txlaw

This is absolutely correct. There is debate right now over whether the price of the capital was too expensive. Maybe so. But there was at least a price paid for the common exposure when you think about WEB's opportunity cost. There are plenty of investments that WEB can and probably did make that will do much better than a preferred investment in a bank at 6%.

I disagree. Why would Buffett make a $5 billion investment at a yield of 6% given the recent market downturn. He can certainly do better than that with less risk (if you believe that BAC is risky) in many common stocks or debt instruments.

Amazing that BRK is down right now. This is the perfect environment for WEB.

MBIA, Sanjeev, MBIA. I hope so. It's 30% of my money now (averaged down to cost of $8.60). Nice average cost. Unfortunately, mine is not as high. Too early.

TxLaw - BAC might or might not turned out to be a good investment but I have seen many people pretending to be a value investor but you can generally catch them quickly due to passing some silly statements( like judging the investment merit on short term price movements). It's another thing to not have an opinion or different opinion but if anyone talks about the merit of an investment based on stock price being temporarily being up or down in many threads then you do get a decent idea about how a person thinks. I just hate that his handle is "Munger."

It's all about confidence, right? Not just with respect to deposits but also with respect to all the businesses under the holdco. If BAC was losing any real business due to confidence being lost, that was likely taken into consideration by Moynihan when agreeing to the preferred investment. Hedge funds and the media have been pushing very strongly for a settlement with the monolines and other parties to the various suits filed against BAC entities. Zerohedge specifically recommended that BAC settle with the monolines. People are watching the MBIA/Countrywide proceedings and stating that an upcoming hearing could drastically change the calculus of settlement. Nobody wants BAC to put Countrywide into BK, as that will delay things further with respect to litigation. People who are short or skeptical of BAC, or who are long the monolines, will say that the preferred investment by WEB confirms their thesis that BAC was weak. Of course, Buffett has said the exact opposite with his investment. I'm more long MBI than BAC, btw. Apologize for the flurry of posts.

I agree. I mean, come on. Look at the values available in the market right now. Clearly the equity exposure was extremely attractive to WEB.

Totally agree. Imagine that people were clamoring for a dividend not too long ago!

I call bullshit on that.

MBIA, Sanjeev, MBIA.

This is a dumb and unnecessarily provocative question, Munger, and you know it. Nope. Capital raise from WEB fits very well with my BAC thesis. Ah . . . see, this is one of the reasons, among others, why you're getting such negative feedback from the board. This statement right here is antithetical to the value investor's mentality. You're assuming that the market is correct about GE and GS, and that the investment was terrible because the prices of GE and GS have gone down. The real Munger would never say such a thing.

Well, I don't think it was such a wrong bet to be in HP from a purely financial perspective. You would very likely have made a nice return over the long run even if you bought it at, say, $35. But I just saw no reason to own HPQ when you had DELL trading at where it was, given the differences in management and the board. The calculus changes, however, when you have a collapse in the price like with HP over the last few month. On the other hand, I haven't looked into Autonomy, so I won't be looking at HPQ anytime soon. As for Android, I actually think that the Motorola acquisition will be very good for its prospects. They will now have a better chance of optimizing development of Android so that it can compete with iOS from a usability perspective. And the acquisition will help not just with Android on the phone, but with Android on the TV. The main problem with the Moto acquisition is whether they overpaid and whether it drives manufacturers to other OS's, like WinPhone. I'm hoping that Motorola only focuses on high end hardware going forward. It should try to compete with the iPhone in the business and wealthy consumer space. Also, phones like the Atrix are the future.

For more on the future of PCs, I highly recommend taking a look at Stacy Smith's presentation from the INTC shareholders meeting in May. http://intelstudios.edgesuite.net/im/2011/live.htm I'm attaching the presentation. Hopefully, Intel won't mind. Start on slide 23. Oh, and pay close attention to slide 37. 2011_Intel_Invsetor_Meeting_Smith.pdf

Interesting interview of Michael Dell. He's hard at work trying to take business away from HP now that they've announced they will be jettisoning their Personal Systems Group. http://www.crn.com/news/client-devices/231600002/crn-q-a-michael-dells-take-on-hp-the-channel-and-dells-future.htm?pgno=1

Look at the stock price. I think I've made my point. Haha ;D

It's amazing how it's gone from BAC needs to raise capital immediately to BAC is going bankrupt. I'd like to hear the thesis on why BAC is going to have to file for BK.

