New Year Same Mess

Well we turned the page on the caledar and I am feeling much better. Perhaps it was that extra leap second scientists gave us to synchronize the clocks with the planet or maybe just having some time off for the holidays. Either way, I am feeling at least a second younger. Go figure. Nonetheless, the recession is still with us - get used to it.

Won the Battle, Lost theWar

Wells Fargo fought tooth-and-nail to win Wachovia from Citigroup. I have read that the FDIC arranged the Citigroup/Wachovia deal as a stealth way to prop up Citigroup (too complicated to go there now (and I do not recall all the details but it was a good read)). Wells Fargo, on the other hand, saw an oppotunity to take advantage of the Wachovia losses to gain some tax benefits (thanks to a perhaps illegal IRS statement allowing them to do so) so they were all gung-ho to take Wachovia from Citigroup's grasp. Well, Wells Fargo won that battle.

Yet the war wages on and obviously the risk takers at Wells Fargo have not been reading my blog. Wachovia was well within the top five rank for subprime and option ARMs. The latter has yet to peak in foreclosures and will spell trouble well through 2009. All one needs to do is follow Calcuated Risk to understand this. They have very nice charts there showing it all in graphic detail. I highly recommend the site (especially to the folks at Wells Fargo).

Nonetheless, Wells Fargo - a financial company that until the Wachovia deal was faring the storm fairly well - rushed in to fight for a company worth fighting to avoid, and they got what they thought they wanted. Now things do not seem to be so nice and rosy. Go figure. I intended to put a put option on Wells Fargo at the time but options, in both directions, are too over-priced right now. Still, I could have made some money on that one.

The question you have to ask yourself is how many other major purchases/mergers this past year will lead to problems beyond what was anticipated. There are at least a couple of financial behemoths that are going to face some challenges this year. Don't worry though, Paulson will save the day.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJx1Gt0NKWgo&refer=home

Goldilocks and the Four Bad Bears

I mentioned above that Calculated Risk has some nifty charts. They have a few right now comapring the current decline to other notable bear markets. Seems we may have a bit to go to keep up with bears of the past. If my predictions for 2009 are accurate, we will get there.

http://www.calculatedriskblog.com/2009/01/four-bad-bears-end-of-year-update.html

Comment Response

One of my new challenges is to review comments here and at Seeking Alpha, where some of my posts get published. One that just showed up there recommended raw materials and financial companies as an investment. Raw materials are all over the board right now so make up your own mind. Eventually they will return but you need to define for yourself "eventually."

While I try very hard not to opine on any individual stock, I am not so shy when it comes to a sector. On the financial industry, decide for yourself, but here are some considerations:

• Foreclosures will continue through 2009 and housing has not reached a bottom;
• Commercial real estate is sinking fast and is lagging the decline in non-commercial;
• The traditional way for financial companies to garner big fees are gone or at least not happening right now, so they are not making money;
• CDSs will continue to plague them throughout 2009;
• The government, hopefully, will wise up and dissolve some of these companies; and
• With so many good companies with stock prices so low right now, why would you bother.

You decide.

Disclosures: None