Other Short Ideas are Petrochina(PTR) and Whirlpool Corporation(WHR)

The stock will be retreated for a short term as affected by a weak worldwide economy and oil bubble burst. The stock price is currently overbought.

Whirlpool Corporation(WHR) is also overbought. Today the stock price raises up around 6.5 point, even though its profit was off 27% as affected by weak consumer demand in US.


Related Posts :

1. Short Ideas Today, July 23, 2008
2. Petrochina Has been Going To be Lower

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Short Ideas Today, July 23, 2008

Ford(F) will report its earning tomorrow, prior to market open. This morning, The Fly On The Wall wrote:

Ford's (F) new Flex vehicle was scheduled to add a third production shift in Oakville, Ontario, but that has been cancelled and will result in the loss of 500 jobs. Sales of the Flex, a seven passenger vehicle highlighted by fuel efficiency, have not been robust because of the weak economy.

Ford (F) will seek to "meet or beat the competition in fuel economy," Ford's president of the Americas, Mark Fields, said yesterday. U.S. auto sales have not improved this month compared with June, Fields added

Ford's (F) June US Auto Sales fell 19.1% from last year vs. the 17.8% consensus decline. Car sales only fell 1%, but truck sales plummeted. Total truck sales were down 27%. The profit-driving F-Series saw sales tank 33%. But without adjustments, overall auto sales were down 28%, SUV sales declined 40% and trucks/vans sale declined 31%.

According to technical analysis, Ford's stock prices have been up since early this month and now it can be considered overbought, see the chart below:

The green arrows are forming a parabolic. It ussually will be followed by downward move.

While General Motors(GM), A Citi's Analist thinks that General Motors’ (GM-2S) liquidity is likely to tighten over the next year, increasing the need to raise cash in difficult capital market conditions. GM is also overbought. Bloomberg wrote today, that GM Falls Further Behind Toyota in Global Sales Race.

Due to overbought, the other short ideas are Suntrust Banks (STI), JP. Morgan Chase (JPM), Deutsch Banks AG (DB), Bank of America(BAC) and HSBC(HBC).

Related Posts :

1. WaMu Has $3.3 Billion Quarterly Loss on Rising Delinquencies
2. BlackRock(BLK) is Ready to Fill Gap
3. Short Suntrust Bank, Inc. (STI)
4. Bridgewater warns Bank losses from credit crisis may run to $1,600bn
5. Banks and Brokers at Greatest Risk of Default
6. The Big Three Automakers May be Downgraded as Impact of Global Credit Crisis and Recession

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

WaMu Has $3.3 Billion Quarterly Loss on Rising Delinquencies

Bloomberg News on July 22, wrote that Washington Mutual Inc. (WM), the biggest U.S. savings and loan, reported a $3.3 billion second-quarter loss as tumbling home prices left a record number of borrowers unable to keep up with mortgage payments.

While the Associated Press Released News :

The nation's largest savings and loan increased its loss reserves to more than $8 billion to cover souring loans in its mortgage portfolio.

The bank also said Tuesday it will be cutting up to $1 billion in expenses by the end of 2009.

For the April to June period, WaMu reported a loss of $3.33 billion, or $6.58 per share, compared with a profit of $830 million, or 92 cents per share, in the year-ago period.

Results include a previously disclosed, one-time reduction of $3.24 per share related to the company's $7.2 billion capital raise in April. Excluding the reduction, the loss per share was $3.34.

Analysts polled by Thomson Financial, on average, expected a loss of $1.05 per share. Analyst estimates typically exclude one-time, unusual charges.

WaMu's total loan-loss reserves increased by $3.74 billion to $8.46 billion, as it set aside a total of $5.91 billion during the quarter to cover bad loans. The increase in loan-loss provision reflects falling home prices, increased delinquencies, reduced availability of credit and the weakening economy, the bank said.

Total net charge-offs, or loans written off as unpaid, increased to $2.17 billion, while nonperforming assets grew to 3.62 percent of total assets as of June 30, from 2.87 percent at the end of the first quarter.

