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merkhet

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Posts posted by merkhet

  1.  

    I don't see BB accepting anything below $60. He certainly wants his warrants to go in the money. they are 10 year warrants. He would never accept a cash offer below their strike price with over 9 years remaining. I don't see AIG as warren's kind of company anyway.

     

     

    I agree here -- Berkowitz likely sees value above $62, which is where the stock traded earlier this year, and I doubt that recent volatility for his fund as a whole would change his opinion.  FWIW, I estimate that AIG is trading for about 1/3 its intrinsic value, but I don't want to hijack this thread into an AIG thread or anything...

  2.  

    If BRK bought all of AIG, my understanding is that all of the tax assets would be lost - which represents a big chunk of value in the current AIG.  Is that correct?

     

     

    AIG has about $30B of DTAs, but present value is probably only about 1/3 of that.  AIG has a book value of about $100B, but that doesn't count any of the DTAs.

  3.  

    I bet no one is complaining about their equity hedges today. :D

     

     

    Exactly. :-)

     

    I know I posted this in the Berkowitz/WealthTrack thread, but I love the quote "In February I was a hero, now I’m a bum. So, we’ll see six months from now. Revenge should be sweet."

     

    Six months ago, people (sans people on this board, of course) thought Prem & Co. were bums for hedging their exposure to equity markets -- nice to see them vindicated.

  4. I've looked at ARO in the past, and I think it's likely to provide a stellar investment over time.

     

    They've cloned the original The Limited playbook (have a fast manufacturing/distribution process and immediately clone the new styles) as it pertains to J. Crew, American Eagle, The Gap and Abercrombie.

  5. This might be a little simplistic, but I'm looking at the warrants in the following way.

     

    According to ValueLine's 10 year table, Wells has been able to compound book value at roughly 10% per annum.  So in 2018, their book value could be roughly 2x the current book of about $24.  Since Wells has historically been one of the better banks, it has been able to historically earn an ROA of about 2% and a ROE of 20%.

     

    So, by 2018, Wells should be earning about $9.60 a share.  Slap a 10x multiple on that, and you've got a $96 share price.

     

    With a strike of $34.01 (ignoring any dividends that might come down), you've got a warrant price of about $62, and you can buy a warrant for about $8 per warrant. @ 7.75 over 7 years, that's a 34% CAGR.

     

    Alternatively, breakeven is $34.01 + $8 per warrant = $42.01.  In 2018, I figure it's unlikely that Wells Fargo trades below $42, so it's unlikely that you'd suffer a permanent loss of capital.

  6.  

     

    Not specific to BAC.  Specific to all very levered financial institutions. The leverage in Europe, in regional governements in the US, in regular citizens create so many black swan potentials.  Now, BAC also has lawsuit issues but this is the icing on the cake.

     

    So far Berkowitz has been definitely wrong on the financials lately.  Maybe time will prove him right but he has definitely been very early...

     

     

    What the hell does the market price have to do with his being right or wrong?

     

     

    One of my favorite parts of the Consuelo Mack interview -- "In February, I was a hero. Now, I'm a bum. So we'll see six months from now." ~ Bruce Berkowitz

  7.  

    Snowball - Alice Shroeder - somewhere in the first thousand pages :-).

     

     

    Ah, found it -- I love the Kindle.

     

    Also, for those that are interested, re-reading Greenblatt's "You Can Be A Stockmarket Genius" provided some insight on how Greenblatt valued LEAPS -- he goes into detail on Wells Fargo (a coattail on Berkowitz's 1992 OID interview, actually).

  8. Thanks for the post.

     

    Was "totally wrong on placeholders"

     

    Could anyone expand on this? Why did he say he was wrong? Does he now consider his least liked idea his "placeholder." Is cash now his placeholder?

     

    Interesting that he said this...had a discussion about the Pabrai placeholder idea with a friend a while ago.

     

    Someone correct me if I'm wrong, but I believe he means Berkshire in this instance.  At some point, Mohnish viewed Berkshire as being "good as cash" in the event of a crash -- but in 2009, that wasn't true.  So now, he just holds the cash.

  9.  

     

    I guess the trillion dollar question is where we are in the chart.

     

    1996/1997/1998? 

     

    Or:

     

    2002/2003/2004?

     

     

    None of the above.  We're on the US chart, only you don't know what that chart looks like -- time will tell us.

     

     

    Well, it depends on the politicians now...

     

    http://static.businessinsider.com/image/4bc5bb587f8b9a9c28420700-590/slide-141.jpg

     

    Notice that the dips in JohnDoe's chart parallel with the dips in Richard Koo's slide concerning austerity measures "fiscal reform"...

     

    The perverse thing is that I think a lot of people think that the market is suffering because we're no longer triple-A (and Europe, etc.) and they also believe that solving the debt problem will "reverse" the slide that began with our triple-A woes.  So, oddly enough, I think we'd get an upswing in the markets if we took steps to reduce the deficit drastically (say, if the Republicans win and begin appeasing Tea Partiers) -- and that would be the moment to put on hedges for the cardiac arrest that's forthcoming...

