Tuesday, January 17, 2012

Wells Fargo Earnings?

U.S. debt and deficits are running over $1 trillion per annum and amount to over 700% of Federal revenue.  And just last week, we learned that the monthly budget deficit climbed to $85.97 billion in December, from $78.13 billion in the same month a year earlier.  The only relief from such debt will be a default on the part of the United States.  A sovereign U.S. default would be pernicious for the dollar and massively bullish for gold.  - Michael Pento, on King World News
I see Wells Fargo's earnings report was greeted by much fanfare by Bubblevision and the mass media slavishly followed by the hoi polloi.  I was curious to see if I could figure out where Warren Buffet was fudging the truth about WFC's earnings, so I took a quick peek at the 8-K filed with the SEC this morning.

Let me qualify this by saying that I only looked in the obvious spots - of course ignoring the fancy marketing charts and spin data attached to the 8-K - to see where I could deflate WFC's inflated earnings report.  I don't have time to go through WFC's numbers with a fine tooth comb, but just looking at the hot spots of GAAP manipulation will show you why WFC stock makes a better short than long.

First, versus 2010, WFC reduced its allowance for credit losses from $23.6 billion in 2010 to $19.6 billion in 2011.  If they had just kept that number the same, WFC would have reported break-even results for 2011 - i.e. no net income.

Here's why I believe that a scrutinizing analyst should look at WFC's earnings report but use the same allowance for loan losses as in 2010:  WFC actually increased the number of loans 90 days or more past due to $22 billion, from $18.5 billion in 2010.  That's a 19% increase in non-paying loans (mostly mortgages).  We also know that these banks are letting a significant portion of their delinquent mortgages "slide," without classifying them as delinquent or in default.  So assume that WFC's number is actually larger than $22 billion.  On that basis alone WFC's allowance for losses should have been closer to the $23 billion reported in 2010 than the $19 billion they reported this year

Furthermore, WFC has $37 billion in underwater "pick a pay" mortgages.  These are the notorious "pay option ARM's" that allow the borrow to skip payments and that payment is then added on to the outstanding loan balance.  These mortgages get bigger while the underlying housing collateral continues to shrink.  Most of Well's pick a pays are in California and Florida.  I think you can see that these mortgages will eventually be a big source of losses for WFC and WFC should therefore be reserving for losses associated with these mortgages at a faster rate, not a slower rate.

Even uglier, WFC as $106 billion in home equity loans.  35% of these are in Californian and Florida.  When a 1st mortgage is, best case, just barely covered by the value of the underlying home, it means the home equity debt attached to that home is worth ZERO.  If Warren and WFC were to be honest with the market and investors, the value of that home equity portfolio would be written down by at least 50%.  That's $56 billion in losses.  But since "new" GAAP and the "new FASB" allows these banks to hope and pray for a housing market miracle, lenders like WFC get to kick the can down the road and pretend that their home equity portfolio is really worth $106 billion.  Anyone want to take Wells' side of that bet?

My point here is that Wells should be much more aggressive in recognizing allowances for credit losses.  But since our ponzi system allows them to report b.s., it's b.s. we get when these banks reports earnings.  Needless to say eventually Warren will call up his good buddy Barack Obama and see to it that the taxpayer gets the tab for the eventual mortgage bloodbath on WFC's balance sheet.  But in the meantime, please understand that the earnings reported by Wells Fargo today were total bullshit.

Here's a link the 8-K if you would like to do your own research:  LINK

And bear in mind, I only had time to look at obvious areas of GAAP manipulation.  I'm sure if you combine today's filing with the 10-K and look at the off-balance mess in the footnotes, you will conclude the Wells probably should have reported an accounting loss.


  1. Oedipus the King

    Where are they? Where in the wide world to find
    The far, faint traces of a bygone crime?
    In this land, said the god; "who seeks shall find;
    Who sits with folded hands or sleeps is blind."

    ...there are no kings on Wall Street only handmaidens in a continuous circle jerk...

    thanks Dave

  2. Did you guys see this...holy sh!t centurion!..

    Currency Devaluation No Pocket Change

    OTTAWA — Canada's mint will soon unveil one-dollar and two-dollar coins made from brass-plated steel, replacing more expensive nickel cores, the government said Friday.

    An explanation in the official Canada Gazette said the traditional use in coinage of high cost alloys at volatile market rates has driven up production costs for governments around the world.


  3. Egon von Greyerz continues:

    “I look at the banks here in Europe and they are an absolute mess, even before the French downgrade. We deal with French banks and they’ve had their lines cut by billions and billions. They couldn’t trade, and that was before the downgrade. It must be even worse for them now. This is what you are seeing in a lot of banks around Europe.

