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From Jim Cramer One Year Ago Today
Old 10-24-2007, 12:58 PM   #41
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From Jim Cramer One Year Ago Today

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If you want to have a laugh, consider the stunned silence from the bears on the topic of loan losses. If things are so bad in housing, if the consumer is supposed to be strapped and bedraggled from higher rents and lower salaries and supposed to have a huge chunk of discretionary spending trashed by higher oil prices, at least in the previous quarter we would have seen it pop up in the loan loss reserves for all of these banks that just reported earnings.

That means the banks should have taken giant reserves this quarter for these eventual defaults and their earnings are overstated!
I have to tell you, after years in this business, the litany is incredibly easy to pen. I can craft a negative scenario for just about anything from positive results. It's so simple.

Bank of America at this point was at 54 a year ago and was touted by Cramer as a bull case. Now the actual losses have begun to hit and their are few questions listed as to what appears obvious that banks will not record losses until forced by auditors to do so. The time to buy these stocks will be when noone wants them and it will be at a much lower price than 10 below a bull case when the bear scenario proved true. The case being made back then was totally incorrect as can be seen by Cramer's comments.


I am trying to find out how much Washington Mutual has spent in buying their own stock the last 5 years in proping up their stock. That was certainly a poor use of funds unless you were cashing in options at the time. Again today their were a bevy of people passing out 7% interest promises to commuters in Chicago. I take that as a very bad sign for that bank.

When you see Merrill Lynch miss it's own estimate of the losses on CDO's it owned by 3.5 billion in a matter of 2 weeks I think it highlights the lack of understanding in the financial community of the losses they occured back in 2006 without realizing it at the time. Merril Lynch still has 32 billion of the CDO's on it's books. I am sure they are hoping for a turnaround to avoid further losses. Washington Mutual, Countrywide and Bank of America are in the middle of it and I think the rapid decline in the market when both BOA and KRE hit new yearly declines was no coincidence.

I am keeping my eye on KRE, if the ETF were to approach 26-28 which would represent a decline of 50% from the top and a yield of 5% then I would think a good portion of the bad news would be priced in.
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Old 10-25-2007, 12:26 PM   #42
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Bank of America at this point was at 54 a year ago ......Bank of America are in the middle of it and I think the rapid decline in the market when both BOA and KRE hit new yearly declines was no coincidence.

I am keeping my eye on KRE, if the ETF were to approach 26-28 which would represent a decline of 50% from the top and a yield of 5% then I would think a good portion of the bad news would be priced in.
Now that's what I'm looking for.....an honest opinion AND someone willing to put a number on a "possible" buying opportunity....THANK YOU!

Got a number for BAC?
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Old 10-25-2007, 12:36 PM   #43
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Now that's what I'm looking for.....an honest opinion AND someone willing to put a number on a "possible" buying opportunity....THANK YOU!
Better do your own math... at $42.05 (the net price I paid on 27 & 30 July) KRE is yielding 4.45% (the 46.7 cents/share dividend paid on 3 Oct).

At $28/share the dividend would be 6.7%, and you can decide the chances of the price getting down there.
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Old 10-25-2007, 04:20 PM   #44
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KRE = 3.74% yield. Its index = 3.52%. Anything else I presume is a special dividend (like the one CORS paid in 3Q) or an increase not yet shown in the index/fund. Makes sense -- if you enter the tickers into Yahoo Finance it shows that only 10 of the 52 holdings have yields > 4.4% and most are yielding in the 2 or 3% range. (I track the components of KRE.)

For more yield, there's always KBE (5.44%).

KRE info: KBW Regional Banking ETF (KRE), KRX Fund Detail | SSgA Funds - Fund Detail
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Old 10-29-2007, 04:34 PM   #45
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I believe KRE does not pay a consistent dividend from quarter to quarter but instead pays out all the dividends on a cash basis received in the prior 3 months which is not the same as the annual yield. I did not calculate by hand but if you looked at the components and spread the payment dates to the quarters you could I believe closely anticipate what the yield will be. Obviously all the banks do not have the same dividend schedule.

So far in 2007 it paid 26.8 for the March Quarter, 55.4 for the June Quarter and 46.7 for the September quarter. I used the Yahoo calculation for the anticipated yield since I have found their answer to usually be reliable. I also would imagine the December dividend paid in January will be less than 46.7 cents. However, multiplying that at the time by 4 would not give you the current yield of the stock. That is only accurate for a company that pays steady or increasing dividends
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Old 10-29-2007, 04:39 PM   #46
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I would actually just go to the sponsor's website and look at what the indicated yield is on the underlying portfolio is.
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Old 10-29-2007, 04:54 PM   #47
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I would actually just go to the sponsor's website and look at what the indicated yield is on the underlying portfolio is.

