ERICOPOLY

I wonder what kind of thinking supports/drives the pricing in the B warrants. You could buy the common today at $14, write a 2015 $22 strike call for 20 cents, then purchase a B warrant for 78 cents. You would be 58 cents into margin debt (only 4% margin). If the stock shoots up above $22 by expiry, and your shares get called, you've got $22 a share -- and you miss out on any further gains before the stock reaches the warrant strike. But you then have 3.75 years left to grow your $22 dollars. If you can grow it higher than the warrant strike by warrant expiration, you make bonus money. I believe that would probably happen with a high single digit return. But if instead the $22 strike call expires worthless (maybe the stock is only $17), you can then write another call for perhaps 20 cents and maybe $25 strike. Or maybe instead you give up on that game and instead sell the B warrants for 78 cents (or more). Etc... Etc... But after perhaps only 2 or 3 years of this game you've completely paid off the cost of the B warrants. Thus, it becomes a free ride after than. Worst case (for the first iteration), you get called on the first round of this game at $22 -- and only have to grow it at a high single digit pace after that to keep up with the stock reaching the warrant strike.

The lowest closing price yet for the B warrants was 29 cents on Dec 19, 2011. On that day the common closed at $4.99. The B warrants are up 169%. The common is up 181%. The highest closing price for the B warrants was $4.85 on April 12, 2010. On that day the common closed at $18.39. But I remember fellow board member twacowfa bought the B warrants at the bottom and sold them for a huge gain in Feb/March 2012. It's been tough sledding for the B warrants.

Actually, I wouldn't touch a B warrant with a 10 foot pole. Today's TBV is 13.60 maybe. If they retain $1.28 per share on average for next 5 years (until expiry), then TBV is $20 in 2018. Then at 1.2x TBV the stock is only $26. That puts a big ZERO on the warrants. Sure, the future might be better than I laid out -- but my scenario is perfectly reasonable. Too risky for me.

I wonder how long it will keep that up. Any speculations Eric? At some point, those have to be interesting, but 18% cost of leverage is pretty steep (and that's ignoring the dividend increase from 0.01->0.32, or at least whatever potion it ends up being by 2018). The funny thing about that one though is that BofA could deliver on cost cuts and business discipline just like we hope and yet the B warrant still might wind up being worthless at expiry given the high strike price (which might be a $27 strike after dividend adjustments). For example, the stock could be $33 a month before expiration, then suddenly it could drop to $27 in a generalized market crash and you are wiped out. And $27 would still be a premium to tangible book. So it's not like there is a lack of precedent here. It expires in October 2018 -- just 5 years left. Today the tangible book is roughly 13.5. So my thinking is that as long as you are up for playing a game of chicken that the stock will trade at a premium to tangible book around expiry.... then just play that game today with the 2015 LEAPS. At least you won't have to wait as long to find out if you are wiped out or not :)

A year ago today the B warrant closed at 77 cents. Today the B warrant closed at 78 cents.

Yeah, I'm glad he made this point: Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan.

Don't all cars use some sort of battery technology? Yes, but 12V lead-acid batteries aren't known for failing spectacularly. Google "laptop explodes" Here is a comment on lead acid batteries: Jeff Chamberlain, deputy director of the Joint Center for Energy Storage Research at Argonne National Lab in Illinois, said that like in any other battery fire, it comes down to a short circuit. "If you puncture any battery, whether it's lead-acid, alkaline or lithium-ion, you'll create a short circuit and make connections across interfaces that you should not be making." he said. "When that short occurs, it creates heat and energy, which causes the fire." http://abcnews.go.com/Technology/tesla-model-catch-fire/story?id=20462128

Do high priced cars catch fire less? Here is an $840,000 car that caught fire: http://www.autoguide.com/auto-news/2012/02/ferrari-ff-catches-fire-in-shanghai.html Worth about 5.3 million Chinese Yuan, or $840,000 USD, this is not the first FF to set itself on fire. Another FF suffered a similar fate last June, likely caused by defective heat reflectors surrounding the FF’s exhaust. Of course, the comparison to Model S may not be fair. The Model S does not have an exhaust system that could contribute to a fire. Oh wait, we don't worry about things we are familiar with. We only fear new and exotic ways to be killed. For example, if the risk is higher in being killed in a car crash on the way to the beach, we will instead not worry about that and only worry about the risk of a shark attack.

