Wednesday, January 28, 2009
(Cont'd from above)...

Jim (cont'd):    Today we had a huge relief rally based on the return of the plan FSLIC… the Federal Savings & Loan Insurance Corporation… and then subsequently the RTC… the Resolution Trust Corporation… those were put in place during the Savings & Loans corporations in the late ‘80’s… where they bought bad assets from banks… and sat on them until they came back to life… or sold banks to healthy banks…. now, we have been there before… and no one seems to remember what happened when we were there… I do… initially every bank and Savings & Loan rallied just like today… they all rallied today… including companies that might not be able to participate or benefit… I mean like today we saw Hartford Financial, Prudential, Lincoln, Cit, Allstate… I mean they all rallied… is it possible that they will all get relief… let me ask you a question, okay… does it occur to you in any way that Obama will be a friend of these institutions… in any of the campaign, or any of the speeches, did you ever hear that he wants to give away your tax dollars to banks… without abstracting his pound of flesh… because that is not how it seems to me…. I say no dice, Shylock...

We have heard the positive… that they might create a bad bank… but we haven’t heard the details yet… the details about what Obama wants in return… and I guarantee you those will not make you feel so cheerful about these… and you are going to want to start selling… we are not dealing with the Bush administration anymore…. I mean… I think we are back to an honest Abe Lincoln government… a government… are you ready for this… by, of and for the people… that is at all like the Bush administration… which believed in dividends and profits for all… as stock holders we have real issues with Obama… I mean I have been thinking about this all night… I am not kidding… he may actually want to help real people and not just fat cats… oh doctor…. so here is how I predict the new resolution trust bad bank will turn out… just like the old one… people forget what the Resolution Trust Corporation was like… they are too young… I was 45 when this RTC happened… and I remember it like it was yesterday… you know, I am like Benjamin Butte, 63 years old today… but you might find me at 45 on February 10th… if you participated in the old program, your banks shareholders paid for it with their earnings for years and years… the common stocks of the companies they did terribly… the early rallies gave away to sell offs… except, and this is the big except, for those financials that did not need the bad banks help… those companies… they, the strong survive… remember we quoted Billy Paul yesterday… he is a noted historic… they, stronger, stronger and stronger they got as they get to buy reconstituted banks from the Resolution Trust for a song… and they do it fabulously.

So the question now is who needs help and who doesn’t… most of our banks…. and many of our insurers… will need that assistance… I would start scaling out of them right now… right into the Straight Poor Sea… there are only two banks that I know that sure don’t need government help… and one is JPMorgan… and the other is Wells Fargo… which we know from their earnings report today… I like them so much I own them both for my charitable trust, ActionAlertsPlus.com… while other banks were levering their balance sheets in 2006, and 2007... Wells Fargo was sticking to it’s core strategy… of growing its deposit base… making money the traditional way… through spread investing… making money on what is known as the yield curve… borrowing from depositors at lower rates… lending at higher ones… hey, that is what a bank does… that is why it was able to Wachovia for just $15B… and it is why Wells Fargo is in such good shape now… the company saw an increase of $119B in loans and securities for the year… it saw mortgage applications rise 159%… it took two points of market share… that is not even counting the Wachovia acquisition… Wells Fargo told us that it doesn’t need no stinking TARP money… and it didn’t even want the initial payment… but the dissembling Hank Paulson strong armed them into taking it… you could hold JPMorgan (JPM*) or Wells Fargo (WFC*), or even buy them on a pullback if they use the Resolution Trust Bad Bank plan… stop being dreamers that this is all good news.

People really have short memories… the RTC worked for the surviving banks… “I Will Survive”, remember that song… that is another one that you ought to put… that is another one in the lexicon… there were 1600 Savings & Loan that were closed… 1600... you might have bought the equivalent of one today… 1600 Savings & Loans closed during a 4 year period with the RTC rule… they were ultimately sold to the winners… or to new buyers that didn’t have values… we don’t know what Obama will extract from the banks… that what they government is going to ask for to take bad assets… a huge part of the common stock maybe… maybe all the earnings from now until things get better… a crunching of all dividends… remember Obama doesn’t care about making common stock shareholders or executives rich… he is trying to spare lending in this country… do not get me wrong… I would love the plan… it is one that I have been proposing, for heavens sake… not only will it make the financial system work it would also take foreclosures off the market… which helps housing… but let’s not get carried away.

Here’s the bottom line…

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The Bottom Line!:     The only thing that we know for sure about the bad bank plan that everybody is buzzing about… beside the fact that people talk about stuff that they have no idea what they are talking about… is that Wells Fargo and JPMorgan will be winners either way… so scale out of the losers… and get on board the winners… and ride them higher.

Even with the government’s stimulus plan, I think Wells Fargo (WFC*) & JPMorgan (JPM*) are the banks worth considering...


[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    I've got a question...

BREAKING NEWS INTERRUPTED... RETURNED IN THE MIDDLE OF A QUESTION...

Q:    Citigroup had problems, one of the government options is to nationalize these troubled banks. What happens to the value of equity holders if nationalization occurs?...

Jim:    Okay, I am going to be very clear… I am telling you in no uncertain terms that it would absolutely shock me if they nationalize Citi… that would be the worst… what do we know about running Citi… now I hear all these, like Sweden did… what do we look Swedish… you know meatballs… alright listen to me… Citigroup is not going to be nationalized… and if it is…it would be a disaster and it would be wrong… as much as I have not shared the joy… and now talking about Geithner took a pay cut… this guy walks on water… I want to die and come back as Geithner… but anyway… I think that what he is saying is that he is not going to nationalize… and I trust him… even Sheila Baer is saying that they are not going to nationalize… so let’s right now let’s take that off the table.

I would like to go the hardest hit state for unemployment right now in the country other than Michigan, let’s go to Stan in Nevada....

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Q:    I have been following these banks, if the federal governments and Congress and everybody passes this bad bank where they take the bad assets off the balance sheets of the banks, are we going to see more pops in the price of the Bank of America, Citi and other banks?...

Jim:    I think that, as details come out… my good friend Stan from Nevada… as details come out, you will like the group less not more… I am not embracing that camp… the doomsayer camp that Meredith Whitney camp… that guy is like, I don’t know how that guy ever like leaves his panic room… more on that later… but I will tell you in no uncertain terms… that you can only be in the strong banks… even after a bad bank solution… and that means JPMorgan and Wells Fargo… because they will be able to take advantage of whatever… if there even is a bad bank… whatever is thrown their way… who will benefit from the First National Bad Bank… I think it will be Wells Fargo… and Jamie Dimond’s bank… JPMorgan.

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[verbatim recap]

[end of segment]

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