ERICOPOLY

I think you've got it backwards. Return of capital by definition flows to shareholders, it's not a reinvestment in the firm. It doesn't flow to shareholders. When a firm produces cash from operations it goes to the firm's equity, if it's used to buyback, it is an outflow that continuing shareholders do not see. Then you admit, it is an outflow. To shareholders. Continuing shareholders, if they wish to "see" it, merely need to sell a few shares -- bringing their % ownership back to the prior level. EDIT: Their choice of not selling any shares, thus not witnessing any cash, is similar to a shareholder who gets a dividend while enrolled in a DRIP plan. He never sees a bump up in cash balance in his account, but he does see his % ownership of company earnings increase. Same as with the buyback. Both are merely return of capital to shareholders.

I think you've got it backwards. Return of capital by definition flows to shareholders, it's not a reinvestment in the firm.

Cynically, I think Obama sees the government shutdown as useful. It gives him political cover to do some things that he probably wants to do anyway, but that he knows his "base" would recoil at. Probably the same story on both sides of the aisle. I handicap the chances of default at 0%.

The analysts estimated 25 cents for Q2 earnings, then the bank actually reported 32 cents. In what area(s) of the business were they taken by surprise?

Good information, thanks! I was thinking about this discussion last night when I saw the movie Rush. Nikki Lauda would probably rather crash in a Tesla if he were going to do it again. It also made me think about the fires in the Ferrari's of recent years: http://jalopnik.com/5914282/ferrari-ff-catches-fire-on-polish-freeway http://wreckedexotics.com/articles/056-458-brazil.shtml

Towards the end of 2012 Moynihan thought 13% to 15% returns on TBV by mid-2015 was a reasonable target. That was assuming interest rates showed no improvement. I figure if a P/E of 10x is assumed, then that would translate to 1.3x to 1.5x TBV. Or 1.43x to 1.65x TBV at 11x P/E. But when I said 1.2x above, I was still working off the idea that the markets could be in the toilet for whatever reason (recession perhaps). That would be very inconvenient for the B warrants, but I suppose you could treat them like any other LEAPS towards the end of 2017 and roll them to a 2020 strike LEAPS call. No reason to let them run out the clock so close to expiration.

Make sure you draw it after you get it raised. My brother in law (the responsible one that married my sister, not the derelicts on my wife's side) thought he had this reserve of liquidity in his HELOC -- then when things got tense in 2009 the bank froze the credit line. They never ran into any troubles, the bank was just trying to cut it's exposure in a scramble to cut risk.

To play devil's advocate, let's say one does that and there is a depression and the counterparty fails or something similar and now your puts are worthless. While I don't think that's very likely...well many didn't think the muni reset market would ever collapse back in 07 either. You can construct the same position just buying the $10 strike call and writing a spread with the $17 strike calls. So you are still hedged for any crash below $10 per share. You just never put that $10 down on the table in the first place. Eric, you know way, way more about options than I do. So, I could certainly be wrong here. However, if the OCC were to default or not process trades. What type of coverage is there to make sure your options are going to go through like you think they will? I took a look at their site, http://optionsclearing.com/clearing/clearing-services/ And it says they have $3.5 billion in a fund to cover contracts. "OCC is dedicated to promoting stability and financial integrity in the marketplaces it serves by focusing on sound risk management principles, including rigorous initial and ongoing membership standards, prudent margin requirements and a substantial $3.5 billion clearing or guarantee fund." Now, I may be totally of base here, but $3.5 billion in a derivatives market doesn't seem like a great cushion. Don't worry, the $10 is in cash. Imagine the bargains to be picked over in that scenario. There would be so many forced liquidations if puts were all torn up. You might get KO for ten dollars!

To play devil's advocate, let's say one does that and there is a depression and the counterparty fails or something similar and now your puts are worthless. While I don't think that's very likely...well many didn't think the muni reset market would ever collapse back in 07 either. You can construct the same position just buying the $10 strike call and writing a spread with the $17 strike calls. So you are still hedged for any crash below $10 per share. You just never put that $10 down on the table in the first place.

That's the reason why I think 15x is too rich. I'm wondering if 12x is feasible. The company won't be able to grow faster than GDP I figure. 12x earnings multiple would give an investor a 10% return if bank has 2% nominal growth tailwind from GDP.

What if you put all of this money into your house and then it burns to the ground? Is the value of the structure lost? Well, sure, if you don't have insurance. Same with investments.

