Rabbitisrich

Like Kiltacular, my guess is that Buffett's article is less about direct effects on the budget deficit, and more about defusing class hatred. Majorities have historically committed to self-destructive paths when indignant. Focusing solely upon cash generated seems tone deaf and ahistorical.

No, but this is the first time they have made a sort of hostile offer. If BRK pulled their offer, as PE groups sometimes do as gamesmanship, that would not enhance their reputation, something that is very important to BRK. :) Wouldn't it be the other way around? Berkshire's negotiation strength partly stems from a tradition of charging for call options.

Gundlach offers some thoughts on recent equity volatility, declining yields, bond manager underperformance, deflation, and bank exposures to the eurozone. http://doubleline.com/archive/2011/08/8-10-11-market-turmoil-conference-call-replay/

What looks worrisome? At face value, Moynihan requested the meeting to argue for regulatory pressure to resolve the lawsuits favorably.

Consuelo Mack Wealthtrack King World News For more general economic discussion you can peruse this list: http://www.tradestreaming.com/2011/02/07/best-financeinvesting-podcasts-on-itunes/ CFA Institute puts up a few conference speeches. Tim Harford offers a nice podcast called "More or Less".

I'm more interested in regulator demeanors. Are they pushing for certainty before the Basel III capital stepups? Will they pressure BAC into uneconomic settlements and excess of caution equity raises?

I also wonder whether the equity markets are incautiously anticipating QE 3.

There are still a few dispiriting issues like the possibility of EU monetary and fiscal "responsibility", China's fixed investment boom (bubble?), and the declining effects of government funds in the U.S. Of course, all these factors are considered in your purchase price, but factors that you would think the market had to have already discounted end up hitting later.

A good updated summary of BAC's legal woes: http://newsandinsight.thomsonreuters.com/Legal/News/2011/08_-_August/On_a_very_dark_day,_BofA_s_dim_ray_of_hope/ The AIG fraud complaint is also a canny document. The suit lumps together allegations against Countrywide, Merrill Lynch, and BofA, painting all of them with the same tarry brush even though Countrywide and Merrill Lynch committed a good chunk of the alleged wrongdoing before they became part of BofA. Quinn includes public record information about their manifestly-deficient underwriting practices, but has brought the case as a fraud suit-not a contract case accusing BofA, Countrywide, and Merrill of breaching the representations and warranties on the mortgage loans underlying the securitizations AIG invested in. That way, AIG doesn't have to show that it controls 25 percent of the voting rights, the threshold for standing in a securitization contract case. But under the causes of action the complaint asserts-state-law claims and federal claims under the Securities Act of 1933--Quinn Emanuel doesn't have to show that BofA, Countrywide, and Merrill acted with fraudulent intent. Patrick said that deal supporters were encouraged by Friday's hearing, at which Judge Kapnick seemed to be well-versed in the filings and eager to move things along. A transcript suggests that Gibbs & Bruns; BofA counsel from Wachtell, Lipton, Rosen & Katz; and BNY Mellon lawyers from Mayer Brown took a smart course when they filed the case as an Article 77 trust proceeding, under which the court is supposed to pay deference to the trustee unless objectors can show the trustee acted unreasonably or breached its duty. "That's the proceeding they brought," Kapnick said, after noting that she had to look up the obscure Article 77 in the New York code. "It's not, it's not a class action. There aren't provisions in there to opt out that you are talking about. That's not what this is. If you started it, maybe that's what you would have done, but they started it and that's what they did. I have to work, at least now, within the confines of the proceeding that is before me." (A lawyer from the New York Attorney General's office was at the hearing, according to the transcript, but didn't remind Judge Kapnick that the case now has additional fraud and Martin Act implications, thanks to the AG's counterclaims against BNY Mellon.)

Munger, I'm not sure why you are focusing on BAC since your argument applies to the banking model. The problem with your argument is that it assumes that unsecured loans losses will increase and that banks will need to access the capital markets. As far as I can tell, you are saying: 1. Banks lend against their stock prices 2. Equity per share will be impaired when shares are issued at low prices 3. Unsecured loans aren't worth anything when they are worth nothing Great thoughts!

Munger, you are changing your argument halfway. You say that you will defend your position that a bank lends against its market capitalization, then you proceed to argue that a loan that goes to zero is worthless and can't be "accessed". Yes, if a loan goes to zero it can't be accessed. Good point.

