moore_capital54

Munger Keep it up, the stock is literally forming a bottom as you post your thoughts. Also it appears you did all this homework yesterday, why did you wait to post today? Why not just post it right after you finished the schoolwork. Moynihan made it very clear he intends to buy shares when he is allowed to do so on the call with berkowitz. Moreover he made it very clear his ENTIRE net worth is in BAC.

Here are the contents of this email: "There is a rumor circulated on Wall St. that JP Morgan (NYSE: JPM) will take over Bank of America (NYSE: BAC) within the week. The government will support the deal with a $100 billion investment in preferred shares issued by the combined entity. Alternatively, the government may guarantee the value of a large pool of Bank of America assets. The word is that Treasury Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie Dimon.The “merger” would completely destroy the value of BAC’s common shares. The government feels that the deal may be necessary as Bank of America struggles unsuccessfully to close several transactions to bolster its balance sheet. The Wall Street Journal reported that the financial firm will need to raise $200 billion which would be another possible event that would wipe out common shareholders. Bank of America’s fortunes have been hurt by events in just the last few days. A New York State judge agreed to allow institutional investors to intervene in an $8.5 billion settlement between the bank and groups that lost money on mortgage-backed securities. China Construction Bank Corp said Bank of American will continue to hold 50% of its share in the foreign financial firm. Many investors hoped Bank of America would sell its entire stake to raise money. Several analysts believe that the costs of owning mortgage firm Countrywide Credit have grown unexpectedly large. " I cannot believe how gullible Wall St. is becoming, note how they short sellers attempt to quote the WSJ when the WSJ was quoting Blodget. I would love to find the guy who started this rumor...

ValueCFA I got the same email, this is nuts, I got it just now from two colleagues. Total BS, the last think the gov wants is JPM any bigger. This was a very good interview: http://www.bloomberg.com/news/2011-08-24/meredith-whitney-says-there-s-no-mad-dash-for-capital-at-bofa.html

Cardboard you have demonstrated in your post how illogical a scenario where BAC Fails is. There is no way that C survives and BAC Fails. There is no way BAC fails and Barclays survives. Everything is so intertwined, the comparison of BAC to LEH is sophistry at it's worst.

Munger you cannot compare Lehman to BAC, it is a comparison of apples to oranges. Also, I just went through about 10 pages of your post history on this board, and noticed that you have not made one stock recommendation, other than a time where you hedged yourself by saying you didn't own the stock. Are you an equity investor? or just someone that gets a thrill out of showing up right around the time volatility and uncertainty hit the markets to poke fun at the real investors on this board. You poke fun at the fact that the shares have declined since our original buys making the assumption that in a 30 day period Mr. Market is Mr. Efficient. Have you forgoten the lessons of Benjamin Graham? "The Market is a Voting Machine over the short-run and a weighing machine in the long-run". My first buy on BAC was $10.77, my last buy today was $6.15, my cost average is roughly $7.70~. In my experience as a contrarian investor the only time to buy are during times like these. Has the position become a bigger portfion of my portfolio? Sure! would I have loved to have started buying now? Of course! but this is the real world and in the real world, I am damn happy with my position and avg. cost. Check back in 6 months well see if I am up :)

One more thing, and this ties into our previous discussions on this board. I truly believe that the Central Banks are doing the right thing as there is no other way to counter the madness in trading activity which is fueled by concentrated short-sellers, naked CDS buyers and HFT. The market is more volatile than ever, and common shares are being used to manipulate the fundamentals of the business. Do you think the average depositor gives a shit about the fundamentals of BAC? They look at the share price and infer "something is wrong". The only way to cure this is to support the banks with the balance sheet of the Central Bank.

Munger, according to your claims the share price and credit spreads warrant the analysis in the first place. This is a post 2008 invention given the fact that investors can't seem to take the 90 day periods in between two quarterly statements of financial condition. Management is taking the position, as most long-term shareholders should, that the analysis should be taken from the actual fundamental results of the business, as reported every 90 days. On October 19th, we will get to see for ourselves what the true figures are and whether any additional capital is required. Management team which views the numbers on a daily basis sees no reason imminent reason to obtain capital and the numbers from the last quarterly don't indicate to anyone other than yourself and the short players that the company requires additional capital. They've already done enough by spelling it out quite clearly on the Berkowitz call and CNBC interview that everything is FINE. What more should they do? Come out every day with a 24 hour conference call? I have seen short arguments ranging from European exposure to the now apparent fake it till you make it argument on the loan portfolio side. Intelligent investors should take a lesson from history. If it was August 2008, I would tell you in this scenario that the only black swan here is the potential for a Bank Run, that is the single most dangerous thing that would cause BAC into a forced liquidation. But again, I have to learn from history. We now know that in a fiat-money world, the central bank will expand it's balance sheet as much as required and exchange it for any garbage asset in order to prevent any systemic shocks. Moral Hazard, no longer exists. If every single BAC account holder moves their money out, all that will happen is that Ben Bernanke will accept any asset on the balance sheet of BAC in exchange for newly printed US Dollars, after several days/weeks deposits will flow back in as investors will depositors will realize the government has backed the banks once again. Investors, will panic and sell their position or go short, while an intelligent investor such as Tepper in 2009, will scoop up a bunch of cheap common shares. This would all coincide with the next wave of QE3 which is going to make QE2 look like a beta test. That is the worst case scenario, and I see it as the lowest probability event. Geez, I almost feel like nobody on this board has anywhere near a complete understanding of the Fiat Money system you all operate within, both for it's fallacies and/or it's "strengths". 2008 was probably the most important point in time for the fiat money system after its official starting date of 1971. This is due to it being the first time, moral hazard was thrown out for the sake of the system. Not only can we print money at will but we now use it to extinguish fires. Only fools would dismiss these clear indications of future policy.

