Friday, April 10, 2009

Key Points from the Powerful Wells Fargo Announcement; Including Major Real Estate Buy Signal

The rebound in the economy is here. Nothing could have made this clearer than the announcement yesterday by Wells Fargo (WFC) that they expect "to report record net income of approximately $3 billion for first quarter 2009."

The breakdown of the earnings is even more impressive.

“Business momentum in the quarter reflected strength in our traditional banking businesses, strong capital markets activities, and exceptionally strong mortgage banking results -- $100 billion in mortgage originations, with a 41 percent increase in the unclosed application pipeline to $100 billion at quarter end, an indication of strong second quarter mortgage originations,” said WFC Chief Financial Officer Howard Atkins.

I signalled the bottom in the stock market on March 22 when I pointed to the money debt raise by the REIT, Simon Properties Group. I wrote back then:

Another sign markets are opening up, Simon Property Group, the largest publicly traded REIT, with huge holdings--including many top line malls, went to the market at the end of last week to raise $500 million UNSECURED. Get that, unsecured, by a REIT? The coupon offered was 11%. So what happens? They were able to upsize the deal to $650 million and lowered the coupon to 10.35%.

Folks, this is known as a BUY SIGNAL.

The rocket fuel the Fed has been pumping since September has started to launch some rockets.
The rocket fuel has now been loaded into the real estate markets.

The huge origination numbers coming out of WFC signal an end to the bear market in real estate. For those looking to buy real estate, the time has arrived. And don't be afraid to borrow, borrow borrow to make the purchase. The inflation coming will eventually make your mortgage payment look like you are buying off the dollar menu at McDonald's. Just make sure you get a fixed rate.

WFC also noted that it had a strong revenue contribution from legacy Wachovia, about 40 percent of combined revenue. “Wachovia’s outstanding franchise has proven to be everything we thought it would be when we announced this acquisition, and the financial contribution from Wachovia exceeded our expectations in the first quarter,” said Stumpf.

Keep in mind that Sheila Bair attempted to gift Wachovia to Citigroup. The fact that Bair forced Wachovia to merge at all is an outrage. That's why John Hempton is calling for the indictment of Bair.

For a more suspicious analysis of WFC earnings see the PEU Report. My guess is that PEU knows of what he speaks, and don't forget the curious trading between AIG and the big banks. But, the origination numbers look real to me, which is the key factor that I am looking at in terms of the real estate market in particular and the overall economy.

1 comment:


    It will be interesting to look back 6-9 months from now to see if you were right... please forgive me for not jumping on you Optimism Tour just yet.

    Your advice to stock up on real estate and debt might be good, if one were sure that they will have the income to pay it back (though, I guess that is optional too these days) and with unemployment still accelerating the way it is, that just might ween out a few people who might otherwise following your market timing advice.