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Two Ways: Not So Fast, Wells Fargo


Strengthen your portfolio in good times and bad.

One business day after sparking a broad market rally, a report has surfaced stating that Wells Fargo (WFC) may need as much as $50 billion to pay back the federal government and cover more loan losses.

According to Bloomberg, KBW's Frederick Cannon says his firm expects Wells Fargo to suffer as much as $120 billion of "stress" losses should unemployment reach 12% and the recession continue through 2010. Further, Wells would need to raise another $25 billion on top of the $25 billion it already owes to the US government.

In the report, Cannon stated the preliminary results had more to do with "merger accounting, revised accounting standards, and mortgage default moratorium, rather than underlying trends."

Last Thursday Wells Fargo said its first-quarter net income rose 50% to approximately $3 billion. These early results were above even the most optimistic of consensus expectations. Shares jumped 30% on the news and sparked a broad market rally.

See Minyan Peter's The Call of Earnings Humility.

From the Bull Pen: Watch the behavior of the banks this week. For financial bulls, a more conservative approach is to buy when stocks pull back to support. One can fade (read: buy) the Financial ETF (XLF) into $10. Remember to keep a tight sell stop.

From the Bear Cave: Bears can look to housing. The Homebuilders ETF (XHB) might be tracing out a double top sell signal near $12. One can attempt the downside with a buy stop above that level.

Have a great night!


In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.
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No positions in stocks mentioned.

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