One more thing, Short Interest on BAC is up to almost 150mm shares roughly where it was in March of 2009.

I personally don't think the company needs to sell any preferred shares. JPM just upgraded BAC. Here is the research note from JPM: "We estimated a capital shortfall $12bn (assuming a target Basel III Tier 1 common equity ratio of 7.5% at YE’12) under our base case; our Bear case suggests a $25bn shortfall. At this point, we think it is important to maintain perspective; our estimated shortfall is not huge, and is eminently feasible in our view. This is also a relative shortfall; the company remains very well capitalized by historical standards. The equity and credit markets are becoming increasingly clear in their message that the company needs to address the capital and mortgage issues; we think it is getting more difficult for management to ignore this sentiment. In our view, this raises the likelihood of a credit-positive development, such as an announcement of a capital raise. We cannot ignore the reality that current challenges are solvable. With CDS trading wider than at the peak of the financial crisis, current valuations appear to us to reflect irrationality, rather than the true, manageable, scope of issues facing the company."

Munger here is the response from Larry Dirita a spokesman for BAC verbatim: "(The following is a reformatted version of a statement from Larry DiRita, a Bank of America spokesman. The statement was confirmed by the sender.) Mr. Blodgett is making “exaggerated and unwarranted claims” which is what the SEC stated publicly when he was permanently banned from the securities industry in 2003. The sovereign exposure is off by a factor of 10. The commercial real estate figures are off by a factor of four. The mortgage analysis was provided by a hedge fund that has acknowledged it will benefit if our stock price declines. The recommendations on goodwill accounting would be prohibited by generally acceptable accounting practices. Traditional bank valuation relies upon tangible book value per share, which excludes by definition 100 percent of goodwill and other intangibles. As of June 30, our tangible book value per share was $12.65.

Also NORM, I can't find none of the big 4 Canadian banks are trading at 1/2 book, which one are you seeing?

It's true! you are essentially paying the government 2/20 2% of your assets and 20% of your capital gain. The government invented "Carried Interest"!!!!

I feel like a kid in a candy store buying BAC under 6.20 and BCS under 10.00 The interview to watch today is Bove's on Bloomberg. http://www.bloomberg.com/news/2011-08-23/bank-of-america-has-no-reason-whatsoever-to-increase-capital-bove-says.html Not one of the 20 analysts covering BAC thinks they need any additional capital. This is not 2008.

I would personally rather be poor than pay a 1.80% tax per year on my net assets. That is why France "only" has 14 Billionaires. And... It "only" takes $86mm to be in the top 400 wealth holders: http://www.challenges.fr/classements/fortune/

Audio interview with Irving Kahn: http://www.npr.org/templates/story/story.php?storyId=5180970

Here you go Roger.

http://www.bloomberg.com/news/2011-08-23/california-382-519-prison-doctor-shows-budget-gaps-don-t-bar-big-salaries.html $1B a year in salaries to medical staff in prisons!

This is very interesting. Last I heard Li Lu's BYD Stake represented over 70% of LL Partners fund holdings. I can see that LL Partners holds 55.5mm shares of BYD worth about $140mm Munger must be pissed he and his friends gave LL about $100mm of startup capital.

I think it should be illegal to buy a CDS on a naked basis. With BAC its funny to see these retards driving up the CDS prices. I cannot fathom any scenario short of a world war, where the federal reserve would allow BAC to fail.

