txlaw

Back up the truck was several months ago, when a handful of us were backing up the truck. Now it's stay the course on BAC and WFC, and look for other ideas for capital. Cheers! You could do worse than putting money into BAC or WFC at current prices. Actually, it sort of depends on the rate of return you're expecting from investing and how concentrated you already are in those names. I likely will not be adding to those particular names. I was still buying options in and around 8. I think this will sprint to TBV now. I bet its past $9 tomorrow, and $10 by weeks end. But then, My powers of prediction aren't as good since I lost my tin foil hat. I had been buying options in and around 8 when BAC was on its way down. So I have a pretty large position. You know, if any of my other positions were to work out and I were to find myself with a wad of cash, I could very well be putting money into BAC at prices above $8. Hell, even at $10, BAC is cheap, IMO.

It's not massive, but any increase to the dividend will bring your exercise price down. You have 6 years left to exercise. Cheers! Actually, I think the WFC quarterly dividend has to be at least $0.34 per share in order for the WFC warrant strike to be adjusted. It's different than the BAC warrants.

We definitely have not missed the boat on AIG. The only reason I'm not adding to BAC is because I'm adding to other positions, including AIG. I'm very hopeful, by the way, that the government will not now mess with the AIG "tax break." I actually like Elizabeth Warren, but geeze, the government should be doing everything it can to make a substantial profit on the AIG bailout. Taking the action requested by Warren and others is exactly the wrong thing to do to make the taxpayers whole. Stupidity.

Back up the truck was several months ago, when a handful of us were backing up the truck. Now it's stay the course on BAC and WFC, and look for other ideas for capital. Cheers! You could do worse than putting money into BAC or WFC at current prices. Actually, it sort of depends on the rate of return you're expecting from investing and how concentrated you already are in those names. I likely will not be adding to those particular names.

You are referring to the capital ratios txlaw? That is a good point, I was looking more at the loan loss rates. The assumptions for capital numbers seem to be underestimating the PTPP potential of some institutions relative to JPM and WFC. Yeah, I was referring to the capital ratios assuming no capital actions going forward and then assuming capital actions. Haven't looked at PTPP or loss ratios yet.

Or someone wanted to send a signal for his arrogance ... well deserved. Now, Dimon decided to jump start the Fed announcing the dividend increase. Is someone going to send him a signal too? JPM and WFC numbers were not much better than the rest. Unless I'm reading this wrong (and I haven't looked at the report in detail yet), of all the real commercial banks (not including AXP, COF, BK, etc.), WFC's numbers are actually at the top . . . after USB, FITB, and BBT, and tied with PNC. Only with proposed capital actions (i.e., buybacks and dividends) do the stressed ratios become comparable to the other guys.

I mean, if BAC didn't pass the stress test, what the hell was the whole point of the test? BAC is basically the symbol of the American banking system in the markets right now. I'd be very surprised if BAC didn't pass.

I expect there will be a number of companies, perhaps public but certainly private, in distress due to low nat gas prices and their capital structure. Hopefully, properties can be bought at very attractive (and even fire sale) prices from these companies by the savvier deal makers who have cash to work with. In other words, I don't want to invest based solely on the value of proved reserves. I'm essentially buying up a fund that will snap up nat gas and oil properties at very attractive prices. No need to be a high net worth individual and put my money with a PE outfit when I can simply invest in a public company that will do the same thing.

I've also been interested in trying out OnLive Desktop on an iPad. See http://desktop.onlive.com/ It looks like that service might go away, though. I did wonder why MSFT was allowing them to do that. Turns out, MSFT doesn't allow it.

I always thought they had both a 13" and 15" Macbook Air. They don't have a 15" one? Cheers! Nope, they only have a 15" Macbook Pro, which is what I currently have. One thing that I'm not sure you can get on a Macbook Air, though, is a matte screen, which is what I have on my Macbook Pro. I prefer that to the glossy screen. Easier on the eyes.