I really dislike how's he's playing up the whole "Why is big old BofA picking on a small blogger like me" aspect. It was a press release, for God's sake. It's not Allied Capital trying to take down heroic David Einhorn! Blodgett is a blogger. He should have expected criticism for a post throwing out crazy numbers like that, and he shouldn't be whining so much. ZeroHedge, I think, had a much more clever rejoinder to criticism of their posts on BAC.

He's just eating up the publicity, isn't he? I'm sure this has been a boon for the Business Insider.

Haha, I'm sure you have no opinion. As I said, your credibility is approaching nil. No point in continuing further, really.

Massive buyback? This indicates you know nothing about BAC. To even suggest that BAC can buyback stock is ignorant. Insider buying? Perhaps you need to understand on a more general level when insiders are allowed to buy. Do some research on insider trading. What happens to this margin of safety in a recession? What is your thesis here? That NIM compressions will cause a run on the bank? That defaults will accelerate and cause write-downs that the banks haven't already prepared for? Does your thesis apply only to BAC or to all US financials? Management responds to Blodgett with a press release that equates to nothing more than name calling? A poor response by BAC PR. If they had just left out the part about Blodgett being banned from the securities industry, would you still say that there was no substance whatsoever in their response? Munger, until you directly respond to legitimate questions and arguments, nobody is going to take you seriously at all. Nor is anyone going to provide you with a detailed analysis of why BAC is undervalued at these levels. Your credibility is dropping just like BAC's price has over the last few months.

I'm not sure I understand this. I mean, I get why the CDS spread and the interest rates for the underlying credits would move in the same direction. But why is it the case that the corporate bond market actually prevents CDS spreads from getting out of whack on a temporary basis? Is it because there is some sort of rapid arbitrage going on? Does anyone who has actually traded a CDS want to chime in? Yes, you can arb it. But I'll let someone who actually trades CDS corroborate this. You can arb it with a basis trade. One basic example is, if the CDS protection is selling "too cheap," you buy the underlying bond and buy the CDS protection, lever it to high heaven, and collect the difference no matter what happens. (Because whether they default or not, you're made whole.) This is the "negative basis" trade - the CDS spread minus the bond spread is a negative number (you can do a positive basis trade but it's harder because you're shorting the bond). The trade is complicated even without leverage: technicalities of a "default" w/r/t the CDS paying off, interest rate exposure still exists, counterparty risk, etc...but you can do it. So there is active arbitrage that usually keeps the spreads on the bonds and on the CDS protection tight. But both the price of the bond and the CDS are still set by market forces, which means anything can happen in the short run if you have forced buying or selling. For example, during the crisis, the basis blew out for junk bonds, which means if you had a leveraged position in the basis trade, you were in trouble. Here's a good chart: http://www.acredittrader.com/wp-content/uploads/2009/03/basis1.jpg So yes, you can arb it, but there's no free lunch, and there are circumstances where the spreads do not move in lockstep. Just saw this. Thanks for the response, coc.

Just humor me, if you will. You have stated that the buy thesis for BAC has dramatically devolved over the past month. It would be helpful to have a nice summary of why you believe this is the case.

Not at all. I would say that you are allowing your emotions to get the best of you. Remember the fundamentals of value investing. If a company is a good buy and the price drops, it is an even better buy unless the price drop itself affects the economic fundamentals of the business. (How's that for a platitude!) I think you are letting the dramatic price drop translate into the notion that the thesis has dramatically devolved for BAC over the past month. In general, that is the sentiment that has been affecting the entire financial sector. Is it the economic outlook that has caused you to believe that the thesis has devolved? Or the new legal developments, primarily? Or both?

I find it hilarious that you are calling for supporting analysis. You're willing to quote Blodget, ZH, and Yves Smith as credible evidence that BAC will be overwhelmed by its liabilities and must go to $0. But now you say that BAC's response is BS because there is no supporting analysis? Do you see the asymmetries in your argument? Actually, I think I've exaggerated your position. You think BAC will have to issue highly dilutive equity capital at the price it's trading at.

I find it hilarious that you are calling for supporting analysis. You're willing to quote Blodget, ZH, and Yves Smith as credible evidence that BAC will be overwhelmed by its liabilities and must go to $0. But now you say that BAC's response is BS because there is no supporting analysis? Do you see the asymmetries in your argument?