I did and did not see them quote that.
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Old 10-29-2007, 08:24 PM   #48
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I did and did not see them quote that.
KBW Regional Banking ETF (KRE), KRX Fund Detail | SSgA Funds - Fund Detail

Looks like 3.61% div yield as of 10/26/07.

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Old 11-01-2007, 03:55 PM   #49
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I smell fear! I bought a slug of bank stocks today. I think I'm way early, but I just can't help it. Can you smell it too?
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Old 11-01-2007, 03:58 PM   #50
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I smell gibbering fear and abject stupidity. The fed is slashing rates every chance they get and you want to sell banks? OK, happy to take your money.
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Old 11-01-2007, 05:00 PM   #51
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I smell gibbering fear and abject stupidity. The fed is slashing rates every chance they get and you want to sell banks? OK, happy to take your money.
Unfortunately I have options that expire in about a month... so I am stuck selling them 'at a loss' from where they should be...

The only 'good news' (and it ain't so) is I only have a few shares so it does not matter in the big picture, but I am down here in the weeds and it hurts..
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Old 11-01-2007, 05:02 PM   #52
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Just wondering, I heard a commentator talk about all the hidden losses in the banks stocks due to the housing situation and was wondering if it is likely at some point in the new future there will be bad news.
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Old 11-01-2007, 05:11 PM   #53
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I think the only "hidden losses" are those associated with negative-amortization loans gone bad. Banks can report income from neg-am loans before it's earned, so it may end up being lost if the mortgage holder defaults.

But you can either buy banks that don't have a lot of neg-am loans, or you can hope that all of the potential bad news is already priced in.

The biggest unknown right now is whether the problems will start to creep into prime loans, credit cards, auto loans, etc. If home prices drop hard, we'll potentially see high default rates from "good" loans.
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Old 11-02-2007, 09:32 AM   #54
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I thought KRE looked good at $41.30. It's at a 52 week low this morning and thinking of picking up more.
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Old 11-02-2007, 10:18 AM   #55
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Just wondering, I heard a commentator talk about all the hidden losses in the banks stocks due to the housing situation and was wondering if it is likely at some point in the new future there will be bad news.

Sure, some banks will be hit hard with the mortgage problems... Citi looks like it has a huge problem with their SIVs. But, remember when they say 'banks' they also mean the investment banks like Morgan and Merrill.. some have bad news and some did not get into the market... pick the ones that did not get in and you should be OK..
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Old 11-02-2007, 11:05 AM   #56
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I thought KRE looked good at $41.30. It's at a 52 week low this morning and thinking of picking up more.
Well it's lookin' even better at $38.50. Wish I wasn't already fully loaded.
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Old 11-02-2007, 11:16 AM   #57
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My understanding of SIVs is that they aren't the bank's problem. The banks just operate them (and take fees for the operations). Money market funds take all the risk when they buy short-term commercial paper from the SIVs.

Of course, we don't want money market funds to eat it. Which is why the treasury is trying to get banks and SIV holders (like Fidelity) together to create a super SIV liquidity fund.

BTW, Wells Fargo apparently is one big bank that doesn't use off-balance-sheet vehicles like SIVs.
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Old 11-02-2007, 11:24 AM   #58
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Well it's lookin' even better at $38.50. Wish I wasn't already fully loaded.
In case you need a tax loss, you could always swap KRE for KBE. The whole sector has been sold down so far that the economics of both vehicles should be similar, but you'd get to book the loss.
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Old 11-02-2007, 01:24 PM   #59
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Looking at the holdings of these two, I don't know if I would agree with that assessment.

KBE has all the giant banks, some of which have more uncertainty about their risk ( Citigroup and Bank of America come to mind).

KRE has the smaller regional banks. I get the impression that these guys have fewer exotic loans than the Citigroups of the world. I could be wrong though.

I think KBE is a little riskier (but may return more in the long run).


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In case you need a tax loss, you could always swap KRE for KBE. The whole sector has been sold down so far that the economics of both vehicles should be similar, but you'd get to book the loss.
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Old 11-02-2007, 01:55 PM   #60
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My understanding of SIVs is that they aren't the bank's problem. The banks just operate them (and take fees for the operations). Money market funds take all the risk when they buy short-term commercial paper from the SIVs.

Of course, we don't want money market funds to eat it. Which is why the treasury is trying to get banks and SIV holders (like Fidelity) together to create a super SIV liquidity fund.

BTW, Wells Fargo apparently is one big bank that doesn't use off-balance-sheet vehicles like SIVs.
It is true that they are separate, but I think it is Citi that said they would 'stand behind' them or something... kind of wink, wink kind of thing...

If the market worked correctly the people who bought into them would lose their shirt and more than likely demand a higher return on the next boondoggle they come up with... so, it is necessary to hide the losses kick the can down the road and hope for the best.
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