In total, WaMu expects these and other cost-cutting initiatives to result in annualized cost savings of $1 billion by the end of 2009. The company will record total restructuring costs of about $450 million, $207 million of which was recorded in the second quarter.

Steve Rotella, president and chief operating officer, said some of the cost-cutting actions initiated during the quarter will play out over the course of the year and into 2009. Rotella said WaMu continues to evaluate ways to increase productivity, but he would not comment on whether that includes additional jobs cuts.

WaMu ended the quarter with more than $40 billion of readily available liquidity, and its capital ratio increased to 7.79 percent, up from 6.40 percent in the first quarter.

As a result, WaMu said it has sufficient capital to ride out the remainder of the credit crunch and does not anticipate raising additional capital going forward.

WaMu became one of the first retail banks to seek outside cash in the wake of the credit crisis when it agreed to sell equity securities to an investment fund managed by TPG Capital and to other investors this spring, raising $7.2 billion in fresh capital.

Late Tuesday, Moody's Investors Service put WaMu's senior unsecured rating of "Baa3" on review for possible downgrade. A rating of "Baa3" is one notch above junk status.

"Though liquidity remains sufficient, WaMu experienced some declines in its commercial and brokered institutional deposit balances in the second quarter of 2008," Moody's said. "This reduced financial flexibility makes it more difficult for the company to successfully navigate through unanticipated events."

Stephanie Hall, senior analyst at Gradient Analytics, viewed the reserve build-up as a positive. "The firm has been extremely slow in provisioning for loan losses," she said, adding that she expects the company to report additional provisions in the third and fourth quarters, but likely smaller than those in the first half.

While Mike "Mish" Shedlock today, wrote :

Plans To Raise Capital vs. Need To Raise Capital

It is interesting how statements like "We have no plans to raise capital" can get completely distorted from reality.

Check out this bullish Comment about Washington Mutual I found on Yahoo: "No Need to Raise Capital....... Very Bullish. Long till 2012".

Here is the reality.

WaMu "Can't Raise Capital"

Please consider Washington Mutual Drop Wipes Out Most of TPG Holding.


Three months ago, with Washington Mutual's shares at $13.15, a group of investors led by Forth Worth, Texas-based TPG agreed to buy $7 billion of stock at $8.75, a 33 percent discount.

As losses mount, a clause in the TPG agreement makes it more costly for WaMu to raise capital or be acquired. If WaMu is sold for less than $8.75 a share or is forced to raise more than $500 million in equity, it must compensate TPG for the difference, according to filings with the U.S. Securities and Exchange Commission.

"We don't know how their investment plays out, but we also don't know how this affects WaMu to the extent they need to raise more capital," said Steven Davidoff, law professor at Wayne State University Law School in Detroit. "They really can't raise equity."


Death Spiral Financing

It is now time to explore the implications of the desperate deal that Washington Mutual made with TPG. Please consider Lack of Transparency = Shareholders Get Ratcheted.

Following are a few highlights from the above lengthy, but well written article. I condensed this down as best as I can but inquiring minds will definitely want to read the entire article.


Even though hundreds of billions of dollars of capital have been raised by the financial sector over the past several months, which of the investors in a financial institution have made money since their initial investment? Answer: Zero.

We can’t think of one. They are all underwater. When Abu Dhabi first invested $7.5 billion in Citigroup last November, Citi’s stock was $35. Subsequently, when Citi did their $14.5 billion raise in January, the stock was trading at $30. Today Citigroup’s stock is under $20... and it keeps falling. Merrill Lynch did a combined raise of $12.8 billion in December and January at $48. Now the stock is under $35… and also falling. Warburg Pinkus made their now infamous $1 billion investment in MBIA at $31 per share. MBIA has fallen over 80% since and is now trading at under $5 per share.