     

    (And that'll be the 2 minutes this year that I spend futilely prognosticating macro...)

  10. C'mon...silly.  He doesn't have to buy $5B common in a single day or even a single week...BRK makes $5B investments in a common stock year in year out.

     

    BRK does make $5B investments in common stock year-in and year-out.  The question is how often does BRK make a $5B investment without moving the price significantly.  Of course he's not going to go out and buy it all in a day or a week -- the two important things are (1) will your volume/purchases on a daily basis move up the stock price and (2) can you pick up all you need before you have to report that you're doing so?

     

    Not true.  Very few opportunities to put that amount cash to work at 6% while also getting the option for free upside.  Expensive for a company that supposedly was financially sound but nice deal for Buffett, especially since a "Buffett investment" creates confidence.  Buffett did well on his GS and GE investments but the common shareholder has not done so great in eithe company.

     

    Again, not really what I was saying.  There are few opportunities to pu $5B to work at 6%, but both Warren and Charlie have said that most people forget opportunity cost.  If you're putting money to work at 6% you're forgoing the opportunity to put it to work 6 months, 1 year, etc. in the future for much greater than 6%.

     

    I'm sticking to my position that the investment was not about the 6% -- I mean, it's better than sitting around in treasuries right now, but his real goal is the warrants.

  11.  

    Great deal for Buffett but recognize he is not buying the common stock.  If Buffett were Joe Schmo and his investment didn't provide a self fulfilling confidence, would he have simply purchased the common?  And if the common were such a great deal, why didn't he simply buy the common in the open market? -- it's not like there isn't enough liquidity for him.  And this is a tiny investment for Berkshire and Buffett.

     

     

    Prior to this announcement, the market cap of BAC fluctuated between $60 and $70 billion.  If he tried to buy a slug of $5 billion of shares on the open market, what do you think would have happened to the price of the stock?  It would have soared a lot higher than $7 a share by the time he was done.

     

    Instead, he lends $5 billion @ 6% and receives warrants for 700 million shares with a strike of ~$7 per warrant.  In other words, he gets to invest $5 billion in Bank of America's common without moving the price.

     

    I don't claim to have any personal insight into Warren's thinking, but he's not making this investment because he's trying to earn 6% on his cash.  He's buying into this for the warrants/common.

  12.  

    That is Euro Europe minus France (UK numbers should not be included, and no German Exposure). France numbers are big but still, less than 6 months of PTPP and around 1% of assets. Remember that all these numbers include relations w/ multinationals that will not do that badly even in a crisis.

     

    France

    Public Sector: 1B

    Banks: 8B

    Private: 16B

    Total: 25B

     

    You're right -- mis-labeling on my part.  Total PIIGS exposure and total PIIGS sovereign exposure is what I should have written.  Thanks for the French numbers.

  13.  

    Truth be told, the last thing I wanted to spend one of the last weeks of summer doing was digging into Bank of America's balance sheet, especially with so many more important things going on.

     

     

    Am I reading this incorrectly or is Blodget basically saying -- "Yea, I didn't dig into Bank of America's balance sheet before I pulled numbers out of my @$$"...

     

     

    Also from Blodgett twitter post -- "BTW, with help of readers, I've checked $BAC's European exposure. It is "$17 billion," just as Yves Smith said. Not "off by factor of 10""

     

     

    I read Yves quite frequently, and she has a bit of a mea cupla up this morning.  (For the record, I find her generally very good, but in this case, I think she's off.)  http://www.nakedcapitalism.com/2011/08/more-on-the-opacity-of-bank-of-americas-financial-statementss.html

     

     

    I said that the conference call gave a figure of $17 billion of European sovereign exposures and claimed it was hedge (I expressed my skepticism as to how good those hedges would prove to be in a crisis). From the transcript:

     

    The area that’s drawn the most attention are obviously the countries of Greece, Ireland, Italy, Portugal, and Spain, and going back to the first quarter of 2010 as we started thinking about sovereign debt and sovereign exposure, as Brian alluded to, we took a hard look at the types of risk that we were taking and focused very much to make sure that we were comfortable to the extent that there was a prolonged period where this went on, and if you look at our 10-Q, I think that the most telling thing that we can speak to is, within that region, we had $16.7 billion of exposure. Of that exposure, roughly $1.6 billion of it was to sovereign entities and we had credit default protection on roughly $1.5 billion of that $1.6 billion of exposure.

     

    You can see Thompson said they have $16.7 billion and then said they have $1.6 billion. The 10-Q clarifies matters

     

    Bank of America's total European exposure is $16.7 billion.  Bank of America's total European sovereign exposure is $1.6 billion.  I guess Yves (and by extension Blodget) got confused because neither read the actual 10-K/Q before posting. Oops.

  14. Is there any other yealry event that a good number of members attend outside the FFH or BRK annual meeting?  It would be nice if there was a mid-year type of event we could also meet at.

     

    Packer

     

    I second this -- FFH and BRK are always April/May so it'd be nice to have a Oct/Nov event.

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