Again, if you have puts to protect your investment portfolio then the "Great Depression" scenario is a 0% risk. We should stop using that as a reason given that it's so easy to hedge against that. It's just impossible, never going to happen. You just buy your puts. Simple, easy, we all can do it.

They don't have a 100 yr old date palm.

I would hardly consider it catastrophic if I invested my house money in BAC and it dropped down to $10. Nobody would be booted to the street under that scenario. The $10 strike put only costs 47 cents. You can raise the cash for those puts by selling the $17 strike covered calls on roughly 1/2 of your position. Let's say your BAC shares escape Armageddon for a couple of years... as the stock rises you roll your puts to increasingly higher strikes. Eventually you have 100% of your house money riding below the strike price. I'm pointing out that "on the street" isn't even on the table.

My house is a California bungalow -- actually it was built in 1912. It is 2,300 sqft. It has a tax assessed value of $2.7m. Don't ask what a McMansion costs here!

Depends also on how you have it invested. You don't have to take big risks for a big potential payoff. 4.5% fixed-rate mortgage only really costs you 2.43% if you are faced with 46% income tax rate in California. (there, I just explained part of the high cost of house prices relative to rents in California) You can make 2.46% in the California medium-term tax-exempt muni bond fund from Vanguard. That fund has an average duration of 5-6 years. So far that's a wash. Now, come maturity on those bonds.... interest rates could be twice where they are today. Hooray!!! Now your interest income would be double the outflow. So a way to play a potential rise in rates.

They are tracking user's browsing history, and showing relevant targeted ads. I'm getting an ad for Furnace Creek Resort in Death Valley -- I went to Death Valley earlier this year and clearly I was tracked.

Even when I had just $5,000 to my name I was investing the money. I had no house yet. Then one day I buy a house -- does this mean that I'm freaking out suddenly that my investments are just a gamble and they should all be dumped into paying down the mortgage? That gamble was there all along, from the very first $5,000 I had invested. It just seems harder to ignore once you've decided to buy a house. Same thing goes for saving for retirement. Do you dare invest the money that you'll need in the future to pay for your food? I'm pretty sure 100% of financial advisors say that you should risk your retirement food money by investing it today.

That seems like a rephrasing of Buffett's style. Stick with predictable businesses and you'll get fewer negative surprises. Although this boils down to the most basic of fortune cookie wisdom -- "predict what is predictable and you will be richly rewarded".

The ability to "ignore" a particular thread is the best of the suggestions so far. I might be interested in a tech thread, and I don't want it banished off to a place where I'll never see it. But if a particular tech thread (or non-tech thread) gets annoying, just "ignore" it. But anyways, this is all more work for Sanjeev to deal with. I hope you all give him donations every now and then.

$2 a share earnings power a year from now (optimistically), multiplied by 11.5b fully diluted shares, and you have $23 billion net income. At 15x earnings it's a $350 billion company. 15x is probably too rich. But it's a $400 billion company at that 15x earnings multiple in Oct 2018 if earnings grow at 3.5% per year for the remaining 4 years. So personally I wouldn't compare it to Apple or Exxon. I would just ask what they can earn per share, and ask what a reasonable earnings multiple would be. IMO if $400 billion is too rich it's not because of the large absolute number, it's because of the large multiple to earnings (15x). I don't think it matters if you are the largest market cap company -- as long as you have the earnings to support it and the earnings multiple is reasonable. BAC has over a trillion in deposits -- suppose they only had $100 billion in deposits, people would be arguing that trillion isn't even conceivable. But there it is, they have a trillion -- likewise, they're going to be a very large market cap company because with that very large deposit base will come very large earnings.

That's why I wrote yesterday that if one wants to take a gamble that a macro event won't happen near expiration, then why not go with LEAPS instead. Just face your fear ;)

So all of these ideas on where the stock price may trade rests on an assumption of price multiple to earnings. I can see (very optimistically) $2 a share a year from today, but if I grow it at 6% a year after that for 4 years I get a $2.50 per share earnings when the B warrants expire in Oct 2018. 10x earnings: $25 11x earnings: $27.50 12x earnings: $30 13x earnings: $32.50 14x earnings: $35 15x earnings: $37.50 Obviously the market multiple to earnings is critical. What would the right multiple be? About 12x?

Not quite that much. The warrant strike is a bit under $31 and the warrants are 78 cents. 15% for 5 years would put them at $1.57 per B warrant.

Alternate proposal: Two men enter, one man leaves