serious number but is only a small part of the total exposure.

It is thought that at least $45 trillion of questionable derivative instruments are held in investment portfolios, with a substantial amount of that exposure lending right to the banks. Then there is a raising tide of credit card delinquencies. No, WFC will not escape the carnage  to come in the financial sector.   

The former CEO of Wall Street's largest investment bank, Goldman Sachs, now US Secretary of the Treasury, has proposed new legislation that would be the greatest Wall Street reform act since the Great Depression.

The short take on Mr. Hammering Hank Paulson's bank bailout plan is that the Federal Reserve Bank would become an extremely powerful entity, not that it's not already, but it would become even more powerful with almost unlimited powers to regulate the nations financial affairs, banks, brokerage firms, hedge fund industry, you name it.

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Financial Stocks to Remain Under Pressure in 2008

Look for current rally to fizzle and for financial stocks to remain under pressure in 2008.

While the perhaps heroic, certainly desperate actions of Ben Bernanke and the Federal Reserve bank have brought some relief to the Wall Street investment banks, commercial banks, and mortgage companies look for the relief to be very short lived.

In my opinion, the problems with the world’s financial system, with the United States in the lead position, are just far greater than the solutions. In the end we will be lucky to avoid a financial meltdown.

Merrill Lynch (MER), while already taking billions in writedowns, is one of the brokerage firms that likely still has a largely toxic waste portfolio hidden away in a back closet. In addition Merrill and other Wall Street firms face potentially damaging litigation from a large army of investors who feel that they were mislead by junk financial instruments being sliced and diced and sold to them as AAA grade investments.

What do you think?

The fact is that Merrill and other Wall Street brokerage firms and investment banks got far too excited about the fees and commissions that they could and did earn from selling garbage to trusting investors. Many of these investors, like state retirement funds, do have the means to pursue litigation over the long term.

It's not a very sound business model to make a killing for a few years, then to give the money earned back, and more, over the next year or two. The brokerage and investment banking industries are very much at the beginning of the giving back phase.

Brokerages and investment banks will face a tough operating environment as a recession takes hold that will prove to be considerably deeper and longer lasting than currently forecast. The tougher operating environment plus largely worthless mark to make believe portfolios, plus a ton of adverse litigation, will prove to be devastating to MER and the big boys of the run and gun Wall Street industry.

Operating profits for the industry will likely be down by at least 30% this year. Merrill will likely do worst.

For additional information on the 2008 outlook go to  http://taipaninvestor.info/blog  Taipan Investor.      
 

Merrill Lynch and many other financial sector stocks will be reporting first quarter 2008 earnings over the next few days. Look for a horror show that will definitely spook Wall Street.

Recently it seems that the majority of Wall Street analysis and commentators have underestimated the severity of current economic conditions. Wall Street "experts" have even recommended bottom fishing in the financial sector stating that the worst of the credit crunch is over.

For those who enjoy the sport of trying to catch falling knives, go ahead, try to pick a bottom. I'll bet you will be far too early if you attempt to do that just now. 

After General Electric's earnings report issued last Friday you can expect a new wave of scared selling to hit just about all sectors, especially the financial sector and a already sick MER. When a bell weather  stock like GE reports such shocking numbers you can be sure that there is plenty more trouble to come for the stock market.

PE ratios remain far too rich in a hostile environment of sharply falling earnings.

Purchasing CDE while the current correction in the precious metals markets are under way should work out well over the next few weeks or so.  Coeur closed at $3.88 on March 24th. Buying or adding to positions below $4.00 is recommended.

As one of the lowest cost silver producers in the world buying and holding Coeur for the long term should work out extremely well. However, for those looking to make a quick 20% to 25 % could consider buying CDE at below $4.00 and selling into it's recent upper range of $5.00 to $5.16. 

I seriously doubt if the correction in the gold and silver markets will last very long. The next upward move will likely be fast and furious and bring the price of Coeur right along with the precious metals rally.

It looks like the Bernanke/Paulson intervention into the markets and the hastily arranged bailout of Bear Stearns helped to create a correction in the gold and silver market.  This seemed to pull CDE back into a $3.70 to $4.00 trading range as precious metals had a sharp pullback..

The Bernanke/ Paulson rescue of Bear Stearns and the billions upon billions of dollars  tossed to the banks and brokerage firms  by the FED in my opinion will calm the financial markets only briefly. The billions being thrown by the government at the markets will in the end not be a match for the trillions of toxic waste derivatives held by the financial community in their still overvalued risky portfolios.

Holding for the long term a up to now junior silver mining company well on its way to being a major and the lowest cost silver producing company in the world seems to be a smart move in these highly uncertain times. At less than $4.00 a share CDE should offer a triple digit return over the next year or two.   

There will very likely be other unpleasant surprises in store for investors with Wachovia as the economy moves deeper into a nasty recession. Losses in their portfolio will turn out to be much larger than currently reported. The losses will further hit not only their mortgage portfolio but extend into credit card and personal loan operations 

As the housing crisis deepens financial stocks in general will remain under pressure for all of 2008, perhaps much longer.

While the perhaps heroic, certainly desperate actions of Ben Bernanke and the Federal Reserve bank have brought some relief to the Wall Street investment banks, commercial banks, and mortgage companies look for the relief to be very short lived.

In my opinion, the problems with the world's financial system, with the United States in the lead position, are just far greater than the solutions. In the end we will be lucky to avoid a financial meltdown.

The desperate nature of the Fed's recent actions should give us an idea as how close to the financial abbess we truly are. Exchanging government treasuries for toxic waste mostly worthless subprime mortgage and CDO paper and the like seems to be a bad exchange to me.