    This just confirms we are very near a massive package of QE here because if they don’t do it there won’t be any banking system left here in Europe. Because of that I’m seeing big buyers coming into gold and even bigger buyers becoming very interested. So there is definitely a shift.


  4. I started watching Buffett in the early 1980's, after Andrew Tobias mentioned his name in an article. As I kept track of him through the eighties and into the nineties, I was astounded that a person that smart also had so much integrity.

    His transformation into a sold-out whore has been breathtaking. All the sweet backroom deals he got from his government pals the past ten years, compliments of the fucked-up-the-ass taxpayer bystander. I would bet some serious cabbage that Hank Paulson told Buffett specifically and in plain English, way beforehand, that Goldman Sachs would be made whole on it's $13 billion AIG arrangement, compliments of the screwed taxpayer. And Buffett loves to talk about how the rich should pay more taxes. What a hypocritical cocksucker.

    Buffett frequently and regularly speaks publicly about how Hank Paulson and Tim Geithner saved the American banking system through their selfless actions. What a steaming crock of shit.

    Any casual glance at Buffett's track record (5+ decades ) can render no other conclusion than that the man is brilliant. That's why I can't for the life of me fathom why Buffett is so optimistic about the next several years. Whenever he is being interviewed by that whore from CNBC he ALWAYS says that, while he isn't sure what the next year or two holds, for certain ten years or so from now you will be very glad you invested in America.

    Does the motherfucker have Ahlceymer's? Can he not fucking add?

    Shit, Kyle Bass, in a letter to partners in February 2011, shows in a three paragraph stretch why it is mathematically impossible for the USA ten years from now to exist in any economic form remotely resembling today.

    USA debt is now above $15 trillion. Within nine years the debt will be a minimum of $23 trillion. Every 1% increase in interest rates equals $150 billion in interest ALONE to service the debt. A move to 5 % is $750 billion interest expense alone. Government revenues are $2.2 trillion today. Bernanke is trapped. Do the fucking math. In nine years, if rates are at 8% to 10%, interest expense ALONE will WIPE OUT government revenues, to say nothing of defense costs, medicare costs, medicaid, social security and the vast number of other programs.

    Beyond that, in my opinion, chances are overwhelming that interest rates rise over the next few years and GDP falls(along with government revenues). We will be in a situation that is impossible to unfuck.

    And Buffett with his suck buddy Charly Munger motherfuck gold and silver every chance they get. Go figure.

  5. Figures don't lie...liars figure. Thanks Dave.

  6. @Proximo...you speak the truth and you're funny...but us mortals are just Shadows and dust ..Shadows and dust http://youtu.be/q80IE32SlXM
    keep it up!

  7. Dave,

    Do you know if they released the reserve? Or did they write-off assets against the reserve? Big difference. One takes it back into income and one takes down the value of assets.


    Accountant Jon

  8. Jon,

    I didn't spend enough time to look to see if they released any loan loss reserves. If they did, it's in the footnotes. My argument is based on the fact that, despite all the reasons in the world and more to hold their reserves against losses the same as in 2010, they reduced this charge to income by the $4 billion in net income that they reported. Obviously it's not quite that clean because I didn't factor in tax benefit differences so it's not quite $4 billion, but I also mentioned other reasons why - if you spent enough time looking at it - you could probably derive a big loss that should have been reported, rather than the $4 billion in net income.

  9. If one thinks it looks like silver has bottomed with good upside potential, would you
    think buying the AGQ, Proshares Ultra Silver is a safe vehicle to own?
    Thanks for all you do.
    Best regards,

  10. Why I’m Suing Barack Obama

    I spent many years in countries where the military had the power to arrest and detain citizens without charge. I have been in some of these jails. I have friends and colleagues who have “disappeared” into military gulags. I know the consequences of granting sweeping and unrestricted policing power to the armed forces of any nation. And while my battle may be quixotic, it is one that has to be fought if we are to have any hope of pulling this country back from corporate fascism.

    But I suspect the real purpose of this bill is to thwart internal, domestic movements that threaten the corporate state. The definition of a terrorist is already so amorphous under the Patriot Act that there are probably a few million Americans who qualify to be investigated if not locked up. Consider the arcane criteria that can make you a suspect in our new military-corporate state. The Department of Justice considers you worth investigating if you are missing a few fingers, if you have weatherproof ammunition, if you own guns or if you have hoarded more than seven days of food in your house. Adding a few of the obstructionist tactics of the Occupy movement to this list would be a seamless process. On the whim of the military, a suspected “terrorist” who also happens to be a U.S. citizen can suffer extraordinary rendition—being kidnapped and then left to rot in one of our black sites “until the end of hostilities.” Since this is an endless war that will be a very long stay.