Parsad, I am 56 years old, not sure how old you are sir, but in all my years of reading Baines specifically over the last decade, he has written at least two OTCBB articles for every one TSX. But that is a waste of time discussing Baines or his writing as that is besides the point. Again, you keep making key assumptions like "all you need is fiver years exploration or mine development experience, and be registered as a member with any professional geology organization"... Are you serious? Have you ever been on a mine or studied geology? These are extremely intelligent and brilliant people, and what you just described is a heck of a lot harder than the condescending context. Geologists spend 5-7 years learning the art, studying rocks, and understanding how the earth was formed. Its much more difficult and involves a lot more rigor than a CGA or CFA, there is no comparison, and this is evidenced by the amount of CFA's in the world vs. the amount of geologist. My biggest problem is with this comment: "The handful of companies you mentioned sprouted from thousands and thousands of companies that failed..." Oh so you mean investors actually have to do their due diligence? I thought we could just throw darts :) Are there legitimate companies...sure, plenty. But they are outnumbered by the rubbish. How is this any different than the US Stock Market? Investing in juniors is no different than value investing, and requires an investor to complete thorough due dilligence and research. The beauty is that the junior market provides incredible risk/reward ratio's because it is so difficult to value something such as an ore body which has yet to produce any cash. Here are some investors in the space that have not only had better performance than the value investors you previously mentioned (on aggregate) but are also quite richer (with the exception of Buffett) due to their risking of their own cash and the nonexistence of leverage in this industry: Tom Kaplan Robert Friedland Robert Mcewen Eric Sprott Bob Buchan Peter Munk Ned Goodman Bob Cross Carl Pescio Lucas Lundin Andrew Forrest Albert D. Friedberg John Hathaway Colin Steyn Clay Ridell Allan Markin William Gallacher Rick Rule Murray Edwards Robert Allen Sheldon Inwentash Brian Dalton Terrence Pegula Chris Cline Seymour Schulich Pierre Lassonde Ross Beaty Corbin Robertson Ernesto Echavarria Beny Steinmetz There are many more, but this is a good list. These guys have all done just as well if not better than the list of value investors you previously presented (with the exception of Buffet). What you will find is that on average these individuals are 20-30 years younger than the individuals you mentioned which to me indicates two things: 1) They will most probably get richer over their lifetime. 2) This is the industry to be in right now. Most of the people on this list have become billionaires or centamillionaires without the usage of 2 and 20, making it a lot more impressive as they created real value by developing natural resource assets. The global population consumes commodities and requires these commodities to survive. The world's commodity production is dominated by the big 3 (Rio/BHP/Vale) this leaves a tremendous amount of value creation for juniors who know what they are doing to find, define, develop and JV/Sell quality deposits which go in the hopper until they become part of the supply mix. The individuals I just mentioned have all been CEO's/Founders/or Investors in at least one TSX/TSX V company that did just that. There aren't a "handful" there are hundreds that succeed. If value investors go into this space, it would be akin to Buffet's quote to Forbes in the 1970's: "I feel like an oversexed man in a harem" Thats how I feel right now.

Kiltacular, I just read that PDF and I must say I am appalled, this is disgusting and there were things in there I had no idea about IE: the accumulated order feed that they buy from the exchanges. How can the market serve its purpose as a price discovery mechanism when only a small portion of the market place has access to such proprietary data. What is wrong with our regulators, HFT is outright fraud!

Berkshire your post was great, I don't know where I am going to find that copy of Forbes, maybe I will write the archive department for it as it sounds like a really great piece for my library. One thing i have to disagree with you though is on Rentec. There is enough evidence floating around to indicate that Jim Simmons created the HFT Craze, I have even read some court cases from ex employees that claimed their system would know when someone else placed an order. IE: You place an order to buy XYZ, Rentec can sense that, buy the shares before you and sell em higher knowing you most probably will change your order. Do that a million times a day 365 days a year. That is the most credible explanation I have personally heard of which would have explained the performance of rentec. Remember this guy was a codebreaker... But it may all be BS....

Also Parsad, what the heck are you talking about with regards to Assay Reports? Any company nowadays after the promulgation of National Instrument 43-101 has to send their assays to independendet third party labs such as ALS Chemex and has to send certain samples to several labs to be checked and retested. Every compliant resource estimate must have a serious QA/QC program which includes blanks which are sent to the labs as well and then a geoscientist will create a table checking to see if the blanks indeed showed up where they should have. No credible independent consultant will sign off on a 43-101 Resource Estimate unless it has had in place a robust QA/QC program. And again, I am not saying the companies you mentioned do not exist, but they are a miniscule part of the market both in terms of aggregate market cap and in terms of risk/reward. Any kid can discern between one of those shitty companies and a legitimate junior.

