ERICOPOLY

I already have some. I'm sort of amazed that they are going for so little.

He might have run afoul of the Personal Holding Company rules if he were to own it outright. He'd then be hit with the tax penalty on undistributed profits.

Personal income taxes!

You can just own Berkshire stock and tax-exempt munis if you don't want to pay taxes. None of his proposals change this. Hint: don't directly own the JNJ stock. Utilize a holding company that doesn't distribute dividends. But make sure you hold the equities in insurance subs so as not to trigger the Personal Holding Company rules on distributing earnings.

Yup, that's why I'm not diversified. BAC is not a black box by the way -- it's gold.

Can anyone give me an idea of the perception of the quality of the University of Waterloo education in Canada? Is the Waterloo area a mini-Canadian tech hub (ex-RIMM)? Perhaps FFH's interest is linked more to this phenomenon. If RIMM can attract the brightest Canadian tech developers, then over time it will find a way to compete globally. I believe Waterloo has a top notch engineering program.

Look if it doesn't work out then he will be spending less time on his Blackberry. So some time recouped there.

Personally I think this is a low risk investment with very high probability of doubling in next 6 to 18 months. So my position is likewise humongous. I still drive my car most days even though I've heard reports that people get horribly mangled in these things. I take mortal risks every day.

I liked the FFH at bottom trade in June 2006 because you had the 2005 annual report already in hand where it said very clearly that they believed runoff would break even in 2006. Runoff was the only thing wrong with the company that would scare people -- we had the numbers by then to show us that the company actually made a profit in 2005 were it not for the runoff division -- and 2005 was the Katrina/Rita/Wilma year. People were dropping the stock in 2006 because of hurricane fears and that's something where I KNEW that Mr. Market didn't know anything about that I didn't. It wasn't like I was worried that everybody else knew the future regarding the hurricane season. Very expensive multiple landfalling hurricanes are exceedingly rare, yet people thought they were likely due to recency bias perhaps?

I think I saw the $10 strike 2013 calls trade down to 20 cents or 22 cents in December. That's roughly 50x leverage of notional value at the strike price, with tangible book value likely at $14 or so by expiration. Not that dissimilar to the FFH situation in 2006!

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income. So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia. This happens even if you do not withdraw any funds from the account! They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme. Eric - I might be reading this differently but my impression was that they treat income from the IRA as ordinary income for taxation purposes. Therefore it's not necessarily tied to the account balance but is instead based upon realized capital gains, dividends, interest etc. - just as if the account was not a retirement account. Therefore from your example, the $300K would only be taxed if that was actual realized income and not if it was unrealized capital gains. It's still a massive tax implication. As an Australian citizen can you roll your IRA into a Superannuation Fund (the Aussie equivalent)? You might be right, and I need more clarity. A couple of days ago I called the Australian Tax Office and they are researching my questions and will have somebody contacting me on what they find. I could always put all of my BofA positions into warrants in my RothIRA if that's the case. Or sell common stock deep-in-the-money PUT positions that won't pay dividends and also won't expire before I leave :D So lots of questions still. My wheels are turning.

2011 isn't normal, so I just wouldn't be tempted to use it for anything. This interest rate environment isn't normal. The falling home prices aren't normal. Jingle mail isn't normal. The unemployment rate isn't normal. Their portfolio isn't even normal! They are still taking losses on Countrywide crap for example, which isn't normal because they didn't even underwrite that crap in the first place and never would have nor will they in the "normal" scenario. Start with the $12b in cost savings from reducing headcount, add back in $15b from R&W reserve build and you have $27b. Then add back in the 2011 elevated legal expenses, adjust for the elevated loan losses. What about all those mortgage LOSSES! They are in that business to MAKE money, not lose it. So add back in some normal amount of profit in addition to the 2011 losses they took on mortgages. I'll bet you're well and truly blasting through $35b (pre-tax) although I'm too lazy to add it all up. Sooner or later they are going to lower those corporate tax rates in the US to be more competitive with headline rates found in other countries -- guess who is going to benefit? Being nearly the top tax rate in the world is also not "normal".

Some of the regulations in those Asian countries are very conservative. Like in Korea 65% LTV is maximum allowed for mortgages. Think they are going to have any trouble with the Korean portfolio? I don't. They're not like here in the USA where we allow 100% (or more I think). We trust in "the free market", boy didn't we ever learn a lesson. Yet we still have nothing like Korea's law and probably never will.

That's interesting. Another reason we bought BAC B warrants when we did was that the day after BAC closed below $5.00/SH, it got major price support from a major institution that put an ascending floor on the price. Almost all the spiky price movement for a few days afterward was on the upside with plateaus in between and almost no spiky minute by minute downward price movement. The terms of the $5b deal he struck in August allows him to purchase an ownership stake of up to 15% of BAC. So whether it was his idea to give him that much room to operate or the banks', I have no idea. Anyhow I believe the warrants count toward his 15%. So I guess in the low $5-$6 per share range he could only pick up another $4-$5b worth of shares or so as his warrants are already about 7% ownership. That would be his maximum fill unless he got more approval from the bank.

and mortgages is still the most important stress ahead. I have both but Citi seems to be on the fast lane and also very cheap. Thanks Eric, love your comments. I would be careful with Citi. Their exposure to Asian markets may (probably) will come back to haunt them. We own only BAC and WFC. As mentioned, I'm more confident in U.S. banks and the financial system than any other part of the world at the moment...including Canada! Our bet is on the U.S. coming back, while the rest of the world struggles. Cheers! I unloaded my Citi to buy more BAC a couple of weeks ago. Even though I take on more concentration risk, I couldn't justify the opportunity cost (I think BAC has more upside).