    The supine and gutless Democratic Party, which would have feigned outrage if George W. Bush had put this into law, appears willing, once again, to grant Obama a pass. But I won’t. What he has done is unforgivable, unconstitutional and exceedingly dangerous. The threat and reach of al-Qaida—which I spent a year covering for The New York Times in Europe and the Middle East—are marginal, despite the attacks of 9/11. The terrorist group poses no existential threat to the nation. It has been so disrupted and broken that it can barely function. Osama bin Laden was gunned down by commandos and his body dumped into the sea. Even the Pentagon says the organization is crippled. So why, a decade after the start of the so-called war on terror, do these draconian measures need to be implemented? Why do U.S. citizens now need to be specifically singled out for military detention and denial of due process when under the 2001 Authorization for Use of Military Force the president can apparently find the legal cover to serve as judge, jury and executioner to assassinate U.S. citizens, as he did in the killing of the cleric Anwar al-Awlaki in Yemen? Why is this bill necessary when the government routinely ignores our Fifth Amendment rights—“No person shall be deprived of life without due process of law”—as well as our First Amendment right of free speech? How much more power do they need to fight “terrorism”?

    But it passed anyway. And I suspect it passed because the corporations, seeing the unrest in the streets, knowing that things are about to get much worse, worrying that the Occupy movement will expand, do not trust the police to protect them. They want to be able to call in the Army. And now they can.


  11. Ted, there's no ETF based on physical metals that are safe (the Sprott PSLV and the gold one are trust certificates and have very strong accountability measures written into the prospectus). If you think silver is ready for a big move in the "shorter" term, as I do, AGQ is a great way to play a leveraged "indexing" of silver. But as an investment it sucks because it's futures and derivatives which means that over a theoretical long time the value of AGQ decays to zero. I don't even trust CEF and GTU because they are not made accountable for their inventory by delivery requirements, the way the Sprott securities are.

    We use AGQ in our fund as a trading vehicle.

    1. Dave,
      Thanks for your advice re AGQ, and re your comments on the Sprott PSLV.
      Do you think their PSLV at the now lower closing price of $13.19 (9.14% premium) is an attractive buy?
      I really appreciate you and The Golden Truth.
      Best regards,

    2. Ted, I put PSLV in the fund yesterday at a 10% premium on the assumption that the spread will blow out again eventually into the 20's%

  12. that burn might not be from the poblano peppers and who's going to protect you from this?

    Bed Bath and Beyond recalls radioactive tissue holders after they set off police radiation monitors aboard a delivery truck

    Read more: http://www.dailymail.co.uk/news/article-2086870/Bed-Bath-Beyond-tissue-holders-recalled-contaminated-radioactive-cobalt.html#ixzz1jpNpHUIV

  13. How Cheap Money Will Destroy the World......and enriched the few!

    In Leverage: How Cheap Money Will Destroy the World, well-known market commentator Karl Denninger literally follows the money, tracing the path it has taken through history and discovers a shocking truth—the power to control a nation’s purse strings is addictive, and when that power falls into the hands of only a select few, they will pull the levers of government and policy to enrich themselves at the expense of everyone else. History is littered with the stories of collapsed monetary systems, and in every case the debasement of the currency in question, and the disasters that followed, can be directly blamed on excessive leverage, deployed in ill-intentioned and fraudulent ways by the elite.

    The current Great Recession is no exception to this rule. It was no accident, and the politicians and monied interests responsible knew that it was coming. Special interests and other influential individuals have always used leverage to enrich themselves while looting the population at large. Eventually the bill always comes due and then we all have to pay.


    This is sickening...there's no reform coming...

    Larry Summers Considered As US Choice to Head the World Bank


  14. Deepak Chopra: ‘I Like Ron Paul’

    Deepak Chopra tells WeAreChange: “I don’t know who to support right now. Who do you choose when the system is broken…”

    He goes on to say, “I like Ron Paul a lot.”


  15. John Embry - Gold to Rapidly Triple in Price on This Move

    We’re very close now to that important moment where the physical market actually does overwhelm the paper market, and as this takes place you will see massive moves in the price of gold. I will finally be convinced the physical market has gained ascendancy when the gold price is going up 4% or 5% a day or $100. That’s going to happen.

    The ‘London Trader’ is right when he says there is a lagging effect from the physical purchases which is later reflected in the price. In the end, the Achilles heel of the paper manipulators is they have to be able to get enough physical gold to handle demand. So, I agree with the London Trader there is a delayed reaction.

    I’ve had this discussion with a friend of mine, who was very active in the gold market of the 1970s, and he witnessed the London Gold Pool supplying as much gold as was necessary to keep the price suppressed. But at some point the entities working the London Gold Pool realized they only had a finite amount of gold. Even though they hate gold, they realized they couldn’t sell it all....