There was nothing game changing. However, I will be buying an iPad in the near future, as well as the new AppleTV box. I have been waiting for the Retina screen (it really does make a huge difference) and 4G connectivity. I think that AirPlay mirroring via an Apple TV box (now with 1080p output) will be very useful to me as well. Basically, Apple came out with exactly what I wanted. Now if only they were to come out with a 15" Macbook Air ;D

I've been buying two nat gas-related stocks. XCO --------- By far my largest nat gas-related position. Reasonable people can disagree on the NAV here, particularly given one's outlook on nat gas prices in the future, but I think the downside is minimal and the upside could be stupendous given the ratio of proved reserves to probable and possible reserves. The operators are rationale, unlike some other nat gas firms, will shut down production if its uneconomic, and have articulated a hurdle rate for returns. More importantly, I have been looking for companies that can be used as platforms to acquire resources at dirt cheap prices. I think Exco fits the bill very nicely. Doug Miller and Co are excellent deal makers. They have a nice strategic alliance with BG that could prove very fruitful in the future (think LNG export) and where the potential negatives (e.g., over-reliance on and contractual obligations to BG that cause liquidity crunch) won't happen. They already have folks lined up to do JVs, including current shareholders, and they were even turned down on a rather large deal where they already had all the money raised. Current shareholders include Wl Ross & Co, Oaktree, and Ares Capital. And on the board, you have Boone Pickens and Wilbur Ross (just recently named). Debt is not an issue, as they can likely sell off midstream assets or do other deals that would allow them to entirely pay off their debt in the next 3 to 6 months (according to Miller). And based on the recent bid for TGGT (midstream asset) I do think the equity investments are carried on the balance sheet at haircuts to IV. There is even the possibility that there will once again be a going private bid for the company, but I wouldn't count on it. I highly recommend reading the Exco CCs. NRG ------- We've discussed NRG on the board, so I won't rehash the analysis. Suffice it to say, I think the sucker is cheap and that it is cheap because the price of the stock is levered to nat gas prices. As with XCO, I think of NRG as an investment vehicle rather than as a purely operating company. They focus on ROIC and I like they way they think. The recent deal with MidAm shows you that they know what they're doing. I own the 2014 LEAPs.

So I mentioned a month or so ago that I had been selling down some of my stake in US financials to buy nat gas-related stocks in the US. I was pleased to see both Wilbur Ross and WEB recently commenting on the almost unbelievable collapse in nat gas prices in the US. That gives me comfort that my reasoning is sound, at least over the medium to long term. I'm curious to see whether other board members have also been scooping up nat gas-related names.

thanks for posting, rijk.

KCD IP, LLC is the entity that holds the IP for Kenmore, Craftsman, and Diehard. We should be thinking about what the asset-lite + Sears Canada part of the biz is worth. Taking into consideration what a capital allocator could do with the cash flows.

KCD IP, LLC is the entity that holds the IP for Kenmore, Craftsman, and Diehard. We should be thinking about what the asset-lite + Sears Canada part of the biz is worth.

Was trying to do the same here with other stocks, waiting to put it all in AIG and BAC when they cashed out. Investing is a game of regrets, balancing what and when to buy and sell. If I did not buy BAC and AIG at those prices, and many in this board probably thought the same, and they run afterwards, as it happened, I would have kicked myself for eternity. Plan, added your blog to my RSS feed, btw. Keep it up.

Oh, people on this board definitely do that. Several times I have had to push back after some claim that the price action of a particular stock accurately reflected the economic prospects of the security. I've also had to push back on people who contended the opposite -- that board members who were increasingly optimistic about the economic prospects of an investee company were actually fooling themselves because of the upward price action.

;D ;D Why only BAC? It's my only long position. My only short position too (short term put hedges purchased recently). Why did you sell MBI and AIG? Just feel like BAC will move up at a steeper rate? Yes I just think BAC will recover first given it's premier position -- I mean who drives down the street without seeing a BofA? The guy running MBI seems greedy and won't settle so it will take forever in the courts, and the AIG is held back by rock bottom interest rates which are staying low "forever". BAC's catalyst is just to stop looking like they can't earn (the "NewBAC" addresses this as does the runoff of the legacy asset servicing drag). I think I will be able to move into BAC warrants in the Roth when it gets near warrant strike price (hopefully on my birthday) and that will free up cash for some of the AIG warrants while keeping the BAC foot in the door. I think the BAC $5 calls that I hold will outperform the warrants up to tangible book value, then I'll make the switch. Would disagree with you on MBIA CEO being greedy. Keep in mind that this is complex commercial litigation with multiple strategic aspects to it. I actually think AIG has been more undervalued than BAC for most of the past two years, save for when BAC collapsed down to around $5. Long term, AIG is probably a better global growth platform, while BAC will be like a premiere US utility, generating piles of cash for its shareholders. ML is a global biz, but I'm not so sure it will be as effective globally as a GS or MS over the long run. I think AIG has been kept down by interest rates, the insurance cycle, wild swings in its earnings, a general misunderstanding of the assets and liabilities of AIG, and the government ownership overhang. The only reason I didn't own any AIG up until now is because I was trying to time a shift of capital to AIG after BAC and MBI "worked out." I was wrong on which ones would go up first. Turns out, all three stocks collapsed after I started establishing my positions. C'est la vie.

