Definite Entertainment

I've been watching the markets with detached amusement for the last 9 months. I probably shouldn't waste my time: the whole philosophy of value investing is to buy quality companies when they are cheap and then pretty much ignore the share price and the machinations of a manic depressive "Mr Market" in particular.

Today bank shares popped like cheap champagne. Wells Fargo was up 30% and USB topped 17% in a single session. CRAZY! who ever heard of huge blue chips making moves like this so quickly?

The factors at play here are multiple for sure: an SEC that is finally enforcing the rules about naked shorts (brokerages loaning out shares that they actually don't have) in the financials, the energy specter no longer looking quite as scary (bring oil prices down) and the market finally recognizing that it hasn't seen valuations of the cream of the crop businesses this low for almost 20 years (1990).

I think its important not to take these trends to0 seriously--- unless they offer an opportunity to buy the companies that you've been researching even more cheaply than in the past.

Shares I have bought in my companies' name at 52 weeks lows in the last 3 weeks:

AXP
MKL
LYG
Y
NYX
OCX (my wife's RRSP)
KMX (not a financial but what the heck)

I'm planning to add to the BBSI position soon--- hoping it dips below $10/share.

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Astounding move in WFC - a glimpse of things to come?

by Todd N Kenyon
Filed Under: WFC,
Filed Under: WFC, Filed Under: WFC,

Wells Fargo is not exactly a tiny neighborhood bank. With $366 Billion in assets and until recently a market cap well above $100 Billion, it's a banking heavyweight. I have owned it in many of my managed portfolios for some time. Mr. Buffett also owns a big slug.

Long an exceptionally well-run bank, WFC largely avoided most of the sub-prime mess, but they are still exposed to some questionable home equity loans. So when they announced better than expected results this morning and increased their dividend 10%, the stock reacted favorably.

Actually, that's a bit of an understatement. The stock absolutely blasted off, rising nearly 33%! The last move anywhere near this big for WFC was after the crash of 1987 when it rose 15% in a day. Of course its market cap was a fraction of what it is today. In fact, its market cap increased by $22B (!) today on > 5x normal trading volume, closing on its highs. Wow.

My best guess is there was a "bit" of short covering involved here. The amazing thing is if the shorts can get squeezed this badly in a stock as big and liquid as WFC, what's going to happen in some of the smaller, illiquid, heavily (and likely naked) shorted stocks when the coast really does begin to look clear? Look out above! Sure, many of these stocks probably deserve to be shorted into oblivion. But in my opinion many don't.

As always I have no clue when this will happen. Maybe today is the start. More likely, it is just another bear marker rally, but who knows. Certainly none of the talking heads believe that today marks the start of anything sustainable - a good reason in itself to believe that it might. Whenever it does happen though, I think it's likely to be a violent and extended rally.