By William Davis


Unless you serve on the Fargo Historical Society, you probably don’t know that North Dakota’s largest city is named after a fine fellow named William Fargo. We’re not entirely sure why, maybe because he was a director of the Northern Pacific Railway, or maybe because he was a two-term mayor of Buffalo. Whatever the reason, we have to think that today’s citizens of the “Gateway to the West” might wish that William Fargo and his long-time business buddy, Henry Wells, had stayed back East.

Vermont native Henry Wells and William G. Fargo created the American Express Company in New York in 1850

That’s because the boys’ collective legacy – San Francisco-based Wells Fargo & Company – has become one of the more noxious names to have ever sullied the ranks of America’s publicly-traded companies. Already in the ditch for a grubby sales-practices scandal that came to light last year, Henry and William’s namesake company announced last week that its fake account problems are broader than previously acknowledged. Much broader.

In 1852, Henry and William headed west to organize Wells, Fargo & Company to provide express and banking services to California and the western frontier

Turns out, the bank opened at least 1.4 million more “potentially unauthorized” customer accounts than it reported last fall, a 67% increase over the original 2.1 million figure. The rather astonishing miscalculation has brought renewed attention to the odious mess that has already wrecked the reputation of a company that used to run the western portion of the Pony Express route.

In 1969, Wells Fargo formed a holding company — Wells Fargo & Company — to purchase the rights to its own name from American Express

The bank’s stock, of course, has underperformed badly since the wheels came off the stagecoach. Over the last year, the firm’s market value has fallen by about $4.5 billion, while Bank of America and J.P. Morgan have each climbed by $70 billion or so. Interestingly, Wells Fargo’s largest shareholder believes the bank’s mistakes “are being corrected.” Wonder if Warren Buffett even knows how William Fargo got that city named after him.

What the equity markets have been doing…

Amid a conspicuous absence of stock-specific news, equity markets drifted across the two-week stretch, and much like the previous period, ending up very near where they started. Certain sectors performed relatively well, however, including energy, which benefitted from higher crude oil prices, real estate, and utilities. On the downside, consumer discretionary, financials – insurance companies, in particular – and technology shares acted poorly.

Comments from a Federal Reserve Bank President last week threw water on what little investor sentiment there was. Specifically, the Minneapolis chief stated that recent Fed rate hikes have been detrimental to the U.S. economy. Traders regained some of their mojo later in the week on news of a deal in Washington to delay budget fights until December. Any port in the storm, as they say.

INDEX Friday’s Close One-Week Point Change Year-to-Date Change
DJIA 21,797.79 -(15.88) +10.30%
S&P 500 2,461.43 +18.38 +9.94%
NASDAQ 6,360.19 +94.55 +18.15%


What the fixed income markets have been doing…

Given the reduced expectations for another short-term rate hike from the Fed, yield on the 10-year Treasury note fell this period, reaching its lowest level since just before the November 2016 elections. Investment-grade corporates, meanwhile, essentially tracked Treasuries, a bit of surprise considering the period’s heavy new issuance. The high yield market was fairly quiet. After lagging early, municipal bonds outperformed later in the week, with activity in longer-term issues dominated by trades in the health care sector.

FIXED INCOME Period YTD 12 Months Yield
U.S. Treasuries
3.5% -(0.3)% 2.1%
U.S. Investment Grade -(0.1)% 5.6% 2.9% 3.0%
U.S. High Yield -(0.1)% 6.2% 8.4% 5.6%
U.S. Municipals -(0.1)% 5.5% 1.3% 2.0%
Non-U.S. Developed NC 12.1% 0.3% 0.7%


What the numbers are saying…

  • 22

The number of blank-check initial public offerings this year. The $6.9 billion raised accounts for a record 22% of IPO money in 2017.

What the pundits have been saying…

“Cryptocurrencies are beginning to get out of control and it’s going to attract the attention of governments around the world. You’re going to get a reversion back to gold because people are going to wonder, can I really trust these currencies?”

  • Mark Mobius, executive chairman at Templeton Emerging Markets Group

 What people have been saying…

“There are people in the ICO (initial coin offerings) market right now who will end up in orange jumpsuits.”

  • Brad Garlinghouse, chief executive of Ripple, a company that provides interbank payment software using blockchain

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