Kiltacular

Is there some news on Fibrek other than the extension of the shutdown of one of their mills? This one continues to get hammered.

Thanks for the explanation Parsad. I guess I'll just have to be cautious about avoiding accidentally publicly recommending I'm reading but don't want to recommend. I think it is weird I can't adjust these settings to prevent this possibility.

Speaking of Google, how do I opt out of "Google+". Now, everywhere I go (even when I'm logged out of Google Finance), I see a little "+1" icon that ask if I want to publicly "+1" whatever it is I'm reading. After casually reviewing this matter, my read is that I can't "opt out" of this. I'm sure I can't figure this out simply because I'm not tech savvy enough. Anyone got the answers?

I happen to agree with everything you and Parsad and other BAC bulls are saying. But, just one point of clarification -- can't they preferreds be paid back at any time by BAC. I don't think they have a maturity date, IIRC. He's tying up $5 billion indefinitely in the preferreds. This is the same deal he got with GE and GS -- those preferreds also had no maturity date. The companies simply chose to pay them back -- GS when it got approval from the FED and GE after 3 years have passed -- October of this year (those were the terms of the GE preferreds). However, if either or both company chose not to redeem them, Buffett had committed the money to each company -- at 10% per year -- indefinitely and had not ability to force them to redeem, as I understand it. Here's the relevant language from the BAC 8k on 8/25: The warrants are a separate deal, as I understand it -- the fact that he got 10 years on the warrants makes this deal look far better to me than the GE and GS deals. Those deals had 5 years on the warrants -- they expire, IIRC, around October of 2013. His strike on the GE warrants is $22.25 and on GS it is $115, IIRC. He said at the time that he wouldn't have done the preferred deals without the warrants -- this time around I think he's just facing the fact that he should have gotten more than 5 years. I don't think he was expecting to be 3 years in and not well above the strike prices by this time. All the above said, I think this deal means he is very bullish on the long term value of BAC equity and that he doesn't think BAC equity / balance sheet is a zero. As Ben Graham has said (to paraphrase), you don't buy a preferred for par if you have any question about the company as a going concern.

I'm not that bright when it comes to politics. I keep seeing this notion that "the Republicans are not interested in ANY sort of compromise." In what sort of compromise are they not interested? What proposed compromise have they turned down? Wasn't the debt ceiling raised by many trillions of dollars? I want to try to understand what people mean when they say this.

merkhet, I own these warrants. I think you've nicely described the best case upside and highlighted the fact that there is little downside. Stumpf has said they're targeting a 1.5 ROA (but that's probably a bit conservative). To get a 20% ROE will be tough if the Basel III capital requirements go into effect, though it is doable IF they can get a 2.0% ROA. I think the biggest upside in these big banks is the ever growing likelihood that the Basel III requirements for capital get toned down...if this happens, looks for it around 2015. The European banks are not anywhere close to the capital levels they'll need and they've got enormous holes to fill before they even start getting to where US large banks are much less to where Basel III is targeting. Jamie Dimon was questioning why the US banks should even be a party to Basel III. This is what I've been looking for...this is the beginning of the turn in the capital requirements. Until the next election cycle has passed, the big US banks will be whipping boys. After that, I think you'll start to see things point to capital requirements that allow for a 20% ROE on a 1.5% ROA...or about 7.5% max Basel III -- I think you'll see the SIFI buffer go away. Then we're going to get to your price target -- that's what I'm expecting.

oec, Some very thoughtful and well reasoned ideas in your comments. The paragraph above reminded me of a quote, which I've dug up, from Kurt Vonnegut (1922 - 2007): "Moderate giftedness has been made worthless by the printing press and radio and television and satellites and all that. A moderately gifted person who would have been a community treasure a thousand years ago has to give up, has to go into some other line of work, since modern communications put him or her into daily competition with nothing but world's champions."

Benchmark, GEICO has a good section on life insurance...lot's of Q and A stuff, etc. I get my auto and umbrella with GEICO -- and they're the underwriters for it. I also get my home/rent policy using GEICO as an agent for Traveler's. My point...I'm assuming you can get your life through GEICO using them as your agent. Without any undue offense meant to any agents, I have found it a great relief to work with GEICO both for the policies they underwrite directly and also as my agent for my home/rent. Their customer service is amazing, in my opinion. You can always find a person with excellent knowledge (better than any individual agent I have ever worked with in the past). You don't get the hard sell so, for example, if you're firm that you want term I doubt you'll get pressed hard for something else. On the off chance you do, you just get off the phone and call back and you've got a new person to work with. You may be forced to work directly with the company that ultimately provides you with your life insurance even if you go through GEICO as your agent but, if you have any problems with them, you can always go back to GEICO and tell them your beef and you'll get help. You can manage all your policies at their website...make payments, etc. and they keep copies of all your policies online which is nice if you ever misplace one of them. I now use GEICO as my agent for any insurance I need that I can get through them. Here are a couple of links: http://www.geico.com/information/aboutinsurance/life/ http://www.geico.com/getaquote/life/ Finally, my two cents says that you've gotten good advice in the rest of this thread and should in all likelihood go with term. One way to mitigate your exposure to the unlikely event that the insurer goes belly up before the term ends is to keep it to 15 years (if you want 30) and then buy another policy at the 16 year mark. Yeah, it'll probably cost more so you have to weigh the possibilities. Man, I wish GEICO was a separate public company -- they really are run excellently. Best of luck, kiltacular