I can't seem to modify my post so I just wanted to add this: While the United States has been exporting their manufacturing jobs and trying to build a utopia of service based businesses relying on consumers that are leveraged to the hilt buying crap, Canada has incubated one of the most vibrant, vivacious, and innovating industries in the world. As a Canadian I am very proud of our expertise in the field of natural resources, we are world leaders. Not only are we endowed with a significant amount of mineral wealth but our nation hosts the most prestigous engineers, and geologists that have made some of the most incredible discoveries. Canadians have led the way into Latin America and Asia and Eastern Europe which have created millions of jobs and brought the world everything from oil to natural gas to copper. Don't get it twisted, the Juniors, are our national treasure. And don't take my word for it, every year on December 31, I urge you all to go through the list of M&A Activity that year, and you will see at least 2-3 Juniors that were acquired by Producers. Most likely the number will be quite higher. There is absolutely no comparison between a reputable junior (and there are hundreds of them) and startup technology companies.

Parsad, It appears your knowledge of the junior space is very basic and while you claim to do the internal controls on some companies they most probably fall into the category of the "exploration frauds or bs companies" I mentioned in my previous posts, the ones with a geological anomaly that has yet to be drilled or had yet to reach the stage of a compliant resource estimate. And if they do host resource estimates they are most likely tiny or mostly in the "inferred" category. This ties in well with your comments about David Baines who generally writes about the lowest of the low companies that 70% of the time don't even trade on the TSX or TSX V but trade on the OTC BB which well all know is the world's crappiest market, with almost no regulation. Your claims about 43-101 are completely wrong and you have not taken the time to understand the difference between a 43-101 Technical Report and a 43-101 Compliant Resource Estimate, which are two different things. Before I get into that, I also take major offense to your comment about "any geologist" as someone who's father was one I know quite well the time and effort it takes to become a good geologist, My father studied at the Colorado School of Mines which is world renowned. To be a Qualified Person per 43-101 Standards is no walk in the park and you quite literally sign off and stake your name on the credibility of the report much more than any auditor on a financial statement. Have you ever even read a 43-101 Report in it's entirety? It provides alot more information than a 10K. I urge you to read this 43-101 which includes a compliant resource estimate on the Malarctic Deposit: http://osisko.com/pdfs/2010-03-22_Updated_reserve_and_resource_estimates.pdf See if you still feel the same way, and you should specifically read the QA/QC section. To complete a 43-101 Compliant Resource Estimate a firm must have completed enough drill holes which included an independent QA/QC program that includes blanks, inserted randomly as well as test and retest of significant assay results. Once a database is completed a geoscientist will complete a geostatistical analysis which includes Kriging, or Polyginal estimation with the help of computer modeling. The geoscientist will create a block model of the ore body and will categorize the ore body into various categories which include: Measured, Indicated, and Inferred. It doesn't sound like you have ever really read a 43-101 Report or you wouldn't be saying the thing you just said. I urge you to read this report and see if you feel the same way. The problem with the Junior Space is that a lot of individuals do what you just did, they just assume that all the companies are the same, which is no different than the people that think stocks are for gamblers. It sounds like you have been doing internal controls for some really crappy juniors that do not host drill defined deposits based on 43-101/JORC Standards, but are rather part of the 1,000 or so either genuinely exploring or hyping a geologic anomaly. And that makes sense as any legitimate firm would have used a Big 4 auditing firm to do their internal controls, in Vancouver Davidson & Co is OK as well. I think what happened here is that you never bothered to really learn the industry, and I find that happens to a lot of people. The best returns I have ever made in my life where on the TSX and TSX V buying juniors that owned proven deposits. The first of such was Arizona Star which owned the Cerro Cassale deposit that was finally acquired by Barrick. As a canadian do you not see the constant M&A activity in the Junior Space.. the GENUINE M&A activity? Have you not heard of Equinox and Barrick? Richfield and Newgold, Redback and Kinross? Do you think these are all crapshoots? All were juniors that started out with proven deposits which ended up becoming part of the supply chain. Investors on this board, should easily decipher between the shells you speak up with unscrupulous CEO"S and real drill-defined deposits with reputable management teams. There is a real opportunity with juniors to buy way out of the money calls on the commodities you believe in and the TSX/TSX V are responsible for 90% of the world's major mineral and hydrocarbon discoveries over the last decade. So with all due respect, I believe you are dead wrong on your assessment. And if you disagree, lets go through each company you do internal controls for or you speak of, one by one , on this thread. I am willing to provide everyone on this board a transparent analysis of what I think of each one. Again as someone that runs a fund that specializes in these companies, I find it almost shocking at how familiar you are with the slimiest segment of this industry, which is not even taken seriously by professionals who are serious market participants such as: Sprott, Sentry Global, Salida Capital, Dundee, RBC, Cormark, GMP, Toqueville, Baupost, Greenlight, and hundreds more which have absolutely killed it in this space and continue to do so year in year out. There is a whole world out there that revolves around serious value creation, and that ultimately provides the commodity producers with their future supply. I strongly suggest you take some time to balance your views with that the of the slums of howe street, and try to realize that your home nation Canada is quite the leader and innovator in this field. I am personally very proud of this.