Those who participated in Ambac’s $1.5 billion rights issue in March are down a similar amount, 80%, as the stock now hovers under $2. Bank of America made their initial investment in Countrywide Financial last August at $18 per share (rather surprising to us, given that Countrywide looked to be going bankrupt if BofA didn’t come to the rescue). Bank of America subsequently made a takeover offer in January. Today Countrywide shares can be got for under $5 per share.

TPG invested in Washington Mutual to the tune of $7 billion at $8.75 per share, a substantial discount at the time to WaMu’s stock price of $13. Today WaMu’s stock is $6. Last month AIG raised $20 billion when their stock was trading at $37 per share. Today AIG stock is just above $30 per share. Even those who participated in Lehman Brothers’ $6 billion equity offering last week at $28 per share are already underwater, with LEH currently trading below $24 (year-to-date Lehman’s stock is down over 60%).

Ironically, thanks to full ratchet provisions, this promises to lead to further dilution and even weaker stock performance going forward.

There were at least some smart investors who noted the downward trend and successfully negotiated for downside protection. We know of at least two cases (though there are doubtless others); namely, Merrill Lynch’s $12.8 billion investment from Temasek (the Singapore sovereign wealth fund) and Washington Mutual’s $7 billion raise from TPG (a private equity firm).

Quite unbeknownst to the general public at the time, downside protection was built into these equity raises to protect these investors. They are called “look back” provisions or “full ratchet” compensation.

We believe it is more accurate to call them “death spiral” securities. They work as follows. The investors in the equity raise would have their investment “protected” by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free. It doesn’t take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral.

However, unless the bank goes bankrupt, these investors can’t lose. And we already know to what lengths the Fed will go to prevent a banking bankruptcy. It’s heads I win, tails I win.

They can even short the stock in the expectation that it will go down and still not lose. At the next financing, which is sure to come, they will be made whole... even making money on the short!

Add Citigroup To Those In Death Spiral Financing

The above article mentioned Merrill Lynch and Washington Mutual in death spiral financing schemes. Add Citigroup to the list. I talked about this way back on January 15, 2008 in Cost of Capital "Ratchets Up" at Citigroup and Merrill.

Is it any wonder that Citigroup is desperate to dump $500 billion in assets? The saving grace for Citigroup is that it has assets to dump. The big question is ho much those assets will fetch. I believe it will be far less that Citigroup thinks. I am still sticking to my estimate that Citigroup will survive, just nowhere remotely close to its current state.

Now take a good hard look at WaMu. It is losing money at nearly everything it does. It is in deep serial trouble over Alt-A loans alone.

With that in mind, many have been asking for an update on the WaMu Alt-A pool I have been tracking. The article has been out for some time. The title is certainly not obvious, and those who missed the update can find it in Fannie and Freddie Waterfalls Are Too Big to Bail.

Desperation At WaMu

Think about the implications of a company either desperate enough or dumb enough to issues $billions in shares at $8.75 when the stock was over $13 at the time. The ratchet provisions made it likely those in the deal immediately shorted it. Even if there were short restrictions, there are ways to execute synthetic shorts (writing deep in the money covered calls for example).

Even if TPG took no action on its own accord, others understanding the implications of the ratchet agreements WaMu agreed to, probably shorted the hell out of it. Any company that desperate or that stupid deserved to be shorted into oblivion.

The CEO, CFO, and COO all ought to get fired for agreeing such terms as well as for not seeing the need to raise capital until shares fell to $13. Then again, those executives paid the ultimate sacrifice of foregoing their bonus for a quarter.

WaMu Is Screwed

Washington Mutual is screwed. It cannot raise capital by equity deals even if it wants to. Those who translated "We have no plans to raise capital" into "No Need to Raise Capital" are sadly mistaken.

WaMu desperately needs to raise capital. However, those death spiral financing arrangements it made means WaMu can't raise capital. And if WaMu can't raise capital, it stands to reason it would have no plans to do so.

