Sunday, November 02, 2008

When Experts Malfunction

What's amazing in this world is that there are Morons who invest BILLIONS of dollars - meanwhile I am sitting at home, in my pajamas, a mere multi-thousandaire.

Flashback to but one year ago. In this Bloomberg article from October 29th, 2007 a couple of *Davids* Dreman and Chalupnik predicted a major bounce in banking shares. Boy were they wrong!

Oct. 29 (Bloomberg) -- Bank shares are so cheap and their dividends so high that some of the world's biggest investors now say the combination is unbeatable.

"The big banks are pretty cheap," said David Dreman, who oversees $22 billion at Dreman Value Management LLC in Jersey City, New Jersey. "We are definitely looking at some of these high-yielding stocks." Dreman, ABN Amro Asset Management, First American Funds and Portfolio Management Consultants, who combined manage $433 billion, predict the shares are set to rebound.

"In a semi-panic, and that may be what we have in the financial markets right now, every firm gets tarred with the same brush," said Dreman, whose flagship $8.98 billion fund has beaten the S&P 500 for seven straight years.

Dreman bought bank shares in the past month and owned 1.4 percent of Seattle-based Washington Mutual Inc. at the end of June. The largest U.S. savings and loan has a 7.84 percent indicated yield, the highest since at least 1986. It also trades at 1.06 times book value, the lowest since Bloomberg began tracking the data in 1997.

"We don't think the turning point is that far away," said David Chalupnik, a Minneapolis-based senior managing director at First American, which oversees about $68 billion. "The big dividend yield and the low valuation and the Fed cutting interest rates all tell us we're going to win."

Chalupnik added to the firm's Wachovia stockholdings in August. He may buy more because prices have fallen and there's little risk the worst U.S. housing slump in 16 years will force the largest banks to reduce cash payments.

Citigroup may earn $4.80 a share in 2008, the average of 10 analysts' estimates compiled by Bloomberg showed. That's more than double the $2.16-a-share dividend the bank will pay this year. Citigroup has paid a higher dividend each year since 1987.

'With a Vengeance'

Bank of America has increased its dividend every year since 1977, data compiled by Bloomberg show. The bank on Dec. 28 will pay 64 cents to shareholders on record as of Dec. 7, double the quarterly payout in 2002.

That makes banks a safer bet than homebuilders and mortgage companies, the biggest casualties of this year's housing collapse and increase in home-loan delinquencies, according to Chalupnik. The groups have fallen 42 percent and 36 percent, respectively, the largest declines among 137 sub-industries in the S&P 1500 Composite Index.

"You've got a high dividend yield -- current income --plus very attractive valuations and an interest-rate environment that's only going to benefit the financial stocks," said Brandon Thomas, who oversees $43 billion as chief investment officer of Portfolio Management Consultants in Chicago. "When they do turn, they're going to turn with a vengeance."

Yeah butthead, they TURNED DOWN with a vengeance. The Bank Index (above) is down a whopping 40% in the 12 months since that article.

Dreman loaded up on Washington Mutual. In the past year it has gone from $25 to zero.

Dreman, a Forbes columnist, has also been recommending Fannie Mae throughout its slide to ZERO.

First American's David Chalupnik loaded up on Wachovia. In the past year it has gone from $45 to $6. Bravo!

Citigroup has dropped from $41 to $14 over that same time period. It did not earn anywhere near the *consensus analyst estimate* of $4.80 per share this year. Try more like a LOSS of $2.15. Rosy EPS estimates for 2009 today only stand at $1.08.

Bank of America has raised its dividend every year since 1977? Hah! It just halved its quarterly dividend to 32 cents per share and is slopping away at the taxpayer bailout trough. BAC stock had dropped from $48 to $24 per share. Note that purported genius Warren Buffett also dumped $425 million in Ken Lewis' company when the stock was near $50 in the second quarter of 2007. Well done, Buff!

So Dreman manages managed $22 billion and Chalupnik manages managed $68 billion at the time of last year's article.

Meanwhile I manage two small children, an Italian wife, a psychopathic cat, and some loose change.

Go back and read everything I've recommended and written in the past four years. The only bad predictions you'll find are *shorting long term Treasuries* and one really terrible stock pick in CDE - which I hardly pounded the table on.

I'll settle for a mere $1 billion to manage!

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