Buffett once again plays Yoda to counter the short / distort Sith Lords. The best part about this deal is that since BofA did not have to issue new shares into the marketplace, the huge shorts can't cover -- I love it. I'm going to miss Buffett when he is gone. I may be wrong, but the game looks so obvious to me. Patrick Byrne is right. It doesn't matter that he's right and I know that this board is one of the few places where Byrne isn't completely trashed. You have to know how these guys are playing the game...and set up your affairs appropriately. But, with this deal, the shorts once again have to be worried about playing their game against any company that Buffett might invest in. It will be interesting to see if they move on to AIG in full force -- but they've got to be worried that Buffett could easily do this type of deal with AIG (a company they must know he knows intimately). They have so much capital that they need to go after large market cap companies. I guess the smaller hedge fund players can go after relatively smaller cap. companies but it seems like that happens less than it used to as hedge funds have gotten so much larger. After Ericopoloy, it seems like Berkowitz is a big winner today (and Buffett too). Note that Buffett got a 10 year life to his warrants...I think this is a tacit admission that his 5 year period for the GE and GS warrants might not have been long enough. Finally, I love how the people on CNBC are already saying "only Buffett can get these deals." As we know, an enterprising investor could have built a nice portfolio of BAC preferreds together with BAC warrants that mimicked Buffett's deal pretty closely right up until yesterday.

Not that you asked me, but since I also recommended the book I thought I'd chime in. Think about how High Frequency Trading is similar to what was originally done by the track bettors with the wire service. Those that can get access to information faster than others, can get guaranteed success. Today it is happening amazingly faster compred to back then but it is exactly the same. Someone like Munger might say this idea should be a mental model. If one had this as a mental model, one would have immediately noticed that, for example, the spread of the internet would kill (or at least greatly diminish the competitive advantages) of a large group of middlemen who relied on have information sooner than others to make their living. As well, one might also have realized that those selling specialized products but with little ability to pay for advertising would greatly benefit from the internet. Etc., etc. In any case, I recommended it because I thought it was such a well written and insightful book but there is also lots to take away from it to add to mental models, in my opinion.

First, this goes down for funniest mock exchange of the year: "For example...If a cup of coffee spills while reading the newspaper! Your reality: The coffee will stain the table, which will have to be resurfaced, lacquered and then restained to match...if you can even save the table at all! Reality: you simply wipe it up with a cloth, refill the cup and read the newspaper again." -- Second, some entertaining numbers from an atricle in tommorrow's WSJ: link to full article (sub req): http://online.wsj.com/article/SB10001424053111904279004576526923038008308.html?mod=WSJ_business_whatsNews "In a twist that may show how thin trading is at the end of the summer, bond investors have more concerns about Bank of America's near-term financial health than they do about its longer-term outlook. Investors continue to pay more to insure against default for one year than they are for five years. In bond markets, investors typically pay more to insure against longer-term debt. Trading in the five-year insurance contracts illustrated trading volatility around the bank. The cost opened at about $390,000 on Tuesday and then surged to $435,000 about 9:30 a.m. But by lunch, the cost was falling. It traded at about $380,000 in the afternoon, below the $386,000 closing high set in 2009. By comparison, the cost to insure Bank of America debt for one year hit a high of $525,000 annually for every $10 million and remained elevated at $450,000 at the end of the day, according to Markit. "It doesn't seem to compute but this is how the markets are feeling right now," said Mr. Hendler. He said that "negative perceptions are rocking the stock and [swap] prices." They've got enough cash, for sure, to cover any debt coming due within a year so the conceivable argument that the CDS might be showing this based on the (wrong) idea that if they make it for a year, they can more easily make it for five years does not make sense. I don't know the exact interplay here -- that is, exactly how this game is being played but I feel confident there's a game here. Given that, as others mentioned before, BoA can prevent the effects of a bank run because they can fund their liabilities by trading assets to the FED means that this thing appears to be unkillable in their current post apocolypse banking world.

rogermunibond, Thanks much for the info.!

Can anyone with access to bloomberg tell us where their bonds are trading?

smazz...good catch (seriously). Just like Ellen Barkin! That video is a riot...you see the way she plays the coquette even on the steps of the courthouse...can't help but like her. But man, you wouldn't want her anywhere near your...!

moore, I agree completely. As for the regulators, well, they're out finding the next Bernie Madoff........oh, wait a minute ;)

The light-bulb has gone on for me w/r/t Rentec -- of course it is HFT (aka: legalized front running). Not sure if this has been posted here, but this is an excellent primer on HFT that Southeastern Asset Management sent to the SEC last year. http://www.sec.gov/comments/s7-02-10/s70210-228.pdf

I think it's about $200 million that he's got in the funds. Now, he apparently has a pretty pricey piece of real estate in Florida and possibly some other non-equity investments. I don't have a link, but in a recent interview I believe he said he's got all his investment money inside the funds.

thanks for the link wally -- 'required' watching for those interested in this discussion.