So is it possible that in an accident involving a Tesla vehicle, the battery pack gets punctured, the coolant leaks out, eventually the batteries get hot and then explode, causing the fire? No, the Tesla car smashed into a Mercedes, rupturing it's fuel tank, and the Tesla car burned in the resulting gasoline fire long before the battery pack coolant leaked out.

Actually, just Google for cars that caught fire without coolant. Here you go: Ford blames coolant system for Escape, Fusion fires http://www.usatoday.com/story/money/cars/2012/12/10/ford-recall-escape-fusion-ecoboost/1759063/ If the coolant boils over, the engine goes into extreme overheating, which can result in fluids leaking, coming into contact with the hot exhaust system and potentially causing a fire. Ford said it has seen 12 fires in Escapes and one in a Fusion.

Don't all cars use some sort of battery technology? Yes, but 12V lead-acid batteries aren't known for failing spectacularly. Google "laptop explodes" Laptop batteries aren't liquid cooled. Google "model S battery pack explodes".

Don't all cars use some sort of battery technology?

I did find information that stated the majority of highway car fires were electrical in nature (bad wiring). So it might have to do with the age of the fleet. In other words, it takes a while for the insulation to go bad. But that probably degrades faster under extreme conditions (such as the heat from the internal combustion engine may encourage the degradation process).

Let me guess why. 1) $10 a gallon for gas in Norway 2) No value added tax on electric vehicles making a Tesla Model S the same cost as a Volkswagon Passat 3) Great car 4) Cheap hydro-generated electricity What? The Tesla S is the same price as a Passat in Norway? :o $10/gal gas, $80,000.00 for a Passat. It's a wonder anyone can afford to drive at all. Well, here's a used 2013 Passat for $66,000: http://m.ooyyo.no/detail/c=CD17057114D9854F111B926FBAA6355BA3A21D6615F385/-4638969442466894224.html/# Very affordable!

So actually, if 1 in 1000 cars catch fire annually on the highway (as my link above suggests)... Then Tesla makes the least fire-prone cars? They've had a lot more than 1,000 average cars on the road over the past 12 months, but just 1 fire. Plus, the Roadsters never caught fire.

That link I posed shows that 1/10 of 1% of vehicles catch fire annually on the highway. So we should expect greater than 20 Tesla fires annually now, going forward. Unless the lack of an internal combustion engine turns out to reduce the number of fires.

There are 31 highway vehicle fires per hour. http://www.tkolb.net/tra_sch/carfires/index.html And none of them are Teslas. This one didn't happen on a highway.

An engineering friend at Ballard told me that power density in Lithium ion batteries was an inherent problem as more density increases the risk of spontaneous combustion. Perhaps the problem is that there was too much pressure to extend range vs. preventing fire risk by reducing power density. Then your friend should either get rid of his laptop, or store it outside when not in use. The Model S battery pack is 7,000 small batteries. Part of the reasoning was to avoid the risk of spontaneous combustion. This accident is not an example of spontaneous combustion.

You guys are funny. Driving your cars with a tank full of gasoline.

