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Warren Buffett's Wells Fargo Investment Hinges on Bernanke

Stocks in this article: WFC JPM C GS BRK.A BRK.B

For now, the Fed's low rate policies seem to be a negative for earnings expectations on Wells Fargo. Management said on a conference call with analysts that although it is growing mortgage lending sharply in 2012, third quarter loan demand was less than expected.

In fact, Wells Fargo's decision to put some mortgages on its balance sheet instead of selling them for added revenue could be seen as the bank ceding some third quarter earnings in an effort to minimize the blow of falling rates.

The real question for Buffett and Wells Fargo investors is what to expect next? A housing recovery could continue to heat up and, on balance, outweigh the negatives of low rates - or Wells may continue disappoint after being a ballast to the banking sector.

Were Buffett to stick it out on Wells Fargo, he could be seen as fighting the Fed on the impact of its policies on bank earnings. Were he to begin paring a near 8% stake in the lender, it could signal a big switch in his overall investing strategy.

On Friday, KBW analyst Fred Cannon told CNBC that Wells Fargo's weakness can be attributed to the Fed and the analyst recommended capital markets focused players like Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS), echoing previous statements. Such a financial sector rotation would counter Buffett's post-crisis bank investing strategy, which was to put billions behind Main Street lenders like Wells over risky and volatile investment banks.

Since the crisis, Buffett's been one of the most consistently right minded supporters of a recovery in U.S. stocks and the shares of America's traditional lenders. Meanwhile, amid a big 2012 market rally, he's also been correct to read the Fed's loose policies as reason to be invested in stocks over bonds . With Wells Fargo, Buffett's facing some Fed fire, even if his general consensus isn't to fight the central bank.

Predicting Warren Buffett's next move is a fun but oftentimes futile effort; however, amid a hitch in the 'Oracle's' overall bank investing and 'bet on America' strategy, the biggest change may not come in his holding of Wells Fargo shares. Look for Buffett to take improving earnings per share math at Goldman Sachs as reason for him to begin putting money behind the common stock of Wall Street titans.

-- Written by Antoine Gara in New York

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