Cutting rates at a time when inflation is picking up and the dollar is in a strong downtrend risks a unhealthy dose of inflation, perhaps even hyperinflation, as consequences of that interest rate cutting action.
 
Bernanke's high level of activity (interference?) in the way a capitalist economy is supposed to work may well prove to be a disaster as events unfold. At some point the risk is high that he will make a tragic mistake. Perhaps he already has as the Bear Stearns bailout has enraged Bear Stearns investors and already the Fed is backpedaling as the $2.00 a share price paid by JP Morgan, demanded by the Fed,   is already subject to negotiation.

It is the trillions of dollars of hard to value, probably largely worthless, derivatives that threatens the world banking system. The likelihood of further serious problems, perhaps the failure of a few big banks, brought about as the derivatives market falls apart, is high.

I would sell the recent run up in the financial sector stocks.

There will very likely be other unpleasant surprises in store for investors with Citigroup as the economy moves deeper into a nasty recession. Losses in their portfolio will turn out to be much larger than currently reported. The losses will hit not only their mortgage portfolio but extend into credit card and personal loan operations 

AS the housing crisis deepens financial stocks in general will remain under pressure for all of 2008, perhaps much longer.

While the perhaps heroic, certainly desperate actions of Ben Bernanke and the Federal Reserve bank have brought some relief to the Wall Street investment banks, commercial banks, and mortgage companies look for the relief to be very short lived.

In my opinion, the problems with the world's financial system, with the United States in the lead position, are just far greater than the solutions. In the end we will be lucky to avoid a financial meltdown.

The desperate nature of the Fed's recent actions should give us an idea as how close to the financial abbess we truly are. Exchanging government treasuries for toxic waste mostly worthless subprime mortgage and CDO paper and the like seems to be a bad exchange to me.

Cutting rates at a time when inflation is picking up and the dollar is in a strong downtrend risks a unhealthy dose of inflation, perhaps even hyperinflation, as consequences of that interest rate cutting action.
 
Bernanke's high level of activity (interference?) in the way a capitalist economy is supposed to work may well prove to be a disaster as events unfold. At some point the risk is high that he will make a tragic mistake. Perhaps he already has as the Bear Stearns bailout has enraged Bear Stearns investors and already the Fed is backpedaling as the $2.00 a share price paid by JP Morgan, demanded by the Fed,   is already subject to negotiation.

It is the trillions of dollars of hard to value, probably largely worthless, derivatives that threatens the world banking system. The likelihood of further serious problems, perhaps the failure of a few big banks, brought about as the derivatives market falls apart, is high.

I would sell the recent run up in the financial sector stocks.

Financial Stocks to Remain Under Pressure

While the perhaps heroic, certainly desperate actions of Ben Bernanke and the Federal Reserve bank have brought some relief to the Wall Street investment banks, commercial banks, and mortgage companies look for the relief to be very short lived.

In my opinion, the problems with the world's financial system, with the United States in the lead position, are just far greater than the solutions. In the end we will be lucky to avoid a financial meltdown.

The desperate nature of the Fed's recent actions should give us an idea as how close to the financial abyss we truly are. Exchanging government treasuries for toxic waste mostly worthless subprime mortgage and CDO paper and the like seems to be a bad exchange to me.

Cutting rates at a time when inflation is picking up and the dollar is in a strong downtrend risks a unhealthy dose of inflation, perhaps even hyperinflation, as consequences of that interest rate cutting action.
 
Bernanke's high level of activity (interference?) in the way a capitalist economy is supposed to work may well prove to be a disaster as events unfold. At some point the risk is high that he will make a tragic mistake. Perhaps he already has as the Bear Stearns bailout has enraged Bear Stearns investors and already the Fed is backpedaling as the $2.00 a share price paid by JP Morgan, demanded by the Fed,   is already subject to negotiation.

It is the trillions of dollars of hard to value, probably largely worthless, derivatives that threatens the world banking system. The likelihood of further serious problems, perhaps the failure of a few big banks, brought about as the derivatives market falls apart, is high.

I would sell the recent run up in the financial sector stocks.

Goldman will experience further pressure on earnings this year. Look for a 35% to 40% decline for the next quarter. 

No doubt about it. Google has the sharpest collection of IT talent working on new Google ideas on this planet.

But that is part of Google's current problems. Since it's public offering Google has taken on a vast range of high tech projects all at once. Not all of them have been well received. And Google pays it's vastly expanded staff very well. Plus fantastic but expensive benefits.

Their bread and butter advertising cash cow, Google Adwords,  is showing signs of losing effectiveness and advertisers. The cost of many keywords has been bid up to the point where the advertisers are cutting back on advertising or cutting it off all together. 

I have been a long time user of the Adwords service.  My results may not be typical but I know I have cut back on advertising with Google as conversions from click throughs to sales have fallen sharply over the past year. I expect that many other small business advertisers, those who closley watch their ad campaigns, have done the same.

Google is still a mighty force with online advertising and a wantabe in off line advertising. However, the combination of a recession, the over extension into new products, runaway expenses of personal, and increased competition will in my opinion bring Google a bit closer to the ground over the next year or so.

Look for Google to eventually work it's way down to a $250 to $300 stock.  

It’s always great to find an undervalued small cap company with good prospects and financial backing as a big percentage gain just a few months or a year or two away may be offered to those Taipan Investors who get in early . One such likely situation is discussed below.

Ener1, Inc. is a small alternative energy technology company that is hard at work developing lithium ion batteries for hybrid electric vehicles. With a lot of interest in hybrid vehicles these days the company may well be in a market that will bring a huge improvement to the company’s income and stock price over the next few years.

For additional information see http://www.taipaninvestor.com/2007/12/16/undervalued-small-ca...