ERICOPOLY

They were allowed to operate for the past 3 years, were allowed to repay TARP, and so now that loan losses are trending down they'll be in big trouble? I sleep very well holding this one.

I am focusing on what they are capable of earning in a "normalized" year, absent the put-back charges which will be behind them in a few years. For FY13, the lowest estimate out of 10 analysts is 1.53, the highest estimate is 2.15. "Consensus" is 1.78. Do you think that is not achievable? If so, why? $1.78 would be a reasonable return on what tangible book value? It would be exceedingly good on a $10 tangible book value, so that would be too low of a guess. So I'd guess more than $10 based on that. This is why I'm saying it's reasonable to look at the color of the paint oozing from the can -- you can look at what they currently earn TTM absent the putback costs. But that TTM number includes some bad vintage loans that won't be around in two more years, replaced by much more profitable ones. Anyways, I think a seasoned hand can make a reasonable guess on the tangible book value based on what it actually produces. But it's sort of immaterial anyhow -- the value of the stock to the investor will be the returns, not the static present tangible value. The market will likely put a 10x multiple on those returns at some point not too long after earnings normalize. There will be nothing to be afraid of after a long period of solid vanilla lending.

That's just not the case. They report quarterly. Given the current economy, you can see the results. You can see the positive trend. It still isn't at "normalized" yet, neither should it be -- they still have a significant amount of 2007 & 2008 loans on the books. The unknown part is how much their put back liability will ultimately be.

They give us figures such as PTPP every quarter, we know when reserves are built and released. We know the net result after taking in revenues and loan losses. I guess if you take an unlabeled can of paint, shake it up well, then punch a hole in it... You can pretty well tell the color of the paint in the can even though you can't see all of the contents. So some assets may be marked too low, but one should be roughly able to understand the tangible value based on what those assets in the aggregate are generating.

The problem I have with Blodget's argument is that he doesn't acknowledge that the banks have actually overstated their exposures to loan losses and have thus been releasing reserves. I remember a year or so ago he was bitching they were "padding their earnings"... but back in 2008&2009 it logically follows that they must have been deliberately overstating their losses? Instead he kind of throws up his hands claiming it's just like 2009 again where we don't trust the banks balance sheets. That wasn't an environment when banks were finding out that their reserves were more than adequate -- instead they were raising capital to boost reserves, and appears to have overdone it. The fact is they don't know what the losses are until they actually come in, but they appear to have been too careful. He is smart enough to see this, so I think he's just going with what's popular and what sells -- he is after all in the news_as_entertainment business.

The real Munger is probably loading up with WFC right now.

One or two conference calls ago Moynihan estimated that BAC earnings will normalize in 2013. I believe at this time the community will be saying: 1) bank loan pipelines are very strong after five solid years of lending 2) banks are no longer doing the fancy things that got them into trouble And my commentary on those who are getting the loans: The workers who remained employed throughout the crisis survived the rounds of job cuts. Those who have been unemployed long-term lose their skills and become relatively unemployable. This further strengthens the relative worth of the employees who retained their jobs. Lastly, the employees who retained their jobs are the ones that BofA has been lending to. So it's unsurprising that 2013 would be the year of normalized earnings.

Also... The day the $10b AIG lawsuit was announced, BAC stock was drilled and the pundits said it's because of the news of the AIG lawsuit. But AIG's stock kept on dropping!

When a stock temporarily falls in price in the first twelve months after purchase, it's "clearly" due to a change in the long term prospects of the company? Or if a stock doesn't fall in price in the first twelve months, it's confirmation that the analysis of long term prospects is correct?

Probably only trading at 3x normalized earnings, maybe less. Where is the margin of safety if they have to dilute shares by 50% at these prices? Just kidding ::) I think a purchase of the common here will probably be yielding 10% - 12% in a couple of years when they restore the dividend. The cost of retirement goes down when the dividend yields get this high.

If nothing else (even if tax rates the same), the present value of $16,000 taxed at 25% this year vs $16,000 being taxed at 25% in 40 years. In either case, it's a tax bill of $4,000. But discount $4,000 to the present at... say... 3% annualized. $4,000 isn't exactly going to buy much in 40 years is my guess. To the individual, it's the same either way -- so no cost to the person. To the government, it's a huge difference. The only time it costs the person anything is if they can't deduct it at 35% and withdraw at say 15% after retirement. So they lose the benefit of income-shifting into lower tax brackets during retirement years. There is of course a cost to the person (they might be able to invest $200 today and have it grow to $4,000 in 40 years). But the average person in the debate won't catch it.

I wonder what it would look like if 401k and IRA plan contribution deductions were eliminated. So effectively you can still contribute, but it would be all after-tax contributions. When withdrawn, you don't pay tax on your cost basis but you pay tax on the gains. Same rules as the after-tax contributions we currently have in IRAs. They are always talking about cutting Social Security and Medicare because we "can't afford them", but likewise can we afford to give the 401k tax deductions? Our tax bill when we were working would have been roughly 3x as high were they to have not offered such retirement plan contribution deductions. Yes, it gets taxed one day upon withdrawal, but there is a difference between dodging the 35% on the front end and instead pulling it out at 10% or 15% rate on the back end.

My new Roadtrek purchase also qualifies as a "second home" because it has a toilet and kitchen. So this year I can deduct the sales taxes and any interest costs of financing it. Ha. Ha. Ha. It's just a van, but I can reduce my tax bill because it's a "second home". You can't make this stuff up.

