ERICOPOLY

How so? The fund went into 100% allocation when the market was bottoming. Isn't that the same thing he planned on, although from a different path? Pros: Increased his allocation to his smaller ideas like MBI that otherwise (due to size) don't move the needle much. Allowed the fund to increase BAC stake well beyond the 5% limit. Cons: ??? Bruce's golf game was cancelled because managing the redemptions was a headache. EDIT: I figure it was an administrative headache for Bruce, but his fund shareholders should have been pleased they could boost their BAC stake near the bottom. Otherwise not allowed to do that.

Perhaps by exercising them....? I might be wrong but I thought part of his reason for holding the warrants is the leverage and increased returns he expects them to provide vs the common. By exercising them and paying the strike for the common, wouldn't he lose out on that? When he exercises them, he will have already gotten the benefit of the leverage. He'll just need the capital to do the excersizing in 2021. Somebody a while back explained that the company will just distribute shares to you at expiry if you don't exercise. So say the stock is at $120 and the strike is at $40. They'll just distribute $80 worth of stock to you. That way you don't need any capital to exercise them. Is this information accurate?

I'm sorry, that is painful.

Calls, 2015 Wow, on December 11th the warrants closed at $14.45. I had purchased $33 strike 2015 calls instead and I closed them out this morning for a 30% gain. I reinvested the proceeds into the warrants at roughly $14.45 -- the same price offered as when I bought the calls! Nice ;D Eric, Any reason why you don't just buy the common, besides the leverage? Where do you see the warrants trading at? If you had to choose between between the BAC warrants or AIG warrants, which one would you choose? TIA I am with the warrants for the long term leverage. I'm just a nobody, but I figure the AIG warrants will most likely return more.

The stock is discounted by $90b below BV. Everybody think that's enough for these puny lawsuits?

Calls, 2015 Wow, on December 11th the warrants closed at $14.45. I had purchased $33 strike 2015 calls instead and I closed them out this morning for a 30% gain. I reinvested the proceeds into the warrants at roughly $14.45 -- the same price offered as when I bought the calls! Nice ;D

I went into a local medical clinic for an ultrasound scan yesterday to have something checked out. It cost about $217 (I paid cash upfront) but they said it would have cost $295 if it was billed to insurance. That's how efficient our private insurance system is I guess. So if you are going about arbitraging things, why can't this wide gap between cash price and insured price be brought down?

Just out of curiousity, if you live withing a social network of theists, how many of them condemn the killings in Tokyo, Dresden, London, Nagasaki, and Hiroshima as terrorism? Terrorism being defined as the targeting of civilians for political or military gain. In other words, is there even "objective morality" within the true believer networks? My question being, why is this a topic of "theism" vs atheism if the "theists" don't discuss it as such? Which national religious leader is going to condemn the US engagements of civilian populations in WWII and demand apologies from the US government? I'm willing to say none of them, but perhaps I'm exagerrating.

I agree with you. I simplistically stated it the way I did, but I should have qualified that whoever buys the index here is only going to get those implied returns if they sell at a similar market valuation. And that's really what you guys are talking about -- there won't be many similar opportunities to sell at such levels, so most people buying today will likely earn less than the implied return (they'll sell at a lower overall market valuation). There will be slippage that will erode returns. I just figure I'm in the opposite situation. I'm holding mostly BAC and wondering if there will be another opportunity in the coming decade to get in this cheap. I doubt it. However I've been gradually shifting some into the AIG warrants (now at 15% of net worth).

That's only 68 cents per share after taxes. Sort of a non-event almost considering that immediately afterwards the stock could be valued finally on a multiple of earnings power without people bringing up this legal stuff anymore. I suppose if we believe the book value could otherwise be at $30 in 6 years... it will merely be a $29.32 instead. So it makes about 2.3% difference to the terminal stock price. So why would you hold back on the purchase of the warrants? It really doesn't make much different at all to the returns unless you believe the stock will take a big dive first (based on a negative legal outcome). However given that the stock price is already discounted by approximately $90 billion below book, it might just rally instead.

I'm not sure if some of (or most of) the dilution is real dilution -- buying other companies with your stock. Sure, diluted share count but the total entity owns more earning assets. Or are you saying executive compensation style dilution matches share repurchases? I meant comp dilution. Anyways, I suppose it's not worth discussing because it all comes out in the wash (whether dilution or not, it's measurment gets appropriately measured within the dividend per share growth rate). So to keep it simple, it's just dividend yield and the rate at which it grows. Really everything else is noise.

Residential real estate never fell in value in the 1970s or 1980s. Not even one year. That didn't happen until the 2006 onwards period -- when interest rates were crushed.

Thanks but that is painful to read about the huge returns people are making from what BofA is selling.

That's only 68 cents per share after taxes. Sort of a non-event almost considering that immediately afterwards the stock could be valued finally on a multiple of earnings power without people bringing up this legal stuff anymore.

That's more in line with my expectations. We're going to have 10% ROE soon (couple of years) but paying out 3% dividend on equity. So book value grows at 7% annual rate. That gets us to $28 per share in five years. To get to $32 in five years (with 3% of equity dividend rate) you need ROE of 13% -- which is 19.5% return on tangible equity. To get to $40 in five years -- well that's really aggressive.

