Monday, April 7, 2008

Washington Mutual Pulls a UBS; Shareholders Cheer

A bit short on time tonight as the wife and I are going to book our vacation plans this evening. I need to go somewhere warm and it looks like one of the Sandals resorts in Jamaica will provide the needed sunlight. Another week without Economic Disconnect? I hope you all will survive!

Alcoa Earnings Miss "SOME" Estimates
Alcoa kicks off the earnings season, and reported that they were a little short of expectations. Not to worry though as the feel good market spin machine was in full throttle "it is priced in" mode. Check it out:
Alcoa 1Q Profit Drops on Higher Costs
Monday April 7, 5:48 pm ET By Daniel Lovering, AP Business Writer
Alcoa 1st-Quarter Profit Plunges 54 Percent on Higher Costs, Weaker Dollar
PITTSBURGH (AP) -- Aluminum producer Alcoa Inc. said Monday its first-quarter earnings plummeted 54 percent as higher raw material and energy costs and a weaker dollar cut into results.
Net income dropped to $303 million, or 37 cents per share, during the first three months of the year, compared with $662 million, or 75 cents per share, during the same period last year, the company said.

The results failed to meet some Wall Street expectations. Analysts surveyed by Thomson Financial, on average, forecast earnings of 48 cents per share on revenue of $7.18 billion.

So higher energy prices were an issue? Didn't Alcoa get the FED speech where inflation was "well anchored" and fuel prices were expected to "moderate in the coming quarters"? It has been 3 years and I have not seen the moderation the FED is expecting!

37 cents/share vs. 48 cents/share. Hum, quick calculation says that is a 20% miss! Not to worry, the result only failed to meet "some" projections. Remember this kind of a 20% miss as earnings season goes along. Expect plenty of whopping misses, but the market will react very positively. You know, the recession is over and all that.

Washington Mutual Pulls a UBS; Shareholders Cheer
In another great move by the super scrappy banking sector, Washington Mutual was reported to be close to a deal to get one of those awesome "infusions" of cash that every healthy bank needs in a huge offering to some private equity firm named TPG Inc (vote in new poll). The deal was said to be around $5 Billion dollars. yes that was FIVE Billion, and yes the market cap of WM before the run up today was about $9 Billion. You read that right.

Now of course this will dilute current shareholder to the tune of anywhere from 30-50%, but hey, it is a cash infusion. It shows someone likes WM. People paying to get screwed seems to be THE THING this year. I wonder if there is going to be a problem with the deal now that the stock rallied 30% just today on the news. Yes, 30% just today you read that right. Going forward try not to be so surprised! Might that kind of a pump be the jump TPG was counting on occurring AFTER they bought in? Who knows.

And take a look at the WM volume today, 191 MILLION shares traded compared with the average 50 Million shares! Wowza! Can there be that many shorts in the entire world? This is some wild activity and I think the FED with their new found powers should make sure Martha Stewart is not up to her old tricks again.

What does this mean? I dunno, but if you research how much Alt-A exposure WM has in the worst bubble areas (Mish has all the graphs) I cannot see how WM will survive going forward. If TPG was thinking it can get in around $4-5 dollars a share, a FED backed bailout could land them around $10 a share for a nifty 100% gain. Remember we are past moral hazard, that was a few miles back.

Take it all in today:
  • Major DOW component AA misses by 20%
  • WM sells out half the company
  • YHOO wants higher bid (Note to Yahoo, you only get a bailout if you are going to fail, not just because you want more money. Wait a few more months for that kind of thinking!)
  • The entire state of Nevada is in foreclosure (kidding!)

All good news if you believe the markets had priced in every stock going to zero and a Depression occurring. Where stocks ever priced for that possibility? Nope. Can they rally as if they were? You betcha!

Have a good night.

No comments: