• If Lehman (LEH) isn't the second coming of Bear Stearns, won't "sell the rumor, buy the news" come into play?
  
  
Why can't I shake the sense that a serious downside dislocation is lurking in the wings this summer?


Given the massive two-sided directional potential, have you defined your risk (both ways) in kind?


After all, doesn't setting stops remove emotion?


Another day, another dime (10%) for WaMu (WM) the killer whale?


• What does it say that the New York Stock Exchange internals are still flat to the share?
  
  
• The kid' from Oakland - what did you expect?
  
  
How could it possibly take me this long to see Charlie Wilson's War?

R.P.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

Fannie Mae (NYSE: FNM) announced disappointing earnings. But the stock went up. Is that a signal investors think the worst is over, that the future looks brighter for financial stocks? Maybe.

While Fannie Mae is only one company, it's the biggest in the mortgage business. That means everyone is watching what it's doing and how it's faring. As Fannie Mae goes, so goes the mortgage market. As of the latest earnings release, things aren't going too well. Earnings per share showed a loss of $2.57, much worse than the 81 cents analysts predicted. Management cut the quarterly dividend to 25 cents a share starting in the third quarter to save money. To bolster its capital, Fannie will raise $6 billion, most likely in preferred stock since there's a strong market for income shares.

The significant declines in share prices at many of the big financial companies have left executives and employees in an unenviable position: many hold options that are badly out of the money (subscription required) and, at companies like The Bear Stearns Companies, Inc. (NYSE: BSC), have literally no chance of ever realizing any value.

Executive pay consulting firm Steven Hall & Partners reports that 55% of Fortune 500 financial services and insurance companies have options with an average strike price that puts them underwater. At Countrywide Financial Corporation (NYSE: CFC), the current share price is about 86% lower than the weighted average strike price of the options held by employees.

All of this presents an interesting executive compensation quandary: the purpose of options is to give executives an incentive that allows them to profit alongside shareholders. But options that are so out of the money as to be hopeless accomplish nothing. What effect might this have on performance? Activist investor Daniel Loeb opined on this very issue in a letter to Star Gas Partners CEO Irik Sevin back in 2005:

When E*Trade Financial Corp. (Nasdaq: ETFC) had its meltdown, I considered buying but I was too chicken. I mean, can you really blame me? When it got caught up in the financial crisis, the term "falling knife" never felt so accurate. A 52-week range between $2.08 and $25.79 is a pretty scary thing; to see what I mean in graphic format, feast your eyes on the chart.

Lately, though, I've been warming up to the idea ever so slightly of taking a shot on E*Trade. I can't say I possess strong conviction yet, but I'm not necessarily afraid of owning financial stocks. In fact, as an example, I own Newcastle Investment (NYSE: NCT), an idea that Sheldon Liber talked about recently, one that has a pretty frightening yield. E*Trade is a significant name in the online-brokerage industry, and its brand is valuable. When I saw the company falling off a cliff last year, my instinct to buy started to kick in, insisting that it isn't going to go the way of the dodo. Plus, takeover theories began, further fueling my fascination. In the end, I took no action.

Now, though, the stock has bounced nicely off its lows. And it reported January data yesterday that had a couple of good data points. Daily average revenue trades are up 18.8% for the month-to-month timeframe, and they increased 21.5% year-over-year. End-of-period retail accounts were flat month-to-month, and were up 6.2% year-over-year. Total retail client assets did decrease, however -- year-over-year, they declined over 12%. And, hey, for whatever this is worth, its Super Bowl "Talking Baby" ads apparently were a hit.

At any rate, I'm a bit more sanguine on E*Trade's stock potential. I may not buy just yet, but the closer it gets to $6 or $7 a stub, the better the chance it has, in my mind, of going to double digits again. Sure, Schwab (NASDAQ: SCHW) and TD Ameritrade (NASDAQ: AMTD) are the safer broker bets, but I can't help looking at E*Trade.

TheStreet.com's Jim Cramer says we were due for a pullback, and he'll be buying it.

Don't freak out when you get what you wish for. That's what people are doing. They are selling the market after the Fed has done exactly the right thing and they are selling it because of the reasons it is cutting: subprime, MBIA (NYSE: MBI) (Cramer's Take), Radian (NYSE: RDN) (Cramer's Take), Ambac (NYSE: ABK) (Cramer's Take), etc, and Wilbur Ross ain't gonna save us.