They certainly do reinforce each other. 1) Construction worker (or related industry worker) gets laid off 2) Loses house 3) House in foreclosure or threatening to be there (shadow inventory +1) However... 4) Construction picks up (meaning he gets his job back) 5) Shadow inventory -1 So just by building a new house, does it add to supply or does it reduce shadow inventory to actually reduce supply? It has been estimated that a single family home creates 3 jobs. So if you get new household formation greater than 1 as a result of building that new house, then building a new house actually reduces total supply on the market. So ironically it's possible to have construction of new homes actually reduce the supply -- or at least the 3 jobs created might at least create an offsetting demand.

Household formation is everything. A month or two back I counted the number of housing units built since 2000 and subtracted out 250,000 per year for the amount (estimated) destroyed annually. It turns out that we have not added more homes to national supply than needed -- if you assume 1.3m annual trend new household formation (this was the trend up until the financial crisis hit). We built too many for a few years and now we've built too few. We're at even. The problem isn't too many homes anymore, it's the fact that this jobless rate has driven new household formation way below trend line. It's the jobs stupid, just the jobs.

Good point. At the same time, what that says about Citigroup that was authorized to pay a small dividend and has reversed their intention to sell of their businesses? The worst parts of the stress test were the 20% decline in US real estate and the 13% unemployment. Citigroup got off really easy because they have the lightest US mortgage exposure and lightest US consumer credit exposure. They have Asian consumer exposure but under the stress test Asia still grows at like 4% or something. 4% growth is "stress". BofA's us mortgage on-balance-sheet exposure is more than 3.5x larger than Citi's.

I believe they got the heads up from regulators that you'd better raise capital quick or you'll fail our new stress test. So in a few months time they raise $5b from Buffett, sell 400m into the market, and accelerate their asset sales. This is why they went all crazy all of a sudden after assuring us in July that they could continue on their path without dilution. Just speculation, but I believe the Fed tipped off the banks a few months ahead of time. After all, the point of the stress tests is to restore market confidence in the banks, not make the banks fail and scare everyone.

Timing is key. Getting the stock to double as soon as possible so at least a portion of the gains can be sold and parlayed (hopefully) into the next double. March: Stress test results -- makes it clear to the world that another 20% real estate decline and huge jump in unemployment won't sink them April: Q1 Earnings July: Q2 Earnings By this time we should start to see a clear trend of improvement from "Project New BAC" $12 by then? They already reduced headcount by 7,000 in Q4'11. That's huge! Meanwhile if they can avoid another huge R&W reserve build they should be able to build 100bps of capital this year.

They seem to have new legislation in the works to introduce a "Foreign Accumulation Fund" that will replace the FIF. http://www.mondaq.com/australia/article.asp?articleid=125702&tw=2 The good news for me is that my Roth IRA would likely not be treated as an FIF as long as I stick to equity investments and shy from fixed income: An offshore fund that predominantly undertakes equity investments would therefore not be treated as a FAF.

They stated today that they have asked for neither a dividend nor a buyback. There is even talk of issuing $1b worth of shares to employees (in lieu of cash compensation) in order to build capital. This is disappointing. I understand building a fortress balance sheet and trying to meet the Basel III requirements as soon as possible, but they will not have another opportunity to buy back shares at these levels. I wish they would try to balance both. Huge missed opportunity in my opinion. Remember they just sold a few hundred million shares last month for less than $6. They were not exactly acting like they are ready to return idle cash. They say it was in order to retire some other things at a discount but that's pure BS. It was because they are trying to race to get their capital ratios up. The JP Morgan conference call indicated that there is a race to the top -- there were some comments made surrounding their wanting to get to fully phased in Basel III compliance sooner rather than later. It seems this is what they see as the measuring stick that separates the men from the boys. Then the Bank Of America release stated that they were "in line with peers" -- as if that's the end all and be all place to be. So I guess maybe it is. At least it's a lower risk strategy. Well, if the company won't buy more shares on your behalf perhaps you should fork over some of your own money.

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income. So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia. This happens even if you do not withdraw any funds from the account! They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme.

One thing I might try is to roll my Roth IRA into a Roth 401k that has employer sponsorship: http://www.fivecentnickel.com/2010/04/28/roll-over-ira-into-401k/ Then the money would be exempt from the FIF rules. :D

Well I'm numb with shock just thinking about it right now. They won't touch a 401k because it is employer-sponsored. However I already rolled my Microsoft 401k into an IRA long ago (four years ago). That rollover makes it subject to their FIF (Foreign Investment Fund) rules. Ironically it's because I'm a citizen that I have to pay this tax -- if I were just an American staying on a temporary visa I would be immune up to 4 years. So my citizenship is standing in my way.