;D ;D Why only BAC? It's my only long position. My only short position too (short term put hedges purchased recently). Why did you sell MBI and AIG? Just feel like BAC will move up at a steeper rate?

By the way, in light of WEB's article in Fortune, where he talks about he dislikes "currency-based investments," do people still really believe that WEB was not counting on there being value in the equity of BAC greater than $7.14 when he made his preferred investment at a 6% rate?

I said the following in December: Wow, quite amazing to see BAC trading at below $5 today. Just read a blog post about WEB's investment in BofA: http://blogs.wsj.com/deals/2011/12/19/warren-buffett-is-1-5-billion-underwater-on-his-bank-of-america-stock/ I argued when the preferred deal was done that it was at a below market rate because WEB believed that the common was worth at least $7.14 per share and probably substantially more than that. If that is correct, then WEB ought to be buying at these levels, unless he thinks things have changed materially such that the IV of BAC is now substantially below the $7.14 figure. Or I could have just been dead wrong. It's possible that WEB really was interested only in an asymmetric bet that would be covered no matter what but that would have a lottery ticket-like optionality. I've been adding to my BAC-WT stake over the last few months, but it's been pretty painful to watch. I guess we'll see in the next week or two whether WEB really does believe in BAC.

If you ask me, I am more skeptical of his non financials. The financials will work fine with or without Euro. I don't think his heavy concentration in US financials has been, or ever was, an issue in terms of pure portfolio management, given his investment style (focus investing), though certainly it had an effect on his investors' mentalities, which caused AUM to flow out. However, I do think his cash position was not enough to be running an open end mutual fund that was so concentrated in financials. At one point during the summer, Berkowitz noted that his cash position had gone way down, and that was a clear sign that he would be forced to sell off stock, which contributed to the rapid decline in those financials.

You know, there have been a couple of posts stating that the recent run up was due to the US government printing money. However, my understanding is that Operation Twist was sterilized and, therefore, there was no expansion of the money supply. So if it's money printing that's causing this rally, I would think it's due to Europe and China printing money.

Regarding Chartis and underwriting at AIG, in general, I know there have been questions about reserves and about the willingness to underwrite at a loss due to being owned by the government. Bill Berkley, for example, has criticized AIG for being not so well capitalized and keeping prices down. While there was likely some truth to his comments, he was probably also over-exaggerating, as he is a competitor to AIG and has for some time touted that there will be a turn in the cycle. I think AIG recognized these issues and has been taking actions to make its balance sheet a "fortress balance sheet." See, for example, http://www.bloomberg.com/news/2011-03-25/aig-had-worst-underwriting-results-last-year-in-a-m-best-study.html. And we shall see what their underwriting results look like now that we appear to be entering a hard market. Ultimately, it comes down to management and what you think they will do going forward. I really like Benmosche and Steve Miller. I trust them to do what's right for all constituencies. Regarding the warrants, I'm no options guru like Ericopoly. My mind simply doesn't work that way. So he's probably the right guy to ask about that sort of thing. But here's how I look at it. I sort of think of the warrants and long term options as nonrecourse loans where you pay all the interest upfront. And then I calculate what the "interest rate" is on the loan. Even if the interest rate on the TARP warrants are high, they are also long term and worth it if you believe the annualized returns will be much higher. Also, with the TARP warrants. the "interest rate" really varies based on whether (or how much) you think the exercise price will ratchet down due to dividends and buybacks. Having said the above, I tend to own both warrants and LEAPS for these TARP stocks because, as Eric has pointed out, the LEAPS are much cheaper in terms of interest rate, and I do think there could be rapid upward movements in the underlying stocks once people understand how these ships are turning around.