Related Posts :

1. Bridgewater warns Bank losses from credit crisis may run to $1,600bn
2. Banks and Brokers at Greatest Risk of Default

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Those Damn Short Sellers Are Just Killing It!

I republish the material below from The Big Picture :

Posted by Barry Ritholtz on Wednesday, July 23, 2008 | 07:00 AM

There were a sew of articles in the papers today about just how much money those damned shorts are making!

First up, the WSJ, who looked at who was killing it:

"Some hedge-fund stars of 2007 are having an encore year. In the process, they are defying skeptics who questioned whether they could keep their runs going.

John Paulson, who directed Paulson & Co. to gains of almost $15 billion last year, is up as much as 20% in some of his hedge funds through June 30, according to investors, thanks to continued bets on the woes of financial companies.

Philip Falcone, who saw gains of about 120% in his largest hedge fund in 2007, gained 42% through June in that fund, Harbinger Capital Partners I, from various commodity-related investments, among other areas.

It isn't necessarily surprising that investors who wagered against mortgage and housing-related investments are excelling, since the housing troubles have spilled over into 2008. The real challenge for these managers will be turning in similar performances when that gambit has run its course."

Next up, Bloomberg focused on the total amount wagered on the short side:

"Investors worldwide are betting more than $1 trillion on a collapse in stock prices.

Managers from William Ackman to Jim Rogers made a total of at least $1.4 billion in July with wagers against U.S. mortgage financiers Fannie Mae and Freddie Mac, data compiled by Bloomberg as of last week show. Harbinger Capital Partners staked $665 million that U.K. mortgage lender HBOS Plc would drop and Sao Paulo-based hedge-fund manager Francisco Meirelles de Andrade's short selling of Cia. Vale do Rio Doce is also paying off.

More than $1.4 trillion of equities worldwide are now on loan, about a third higher than at the start of 2007, data compiled by Spitalfields Advisors, the London-based firm specializing in securities lending, show. Almost all of that is being used to speculate that shares will fall, according to James Angel, a finance professor at Georgetown University who studies short selling. The global economic slowdown, $453 billion in bank losses and an explosion of funds that can profit from stock declines spurred the increase in short selling, helping send 22 of 23 countries in the MSCI World Index into bear markets."

Next, the FT had an interesting twist: The brokers and iBanks are making lucrative trades lending out shares to shorts!

"Conservative fund management firms and custody banks are making billions of dollars from short-selling by lending stocks to facilitate such trades in exchange for lucrative fees.

Even as short-sellers attract blame for driving big falls in financial stocks, financial services firms – including those targeted by short-sellers – are profiting from the investing strategy.

US prime brokerage firms, most of which are owned by big Wall St banks, will reap revenue of $11bn (£5.5bn) this year, according to a recent study by Tabb Group, a research business.

Prime brokerage units provide services to hedge funds. They do not reveal their financial results, but executives who work for the units say they make most of their money from lending to short-sellers."

Funny -- no one really looked at the reasons why the shorts were killing it --namely, the credit and derivative system run amok, a toothless SEC and a Federal Reserve that was guilty of malfeasance in terms of their obligations to regulate lending institutions.

However, this Bloomberg quote at least makes an attempt to explain the purpose shorts serve in the investment eco-system:

"Short sellers are a very important part of the ecosystem of our financial markets,'' said Angel, a professor at Georgetown's McDonough School of Business in Washington. ``The same way that lions go after a herd, they go after the weaker animals. The shorts will pick on a company where there's a legitimate controversy over its valuation.''

Posted by Barry Ritholtz | Wednesday, July 23, 2008 | 07:00 AM

Related Posts :

1. Bridgewater warns Bank losses from credit crisis may run to $1,600bn
2. More Crash Warning!
3. We are on the Bear Market
4. Global Stock Markets Plunge on Soaring Crude Oil Price
5. Banks and Brokers at Greatest Risk of Default
6. The Big Three Automakers May be Downgraded as Impact of Global Credit Crisis and Recession

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.