  16. Interesting lawsuit filed. just FYI

    LOS ANGELES (CN) - JPMorgan Chase routinely fabricated documents to deceive bankruptcy judges, going so far as to Photoshop documents to "create the illusion" of standing "in tens of thousands of bankruptcy cases," according to a federal class action.



  17. Newt Gingrich Calls for Commission on Gold


    Another one Dave


  18. What's an honest boy to do?...wait

    You Can't Fool Mother Nature For Long: Mainstream Media

    Ask yourself how many hard-hitting, high-visibility series on the underbelly of American sickcare have been issued by any Mainstream Media outlet. Then look at how many of these outlets live off the revenues of adverts for pharmaceutical products, health insurance, fast foods and packaged foods-- all industries that are profiteering from the current sickcare system.

    The answer, as far as I can discern, is (unsurprisingly) zero.

    There is a difference between now and World War II, though. In a full-blown global war, the nation itself was at risk. Now, it is the Financial and Political Elites who are risk. The Corporate Media's first and most critical line of propaganda is that if America's Financial and Political Elites fall, so too does the nation.

    This is of course false. The nation would be infinitely better off if its current crop of craven, corrupt Financial and Political Elites were revealed as financially and ethically bankrupt and delivered from great power into ignominious disgrace.

    A truly independent media would have been highlighting this reality daily since the financial house of cards began collapsing in 2007. Instead, the Corporate Media has presented the saving of the financial and political Status Quo Elites as the equivalent of saving the nation itself. This is self-serving, of course, but it is also fascist: the Corporate Media and the Central State are now essentially one.


  19. Warren Pollock on Max Keiser - Re Bank Holidays

    ...the looting is rampant!


  20. Mass Inflation Ahead – Save Your Nickels!

    The Root of the Problem

    It is inevitable that any country that issues a continually-inflated fiat paper currency will run into the problem of their coinage eventually having its base metal value exceed its face value. When this happens, it is one of those embarrassing "emperor's new clothes" moments. Unless a government takes the drastic step of lopping off a zero or two from their currency, this coinage problem is inevitable. In essence, we were robbed by our own government when silver coins were replaced with copper sandwich coins in the 1960s. I predict that essentially the same thing will soon to happen with nickels.

    Helicopter Ben Bernanke will inflate his way out of the current liquidity crisis. through artificial lowering of interest rates, massive injections of liquidity, and monetization of the Federal debt. That can only spell one thing: inflation, and plenty of it. Mass inflation will mean much higher commodities prices (at least from the perspective of the US currency.)

    In February, 2010 it was announced that the Obama administration had endorsed a change in the metal composition of pennies and nickels. And then, in November 2010, President Obama signed "The Coin Modernization, Oversight, and Continuity Act of 2010". Then, in late 2011 came news of the introduction of H.R. 3694 (the Saving Taxpayer Expenditures by Employing Less Imported Nickel ACT – aka the "STEEL Nickel Act" . I predict that this will be signed into law in 2012 and the U.S. mint will begin producing debased steel nickels in late 2012 or early 2013. Once this change is implemented, you will then have to manually sort the "old" from the "new" debased nickels! But for now, there is still an open window of opportunity, during which time SurvivalBlog readers can salt away countless rolls, bags, and boxes of nickels.


  21. Vote Ron Paul...his heart and money are rooting for his country!

    On Mitt Romney's Millions In Cayman Island Offshore Tax Havens

    As a reminder, it has long been Obama's "tax-policy" to force repatriation of virtually all individual tax holdings held abroad, both legally and illegally, much to the detrimental collapse in the UBS business model. Yet apparently when it comes to potential future presidents, loopholes are quite welcome. Especially when as ABC reports, "the offshore accounts have provided him -- and Bain -- with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury." As a reminder: "Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens."


  22. Analysis: China's banks lure man on the street to gold

    (Reuters) - For Chinese shipping executive Ping Bo buying gold is the best way to protect his family's wealth and give his 10-year-old son a headstart into adulthood.

    "For my son, the idea is that he will get a nice stash of gold that he can cash out when he turns 21 or when he gets married," said Ping, one of over 2 million people that have opened accounts in the past two years to accumulate gold at the Industrial and Commercial Bank of China (ICBC).

    As a sign of surging demand for bullion, China's gold imports from Hong Kong in the first 11 months of 2011 more than tripled on the year.

    China has one of the world's highest saving rates, and the public faces few investment options. A volatile stock market and a property market under government crackdown are driving investors to seek alternative investment choices.

    "Chinese investors are looking for ways to protect their savings from negative real interest rates," said Nick Trevethan, Senior Commodity Strategist at ANZ in Singapore.