It's always been the Gang of Four, always, plus Radian, that defines the issue. They are the ones that can't let us get closure because they are the ones on the other side of so many positions that are still marked too high. You saw when you went over Merrill Lynch (NYSE: MER)'s (Cramer's Take) quarter that when insurance goes bad -- as it did for an insurer Merrill used -- you need to take a 100% writedown. Bank of America (NYSE: BAC) (Cramer's Take) and Wachovia (NYSE: WB) (Cramer's Take) address this possibility in their calls, so if you match what they say with what John Thain said, you can sense the big exposure here. It is one of the reasons why I don't understand the insider buying at E*Trade (NASDAQ: ETFC) (Cramer's Take), as they have a ton of this exposure.

The Associated Press reports that France's second-largest bank by market capitalization, Societe Generale, has uncovered a rogue trader who reportedly stole $7.14 billion -- forcing the bank to raise $8.02 billion and suspending trading in its stock on the Paris stock exchange.

Details are sketchy. The bank discovered the fraud on January 19 and 20th. It said a trader at the futures desk had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions." The trader used his knowledge of the group's security systems to conceal his fraudulent positions. The unnamed trader beats Nicholas Leeson, whose 1995 $1.38 billion trading fraud in Singapore brought down Barings Bank and was made into a movie.

Societe General, whose stock has lost about half its value over the last six months, has already taken a $3 billion charge for bad subprime mortgages. No word on what happened to the trader's $7 billion -- or whether this discovery will have repercussions throughout the global financial markets.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

In the face of daily headlines about just how strapped the banks are for cash in the wake of massive and continuing subprime related writedowns, we finally get some news that the worst may be over.

According to the Wall Street Journal [subscription required], "The results of the Federal Reserve's latest auction of loans to commercial banks suggests that the banks' need for money is growing less urgent." The Fed saw the difference between the minimum bid rate and the accepted rate in its auction narrow.

A month ago, banks were jumping at the Fed's loan auction, bidding for over $60 billion in loans, although the Fed only lent a third of that amount.

That's good news for shareholders in banks: The worst of the writedowns may be through, and the banks may not need to raise more cash by selling themselves off to foreign investors at firesale prices.

But stability for the banks and less need of cash may make the Fed less likely to continue to slash interest rates.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Citigroup (NYSE: C) to lose $0.97 when it announces its fourth-quarter results on January 15th. That's bad compared to the same period in 2006, when it earned $0.70.

Citigroup is a New York-based bank whose segments include Global Consumer Group, Corporate and Investment Banking (CIB), Global Wealth Management and Alternative Investments (AI). In the last year, its revenues were $117.9 billion and its net income totaled $18.5 billion. Its stock has fallen 48% in the last year, and it now trades at a P/E of 7.5.

Citigroup has a record of beating estimates. In the second quarter of 2007, it beat the estimate by 8.8% and in the third quarter it beat by 6.8%. My hunch is that Citigroup will lose more than expected.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Wilmington Trust (NYSE: WL) to earn $0.65 when it announces its fourth-quarter results on January 18th. That's down 7% from the same period in 2006, when it earned $0.70.

Wilmington Trust is a Wilmington, DE-based bank that has four segments: Regional Banking, Wealth Advisory Services, Corporate Client Services, and Affiliate Money Managers. In the last year, its revenues were $726 million and its net income totaled $186 million. Its stock has fallen 27% in the last year and it trades at a P/E of 11.4.

It has a mixed record when it comes to meeting estimates. In the second quarter of 2007, Wilmington Trust beat the consensus estimate by 4.4%, but in the third quarter it missed by 9.9%. My hunch is that this quarter, Wilmington Trust will miss expectations.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Wilmington Trust securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Bank of New York Mellon (NYSE: BK) to earn $0.69 when it announces its fourth-quarter results on January 17th. That's up 19% from the same period in 2006 when it earned $0.58.

Bank of New York Mellon is a New York-based bank that operates through three segments: Institutional Services, Private Bank & BNY Asset Management, and Corporate & Other. In the last year, its revenues were $5 billion and its net income totaled $2 billion. Its stock has gained 13% in the last year, and it now trades at a P/E of 19.9.