I saw this article last week discussing the hit to trading revenue among the big banks: http://www.fool.com/investing/general/2013/09/27/these-3-mega-banks-stand-to-lose-the-most.aspx A few quotes: Jefferies Group, an investment bank owned by Leucadia National (NYSE: LUK ) , reported that its profit plummeted from roughly $70 million in the third quarter of last year to $12 million this year. This was driven by its fixed-income trading unit watching its revenue fall 88% year over year to $33 million. Ouch. Its trading revenue stood at its lowest level since the depths of the financial crisis, the fourth quarter of 2008. ... In 2012, Citigroup had approximately 22% of its $75 billion in revenue come from trading activities. While this is certainly the most of the four largest banks in the U.S., roughly 90% of its trading revenue (or 20% of its overall revenue) came from its fixed-income business. This trend held true through the first six months of 2013, as it again had its fixed-income revenue make up 20% of its overall revenue. ... Like Citigroup, JPMorgan is heavily dependent on its trading business to drive revenue.However, it is has a slightly better balance between its equity and fixed income divisions. In 2012, about 16% of its total revenue came from its fixed income team, but that number did creep upwards to 17.5% through the first six months of year. ... Next on the list is Bank of America -- which has also watched its trading revenue as a percent of total revenue creep upward through the first six months of 2013 compared to last year (16.5% versus 14%). Yet of the three, it has seemingly the best balance between fixed-income and equity trading, as its fixed-income line item also encompasses currency and commodities trading, which represented 75% of total trading revenue. ... Unsurprisingly, Wells Fargo in facing the least amount of risk, as any potential drop in trading would have an almost unnoticeable impact to its bottom line. In fact, in its most recent 43-page earnings release, it never even mentions "fixed income." While the bank faces potentially sharply lower mortgage-related revenue, shareholders of Wells Fargo can sleep easy tonight as they consider any risk of the fall in bond trading.

An article from a few days ago: http://www.thestreet.com/story/12052793/1/bank-of-america-cost-cuts-have-analyst-drooling.html?puc=yahoo&cm_ven=YAHOO The article claims consensus is for 20 cents earning in Q3. Last quarter, the consensus was 25 cents, the "whisper" was 27 cents, and they reported 32 cents.

Let me guess why. 1) $10 a gallon for gas in Norway 2) No value added tax on electric vehicles making a Tesla Model S the same cost as a Volkswagon Passat 3) Great car 4) Cheap hydro-generated electricity

Schneiderman drops his lawsuit/investigation of BofA. Instead goes after Wells Fargo. http://www.thestreet.com/story/12056412/1/new-york-ag-sues-wells-fargo-over-mortgage-settlement-violations-drops-bofa-suit.html?puc=yahoo&cm_ven=YAHOO

I wasn't paying attention to it anymore. But now I'm curious. I hope there is news soon. $20 to $40 billion total settlement instead of $8.5 billion will still put the stock at $20 by the end of 2014. Last quarter they generated net income of 32 cents per share. It was 45 cents pre-tax. They aren't paying taxes for quite a while yet as they use up their past losses carried forward. The six quarters ending Dec 31, 2014 will see them generate at least $30 billion more. Take 45 cents a share for six quarters and you've got $2.70 a share. 11.5b fully diluted shares. That's $31.05 billion. Plus, I think they will generate more than $31.05 billion as they continue to improve earnings -- that number is just based on how they did last quarter and applied to the next 6 quarters. So rather conservative. Take that $31.05 billion and add in $8.5b that they've already reserved for the settlement. That takes you to roughly $40 billion. The expense reductions over the six quarter period should get the quarterly earnings closer to 50 cents. But at 12.5x earnings it would only take 40 cents a quarter to reach a $20 share price. Could be a $25 share price at 12.5x earnings if they do make it to 50 cents a quarter. There is really nothing to worry about regarding this settlement. Stock has upside to $20-$25 over next 15 months either with or without it. The uncertainty appears to be fully in the price already.

I haven't been reading their financial reports that closely lately. Wow! They generated $5.7b before income tax in Q2 (less what they pay on preferreds). But they aren't paying taxes yet. They basically generated 45.6 cents of distributable cash in the quarter. So that's roughly 38 bps of Basel 3 capital generation in the quarter? Then in that case, Basel 3 ratio will be close to 11% in March after Q1 '14.