I am thrilled to see that Buffett is defining "rich" at a level that is a heck of a lot higher than an earned income of $250,000. On a recent CNBC interview, Quick asked Buffett if those earning $250,000k were "rich". He said "No". Of course, careful seers have already pointed out that one of the reasons we hear that $250,000 a year in earned income is "rich" is precisely because not very much additional revenue will be raised by implementing Buffett's proposal. To raise real revenue, rates have to be raised on these not rich "rich". This leads to polarization, in my opinion. The "right" then says: "We've seen this movie before and the net effect is that if we give an inch, they'll take a mile." I support Buffett's proposal simply because of the danger a society faces when those earning 10's and hundreds of millions are not paying taxes at rates that resemble everyone else. A read of history suggests that -- at some point -- everyone else will call for the 'heads' of those who are playing by a separate set of rules. I think Buffett knows this and I'm sure that someone like Munger knows this from a study of the last 250 years of western history.

I heartily second dcollon's recommendation of "Fortune's Formula". This is a terrifically well written and engaging book.

One of the things that happened as a result of the banking crisis was that we now have a massive concentration of desposit among a very few banks -- JP, Citi, BoA and Wells. There is no where to put the deposits of BoA should people start to pull their money -- this could get interesting. Through the haze of CDO's and TARP and all that, what was actually happening during the peak of the banking crisis was a simple run on banks...think back to the fact that people were pulling their money out of Wamu and Wachovia -- just regular joes were rapidly pulling their money out. If one of these large banks named above experiences a run, where will the FDIC move the deposits this time. IIRC, the 50th largest bank in the US has about 2% of the assets of a BofA. What are they gonna do? The President, the Treasury secratary, the leader of the FDIC -- they should have been out the last few days reminding people that there is ZERO reason to pull their money from ANY bank in the United States, that there is ZERO chance that anyone will lose a dime, etc. (I know, if you have more than $250k in a bank you could but you get the idea). I don't get it.

I bought some of the Wells warrants through TD. But, I had to call TD and I had to lead the broker to them...needed the CUSIP and lots of explanation. Eventually, however, he found them and gave me the "online" rate. If you can get the CUSIP for the warrants you want, they should be able to help you.

Someone recently posted a link to a manager's presentation that included these two stocks. Can someone point me to it again? Thanks

The schools are still selling this cost of equity concept. It's never made any sense to once they get past: "there's also a cost to equity"....after that, like Munger, I think they went bonkers. I tell you how i think they went bonkers in a second (if I can keep your attention that long). First, here are some choice quotes from Munger on this subject: So, I think these two quotes -- if the ideas contained within them were synthesized -- do a good job of explaining the idea as it should be understood -- irrespective of how it is widely taught. Here's what I would -- given I'm only taking a few minutes on this, perhaps changes can be added. 1) Equity does have a cost 2) We assume that all businesses last forever and stay the same for purposes of this example 3) Equity's cost can only be determined by comparing what equity could achieve in a variety of businesses (actually, assume we could order, from best to worst, those businesses with the highest unlevered returns on equity (where equity also happens to equal tangible investment). 3) So done, we take all our equity and put it in the highest returning vehicle. 4) So, it happened that, in this case, we were able to invest all our equity into the very best business. But, after a year, the business found that it did not have need for the equity left over at the end of the year and returned to us the excess that it couldn't keep investing at its "highest return in the world on equity" level. 5) That equity should then be invested into the second candidate on our list and so on, and so forth. I think this is what Munger means about oppotunity costs with respect to any sort of "cost" one could logically apply to a business as "its cost of equity". That is, if your equity is invested in a business that's in the middle of the list, you should get it into a business at the top of the list....the longer you take to make the move is how you would measure your opportunity cost. I mean, if every equity dollar has been invested on our long list rated businesses we will eventually get to the last and worst business. But, if this business still turns any profit, it is worth putting in some equity (assuming that alternatives aren't available -- bonds, cash paying more than the roe on the business, etc. etc.)

1) In my opinion, the idea that they're putting Wells in the same camp as BofA and Citi highlights once again how worthless these guys are. 2) More importantly, all three of these banks are too big to fail (along with JPM). I mean, the equity could get zeroed out due to a lack of gov't support but there's no way that in the current structure they wouldn't be supported by the gov't as institutions. Think about it -- where would the FDIC move the deposits...there is no where to put them given their size. Take a look at a ranking of the largest 50 banks in the US by asset size...after the meltdown, it's all concentrated at the very tippy top. Am I missing something?