Bank of New York Mellon consistently beats estimates. In the second quarter of 2007, it beat the estimate by 1.6%, and in the third quarter it beat by 9.8%. My hunch is that it will beat expectations.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Bank of New York Mellon securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Washington Mutual (NYSE: WM) to lose $1.20 when it announces its fourth-quarter results on January 17th. That's bad compared to the same period in 2006, when it earned $0.89.

Washington Mutual is a Seattle-based bank operating in four segments: the Retail Banking Group, the Card Services Group, the Commercial Group,and the Home Loans Group. In the last year, its revenues were $19.8 billion and its net income totaled $2.4 billion. Its stock has lost 69% of its value in the last year, and it now trades at a P/E of 5.4.

It has a mixed record when it comes to beating estimates. In the second quarter of 2007, it beat the estimate by 2.2% and in the third quarter it missed by 32.4%. My hunch is that it will miss expectations.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Washington Mutual securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects Wells Fargo & Co. (NYSE: WFC) to lose $0.19 when it announces its fourth-quarter results on January 16th. That's bad compared to the same period in 2006, when it earned $0.64.

Wells Fargo is a San Francisco-based bank which operates in three business segments: Community Banking, Wholesale Banking and Wells Fargo Financial. In the last year, its revenues were $34.2 billion and its net income totaled $9 billion. Its stock has lost 21.3% of its value in the last year, and it now trades at a P/E of 10.6.

It has a mixed record when it comes to beating estimates. In the second quarter of 2007, it met the estimate exactly, and in the third quarter it missed by 1.5%. My hunch is that it will miss expectations.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Wells Fargo securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects JPMorgan Chase (NYSE: JPM) to earn $0.94 when it announces its fourth-quarter earnings on January 16th. That's 3% above the same period in 2006, when it earned $0.91.

JPMorgan Chase is a New York-based bank whose subsidiaries are JPMorgan Chase Bank, National Association, a national banking association with branches in 17 states, and Chase Bank USA, National Association, a national bank that issues credit cards. In the last year, its revenues were $69.4 billion and its net income totaled $16.3 billion. Its stock has lost 15.7% of its value in the last year, and it now trades at a P/E of 9.

JPMorgan regularly beats estimates. In the second quarter of 2007, it beat by 11.1% and in the third quarter it beat by 4.3%. My hunch is that it will beat expectations.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in JP Morgan Chase securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects U.S. Bancorp (NYSE: USB) to earn $0.59 when it announces its fourth-quarter earnings on January 15th. That's 11% below the same period in 2006, when it earned $0.66.

U.S. Bancorp is a Minneapolis, MN-based bank operating in four lines of business: Wholesale Banking, Payment Services, Wealth Management and Consumer Banking. In the last year its revenues were $13 billion and its net income totaled $4.5 billion. Its stock has lost 15.8% of its value in the last year and it trades at a P/E of 11.7.

It has a mixed track record of delivering actual earnings vs expected ones. In the second quarter of 2007, it fell 3% below expectations and in the third quarter it beat by 1.5%. My hunch is that it will miss by a little.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in U.S. Bancorp securities.

For more earnings forecasts, see Peter Cohan's Earnings expectations for 10 banks tell a mixed story.

Thomson Financial expects State Street Corp. (NYSE: STT) to earn $1.31 when it announces its fourth-quarter earnings on January 15th. That's 56% above the same period in 2006, when it earned $0.84.

State Street is a Boston-based bank operating in two lines of business: investment servicing and investment management. In the last year, its revenues were $5 billion and its net income totaled $1.3 billion. Its stock has gained 20% of its value in the last year, and it trades at a P/E of 21.8.

It has a strong track record of exceeding expected earnings. In the second quarter of 2007, it beat by 5.9% and in the third quarter it beat by 22.3%. My hunch is that it will beat again.

Update. I was way off on State Street. It reported a 28% decline in EPS to $0.57. The problem was legal costs for subprime mortgages of $618 million. State Street said 2008 growth will be at the lower end of its target ranges, sending the shares down as much as 8%. On the plus side, State Street beat the $1.35 average EPS estimate -- excluding one-time charges -- of 15 analysts surveyed by Bloomberg by three cents a share. But the lower guidance is killing the stock.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in State Street securities.