Well, I owe Bruce a debt of gratitude for all his help but he is smoking crack here on the 5 years side of things, and in 7 years maybe it happens. The analysts ask the bank about how much assets will grow and the bank tells them that it's going to be a wait before that happens. They will be writing new loans will capital that frees up as portfolios run off, and they will be funding other loans by selling some of their large securities portfolio. So I expect it will be many years before we see $3 earnings based on the current share count. We need $2.85 on average for 7 years to get to 40. Keeping in mind that in 2013 and 2014 we're probably only going to get about $2 average including help from the NOLs, that means for the remaing 5 years we need to get about $3.15 per share. Okay, I like his optimism and he has a lot of courage of conviction. But this is not sounding very conservative. EDIT: Well, I guess in 7 years it's only a 10% ROE per year if they're buying shares back at book value, but that's assuming they don't pay out dividends. Maybe if we credit the dividends back it comes out all the way to $40.

I can't conceive of a scenario where BV gets to 40 in 5 years even if dividends were to be retained and not paid out. There's only roughly $1.30 per share left of benefit from the NOLs. I'll bet they're all used up by the end of 2015. You need $4 gains per year on average. 2013 is not going to be easy to get $4 growth in BV (a miracle is needed for that). That puts a lot of pressure on the remaining 4 years. It's not realistic to assume that 100% of $2 per share earnings is going to be plowed into repurchase at 50% discount to book -- once any serious level of capital return begins, BV discount will erode.

I'm not sure if some of (or most of) the dilution is real dilution -- buying other companies with your stock. Sure, diluted share count but the total entity owns more earning assets. Or are you saying executive compensation style dilution matches share repurchases?

$8k monthly. It goes up to $8.4k at the end of April -- I have a lease extension until July 2014.

So purchasing the market here one could expect to earn 7.5% to 8.5%. 2.5% as income from the dividend and another 5% to 6% as capital gain from the growth in the dividend.

I don't follow the computation because I see something missing. Take WFC for example... only a portion of the cash returned to shareholders comes via the dividends, but you are only capturing the dividends. I'm not sure if my objection matters though -- taken as a whole, how much higher would the dividend yield be if buybacks were totally outlawed and banned? And don't forget the stash that companies keep piling up overseas. They seem unwilling to pay it out as a dividend because they don't want to pay the US tax on that income. Again though, I'm not sure how much that moves the needle on dividend yield if you add that in.

A P/E of 25 will get you 4% real returns if inflation rate is 0%. (well I suppose that's oversimplified given that I'm not including earnings gains from GDP growth and productivity gains). Back in the real world, there is inflation so P/E should be lower than 25. How much lower should depend on the rate of inflation. Because over the long haul (so I've been told) the market has returned 4% real.

We're not going to Australia -- we wound up in Montecito instead. The issue is that I discovered that Australia recognizes our IRA accounts as some kind of Foreign Investment Fund. So I have a 7 figure Roth IRA (start of last year) that gained slightly more than 300% in 2012. They would have taxed it at the 45% income rate -- they don't care what happens within the account, they just tax the annual gain of the account as if it were all realized income.. So it would have cost me more than a million in tax but here in the US my tax on it is zippo, zilch, nada. My wife's RothIRA is also up to 7 figures now. It's just way too expensive for us to consider moving. They do recognize "employer sponsored" plans -- so if I'd never rolled my 401k into the IRA I wouldn't be stuck in that mess. And a US citizen could move there for five years and have no issues with their taxes. The difference is that because I'm already an Australian citizen they're just salivating at the first chance to label me as a taxable resident.

Probably matters to investors what the "real" earnings yield is. 1982 inflation (actual and expected) was very different from 2009 inflation & expectations. Investors should naturally ask for a higher earnings yield in order to earn a return in excess of the rate of inflation. No? How about comparing the real earnings yield of the market in 2009 vs 1982?

Home ownership in the US feels more like a long term lease. It's not really your property if you have it taken away when you refuse to pay the annual "lease". I'm heavily anchored to my (very nearly) migration to Sydney where you don't pay any property tax whatsoever -- no matter how expensive your home is. They have a land tax on assessments in excess of 400k, but that's only for your second home or investment properties. Primary home has an exemption. They do have something called "rates" but it doesn't scale with the value of your home -- it's a regressive tax that helps pay for your fair share of basic services. That's pretty significant. Property taxes are something that you pay even when you stop working. It takes away much of your security. At least in California the real property tax payment has gone down over the years -- because they cap the rate of growth for your assessed value at something like 2% annually. My father for example purchased his Los Altos Hills home for roughly $50k in 1970 and today he pays less than a few hundred a month in property tax. The home is worth about $2m. You almost want inflation in California -- bring it on. Drives down the real cost of your tax bill. Of course, you don't get the home mortgage interest deduction on a primary residence in Australia. That's only useful if you have a mortgage. Also, it's only on the first 1m of loan. So if you have a home the size of what is being discussed here in this thread (5-10 million), it's not really all that material.