Macro Tsimmis

intelligently hedged investment

SELL SHORT Wells Fargo (WFC)

Posted by intelledgement on Wed, 08 Oct 08

If you like goose, odds are good that you’ll like gander.

We closed our Wachovia (WB) short late last month with a 94% profit and cashing in on the hubris of Wachovia management—whose disastrous 2006 purchase of Golden West Financial (GDW) with all their toxic assets sank the company—felt so good that we have decided to follow the toxic assets, as it were. We are shorting Wells Fargo (WFC) as of the open tomorrow, in the wake of that company’s decision to outbid Citibank and buy Wachovia, including all that Golden West cyanide.

Actually, the terms of the deal appear to effectively insulate Wells Fargo from any problems related to the Gold West toxic assets. However, we remain convinced that the valuations of most USA financial institutions are unhinged here given the high level of systemic risk…and extremely likely to go substantially lower. Consequently, we want to replace the WB short in our portfolio, and what better candidate than Wells Fargo, the new owner of the Wachovia “assets.”

(We wish we could have shorted them last week around $39 when the deal was announced but the SEC ban on short selling does not expire until tomorrow.)

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