My wife and I didn't have much taxable income for the tax years 2003 through 2007 (when we were both working and married filing jointly). We sometimes made over $200k or so. Normally though, our federal tax rate was a single digit multiple of what we were actually taking home. I would max out my 401k contribution. I think that was about $16,000 or so of tax deduction. Then I had some real estate "investments" maxed out to the hilt for tax sheltering purposes generating a loss of about $18,000 ($10,000 roughly was from depreciation, and $8,000 was from negative cash flow -- although these were sold off as the bubble grew, so not taken as a deduction for the entire period under review). We had about $24,000 a year in mortgage interest deductions from our primary home, and you can add about $5,000 in property taxes. So far: $16,000 + $18,000 + $24,000 + $5,000 = $63,000 Then... and here is the kicker... we opened a "Self Employed 401k plan with profit sharing" in order to defer taxation on my wife's real estate commissions. We put in about $45,000 during her best year, but about $30,000 in her worst year. $63,000 + $45,000 = $108,000. So generally speaking, that's about $108,000 that isn't getting taxed at the federal level. So typically we were paying a single digit federal tax rate. The key thing to think about isn't just what the tax rate is, but how much gets excluded. Now, can anyone present a case why people in their early 30s need to save $61,000 per year free of current year taxation in 401k/IRA for "retirement". This is on top of social security income that we'll be getting. My employer also made a $3,000 per year contribution to my 401k and on top of that I always maxed out my after-tax contribution which amounted to about another $7,000 per year. So we'd be putting away about $71,000 per year in reality. And if you think that's a lot, just imagine if I were self-employed and could put in $45,000 tax-deferred instead of the $16,000 limit that employees get. Why in the hell is it 25% of profits that are allowed to be contributed in addition to the $16,000 you already get automatically? For a married couple you can easily find yourself sheltering up to $100,000 per year this way! "Essential" retirement savings, or obvious tax shelter?

This is a Wall Street analyst?

Are you taking on new investors? I'm a private investor. The earnings of the next ten years will define the stock performance, but we don't know what those earnings will be and the last ten years don't give us an answer. We just know that the price/earnings at the moment are historically low and so is the inflation rate, so real earnings are very high. The Schiller P/E being high at the same time only tells us that the earnings per share are substantially higher today than they were early on in the past 10 years. To bet that the Schiller P/E will foretell poor returns is to believe that the current P/E will fall a lot. Maybe, perhaps it's the peak margins after all. However, I own things like MBI, AIG and BAC where margins are not at the peak, so I don't care for that argument at all... really doesn't matter to me.

I'm just going with what the earnings are going to be over the next 10 years as the predictor of how stocks are going to fare. The last 10 years matter to the prior owners.

I think that PE10 should be lower during periods of higher dividend payout ratios. In other words, if earnings are retained to grow the business or to buy back shares, then PE10 should be higher as earnings growth per share would be relatively higher during the period (relative to just paying out the earnings as dividends).

Every share sold was bought, but the media will still tell you that money is fleeing the stock market.

I like to ask questions about my suspected weaknesses of a gold standard because I only get told about the strengths. So I'm well versed in what's good about it, but I find supporters don't like to talk about shortcomings. The first world war for example saw a massive amount of inflation in the United States -> Europeans moved their gold to the US and this caused a lot of problems. That's one example of a weakness. Another is this idea of "just calling in the loans". What becomes of the people who took out the loans? Is it a weakness in the system to offer loans to creditworthy borrowers only to destroy them when dollars are redeemed for gold? Or is that a strength? Does it affect the willingness of people to borrow to fund worthy projects? Or does it wipe out worthy projects that are already funded? Granted, I get the benefits. But either supporters in general don't know of any weaknesses or aren't willing to voice them.

I don't have trouble believing that attitudes would be different regarding the debt. I'm just pointing out that even on the gold standard we as a nation couldn't help ourselves in getting in debt, which triggered a run on our gold. It seems that based on our past experience, there is something else wrong in addition to whatever is backing the currency. Driving off a cliff at a slower pace is still a negative experience.

The US under the last gold standard faced a run on it's gold though -- due to worries over the nation paying the debts. This is what I am wondering -- how does the gold standard instill fiscal discipline when we know it failed to do so the last time around? I suppose I need to ask, how would the prior system need to be modified to prevent such failure if we go back to the gold standard again?

What if though, the foreign nations who currently worry about our debt load cash out of their dollars and walk away with the gold that is backing the fractional reserve system? This isn't currently a fear because we're not backed by gold, but wouldn't it be the current fear if we were? Isn't that why we left the gold standard in the first place?

Yes as long as the money supply continually increases as needed the system will work out (stable purchasing power). However if you can just incorporate silver what do you say to the people who wish to be redeemed in gold? I understand the last gold standard fell apart when foreign creditors asked for their gold back. Are you in theory going to give back all of the gold if that's what they ask for? And then be left with just silver? How can it be designed to guarantee that the currency is redeemable in gold, without potential for failure?

The flaw I see in gold is that it essentially rises in real purchasing power over time yet is meant to remain stable. Observe: fixed quantity of gold at the same time as a rising quantity of goods&services. Doesn't this lead to the cost (priced in gold) of goods/services to fall? You can't forever increase goods and services and have stable prices vs a fixed amount of gold. Anyhow, that's the flaw I see in it. Creates deflation effectively.