Wells Fargo betting on higher interest rates

[Atash Hagmahani]

http://www.economicpolicyjournal.com/2010/02/wells-fargo-expecting-much-higher.html

Wells Fargo reduced investments in mostly fixed-income securities by $34 billion in 2009’s second half, company filings show, according to Bloomberg.

This is big.

“The bias is for higher rates,” Chief Executive Officer John Stumpf, said on the company’s fourth-quarter earnings call. “We’re willing to wait for that to happen. We think that’s the better trade.”

Warren Buffett’s Berkshire Hathaway is the banks largest shareholder and thus this decision was likely discussed and received the approval of Buffett.

...

By scaling back on the so-called carry trade, in which banks borrow in overnight lending markets at rates near zero and invest in higher-yielding securities, Wells Fargo aims to protect against losses when rates rise, but it forgoes the interest income it would have earned by putting on the trades.

...

Wells Fargo isn't giving up a billion dollars worth of interest income unless it is expecting a major spike in interest rates.

[Mike]

There are a lot of unknowns.

I hate agreeing with Wells Fargo.  But I do.  Preserving principal and preserving liquidity has been my goal.  Right now dollars are the most liquid.  That could change.  So it is better to be in dollars than dollar denominated assets so that one doesn't have to sell assets for dollars (taking time) so that the dollars can be redeemed for assets that are not denominated in dollars.