A Week Sent From the Gods

I’m out of here.

No need to wrap up the week. I made Godly trades, putting my year to date gains above 30%.

Do not wonder how I manage to win, with great accuracy.

Just remember, “The Fly” wins all the time, even when he loses.

Top picks: FTK, VSE, short FED, short LEH, short MER.

UPDATE: Merrill on FED

April results feed rally in FED shares as smaller balance of 30-89 day delinquent loans and deceleration in NPA growth likely drives some shorts to cover.
However, weakness in CA housing market and expectations of climbing credit
losses continue to warrant further discounting of valuations. Risk of increased
regulatory scrutiny remains our largest near-term concern as higher NPA levels
(now at an estimated 67% of core capital) along with the lack of significant
franchise value could prompt a highly dilutive capital raise.

Maintain Sell rating
NPAs rise at a slower pace while delinquencies fall
The balance of non-performing loans increased an estimated 11% from Q1 levels.
NPAs now equate to 6.85% of assets vs. 6.20% in Q1 and above our 6.75% Q2
estimate. 30-89 day delinquencies fell 9% to $248M. While the deceleration in
NPA growth and the smaller delinquency levels are positive notes, we caution
investors from viewing this as a turning point for credit as the bulk of recasts are
still well in front of FED. Notably, FED anticipates recasts of $606M in ’08, $685M
in ’09 and $1,690M thereafter. We anticipate that the later recasts will largely be
comprised of the higher risk ’05 and ’06 vintage loans recasting in ’10 and ’11.
Margin compression continues
FED reported an effective net spread for April of 2.80%, 21 bps below March
levels and 5 bps below our Q2 NIM estimate. The decline was driven by a 20 bps
reduction in average loan yields. FED’s average funding cost fell 16 bps as the
balance of higher cost wholesale deposits declined, replaced with more favorably
priced FHLB advances. We are maintaining our NIM expectations for Q2 of 2.85%
as we anticipate FED to gain further funding benefits from lower short-term rates