Munger, I found the Denninger quote and I think that you misunderstood his point. He didn't argue that banks lend against their market cap; equity, in his usage, referred to book value, or risk adjusted book value, which he believes is overstated in times of stress. At least, that's what I hope he meant or he is an incredibly stupid idiot. That is just part of banking, or any industry that plays the yield curve. If there is a bank run, for pretty much any reason, valuations melt and the bank is in serious trouble. One thing to watch for is deposit performance through this period, which may get hairy as BAC seems to receive an inordinate amount of negative attention. If depositors aren't calling their funds, then the points you have raised will be largely irrelevant in comparison to the cash flow generated by air and other things.

Asset values in 2007 were based upon long period of increasing home prices and declining personal savings rates. Three and half years later we have seen loan performance in a deep recession and most measures have improved or leveled.

When the pubics start walking, this investor starts running.

I am starting to think that it is all about Berkowitz (and maybe Paulson) and some of his concentrated positions (MBI, AIG, C, BAC, and he does not have the warrants). It is almost as if there are bets based on redemption pressures ... the type of scenario for why he always wanted some cash. I think so too. I'm sure that there is legitimate fear surrounding these names, but Berkowitz is a concentrated investor with public cash flows. I opened a position in BAC today and, wonderful news, I am already down!

I don't question the depository business much. September 2008 was a great test of the franchise, and the deposit performance was excellent in the states, and manageable in foreign offices.

TxLaw, it's tough to contest your complaints, but Moynihan seems more competent and self-assured than the ex St. Joe and Pfizer CEOs. He lost a bit of credibility on the street by misreading the SIFI buffer discussion, but otherwise he has been doing a fine job. In the Pfizer, I had the impression that Berkowitz heard what he wanted to hear, and that Kindler simply agreed with some comments regarding generics without committing to specific plans and timelines. I suspect that the upcoming call with Moynihan will feature more specific plans and clear explanations of recent developments and strategies regarding capital buffers, loss development, counterparty risks, and dilution.

I'm guessing that it would take more severe disinflation to justify QE3. Some of the newer voting members implied the possibility that the output gap may have been exaggerated.

It's amazing that this news didn't receive more attention, but in the week ending Tuesday money market investors withdrew 3.9% of total funds: http://www.latimes.com/business/la-fi-money-market-20110804,0,1331360.story

I'm not sure that the BV moves are especially significant given the stated intention to hold on to most of the debt.

Looking back to the 2Q10 and 2Q09 reports, when sales kicked up in the U.S. with the RBK segment, there was an increase in sales/(avg. receivables). America is driving the revenue growth this quarter as well, so an increase in days receivable reflects a change in practice. This could all be simply noise, but it's worth noting that customer concentration has increased as well. In any case, cash flows are still very good relative to the price and the balance sheet looks good at current commodity pricing.

The cash flow story is still great, even with declining margins. Does the receivables build worry anyone, or is it just noise like the inventory moves a couple of quarters ago? Last time, FFHWatcher quickly related the inventory volatility to seasonal maintenance. Customer concentration in the NBSK and the RBK segments quarter to quarter and yoy.

Maybe over time, but for now we have a country that ignores the issue of deficit spending amidst two decades of improving asset prices and declining household savings, then makes a national emergency of deficits when the trends reverse. Is this the Bible's recommended prescription for 7 years of famine? Year 1: hoard food. Year 8: party! Household economics scaled to macro = hedge like it's 1999.

http://www.psyfitec.com/2011/07/perpetual-novelty-santa-fe-style.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ThePsy-fiBlog+%28The+Psy-Fi+Blog%29 When Arthur and colleagues modelled a simple stock market by allowing investors to modify their expectations in response to market changes - which were themselves formed by expectations in an endless recursive fashion - they found that if people didn’t change their future expectations very often the simulation once again settled down to an equilibrium in line with the classical models, under the rational expectations approach. However, if their expectations changed more frequently the market never reached equilibrium and weaved about randomly, oscillating between periods of stability and periods of great volatility. As the researchers state, this helps to explain: "One of the more striking puzzles in finance: that market traders often believe in such concepts as technical trading, "market psychology", and bandwagon effects, while academic theorists believe in market efficiency and a lack of speculative opportunities. Both views, we show, are correct, but within different regimes."

It's still an interesting article because it demonstrates one way in which investors fall into value traps (not saying that RIMM is a trap!). He tries to apply a "traditional" value technique of assessing a normalized business model and considering the manageability of a dislocation to a situation that requires more of an entrepreneurial perspective. The author's website is pretty good overall.