ERICOPOLY

This is good, the tension is passed and we are having a laugh again.

On moving to AIG warrants as a way of limiting exposure to financials... There was a point in summer of 2011 when Benmoche said that a 50% drop in the equity markets would put pressure on their capital levels. I never understood his comment as I didn't think they were all that exposed to the equity markets in the first place. Does anyone else remember him saying that and the context?

Everyone, Look, I'm still not mad at him in any way because well, I'm not in a shoving match with him. I never even put my fists up. I've just laid down and let him beat the shit out of me. My ego: 1) I told him I know very little and that's why I come across as someone asking basic questions (no false modesty) 2) I told everyone time and again that I just tailcoat great investors as a way of limiting my misses 3) I told him repeatedly that I just want to learn from him -- I merely asked him questions to get an idea of where he came to the conclusion that they can't do more on the debt side despite BofA insinuating otherwise 4) When he asked if I knew the difference between a call report and a 10-Q, I said "No". Is that macho to some people? I thought I was submitting myself to a strip search on that one. Lastly, can anyone find a single ad hominem attack I've made on him? He's now I think taken jabs at me on ego and irony, but really, can anyone find a place where I just made this a personal attack forum against him?

It's not about ego with me. It's about trying to learn. I previously estimated that they could cut $100b in LT debt and you waived me off. You specifically stated that you thought not much more could be done on the LT debt reduction. Now that Moynihan says it's $60b you have "cash flows" right off the cuff. So given that my own level of understanding can't explain it, and you had the quick solution, I wanted you to explain it to me. I figure you are working in the teaching profession because you are the Maestro (Spanish for "teacher"), and I figure that's your intended meaning given that you are domiciled in Mexico.

Yet at the same time they have all of the capital that they need for the next few years and everything generated will be returned to shareholders. So it's not the profits that are going into debt reduction. As I mentioned before, I don't know that much about business analysis so when you say two years of cash flow I'm interpreting that to be the capital generated by the business that they are cross-promising to shareholders in terms of dividends and buybacks. How can that money be in two places at the same time? Or did you mean something else by cash flow? I really do need it explained to me, I'm not going to take it personally if it comes across as business 101 lecture.

At the 36:30 mark he discusses further the new 3q disclosure on the worst case $1b extra GSE putback expenses. Tells us once again that the number comes from directly discussing the issue with the GSEs. How more reliable can it get than that?

There is a fair point to be made here that as long as BofA's earnings are impaired by it's LAS expenses, they may not get the full capital return that I want: http://finance.yahoo.com/news/bank-americas-profits-key-fed-172244871.html Nevertheless, they will be able to return it over the next 2.5 years (the timeline when those LAS expenses come down).

The 26:30 mark in today's webcast explains they are returning all of the money from this point forward. At the 27:14 mark they say they don't need ANY extra capital to grow for the next few years. They think they can achieve what they need for the business just by repositioning what they already have.

PlanMaestro: Look at slide 4 from today's presentation: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTYzODg4fENoaWxkSUQ9LTF8VHlwZT0z&t=1 They are going to reduce long term debt by up to 60 billion ("largely not replaced") over the next two years merely be not replacing maturing debt. On top of that, they plan on doing more calls, redemptions, and tender offers for TRUPS, subordinate debt So $60b of LT debt reduction would save them about $1.8b of expense. You were mentioning that the deposits aren't fungible -- but given the size here they must have some sort of scheme worked out given that the debt is largely in Merrill and ParentCo.

Which is why, Eric, that when you say you are headed to the sidelines (clipping dividends from high quality, low risk stocks) after the next wave of wealth, I don't believe you! :) To some degree you are right but I have to play a game with myself to try to keep this manageable from a psychological standpoint. One of the funny things is that I want to move my RothIRA assets from Fidelity to Wells Fargo (where I have my checking account) but so far the only thing keeping me at Fidelity is that performance feature. I'm so vain! My advice to anyone running a brokerage business is to get one of those systems implemented right away -- it increases the stickiness of customers (although, maybe if you were doing poorly it would be an incentive to switch brokers).

Don't forget that the Fed wants to stimulate the markets. Letting BAC return $20B to investors is that much less QE that the Fed has to take heat for. ;) The regulators only need to be tough to the extent that the banks meet the capital levels required. A bank meeting those levels... what are you still going to criticize the levels for being too soft, thereby undermining the very confidence in those levels that you set out to instill by declaring them to be adequate?

Actually, on the topic for why already rich people reach for yet more yield... Buffett already stated: 1) nuclear terrorism would have taken Berkshire down had he not realized it at one point and had the policies changed. But for a period of time Berkshire was completely exposed 2) Buffett clearly stated that Berkshire would have gone under in 2008/2009 had the government not bailed it out by proxy (he might be exaggerating to bolster a political point) Prem Watsa: Keeps on leveraging his wealth with insurance underwriting. Why dude, you are totally rich already? Your unleveraged equity investing returns have been 17% long term... when is enough enough? It's not as good as 20% so you need to write insurance to lever it up? I'm just pointing out that it's not strictly about needs that keeps people reaching for the little bit extra through these forms of added risk -- it's about the fun, the personal relationships, and the adventure as well. They are certainly both adding risk through insurance but neither one of the men needs to do so in order to generate market beating returns.

Bank of America Chief Executive Officer Brian Moynihan will present at the Goldman Sachs Financial Services Conference on Tuesday, December 4, 2012 at 9:30 a.m. Eastern Time in New York. A live audio webcast of the presentation will be accessible through the Bank of America Investor Relations Web site at http://investor.bankofamerica.com.

Well, maybe it's still to early to say whether he prematurely worried about increases to the carried interest taxation: http://www.thedailybeast.com/articles/2012/04/27/romney-holds-big-money-fundraiser-at-n-y-billionaire-s-townhouse.html

That does work with any meaningful impact? You'd still compare that 7500% to that 15000% and it would seem lower, right? What if, as now you only have one basic holding you'd make a portfolio chart showing potential future conservative portfolio value, i.e. 45000% in whatever year (it has to be a real estimate, of course). So when it goes down the potential for increase actually goes higher and the clear target remains. You're kinda anchored to the higher value. Yes, the 50% drop is still really painful and annoying. It works enough to remind me that it's part of the price to pay for the strategy. Otherwise it's easy to get wrapped up in the loss itself and fixate too much on it. Plus seeing the performance charted out with the ups and downs keeps the good times in perspective because every time I log into the Fidelity account I can pull up the graph and see the deep peaks and valleys.

My Roth IRA now has a "performance" feature where it will show me the asset levels at the end of every month/quarter/year going back for 10 years. When down, I visit that page and try to focus on the fact that if I wasn't so aggressive in the first place from day one the amount I have left would be yet a fraction of that still. The account at the end of October was up 15,000% over the past 10 years. It can be down 50% and while most people wouldn't be able to take that lightly, they would be giddy to be able to say that they'd made 7,500% in 10 years. This is actually the primary game I play on my mind to keep myself from having more discipline. Right now I can take a breather because for the first 3 years the account actually declined quite a bit. So improving the trailing 10 yr performance will get relatively easier for 2013,2014, and 2015. By the time I get to June 2016, I'm just going to have to concede to myself that my 10 year compounding number will never improve from there forward.

At least youre retired, if you lose sleep over those paper losse you can recuperate during the day :) Seriously tough why are you still doing an all or nothing approach? I'm sure you have enough to live for the rest of your life. To paraphrase Munger: "I remember when we did not have money and it was worse then not earning a proper return" BeerBaron BeerBaron The all or nothing approach wasn't planned, it just sort of crept up on me. I think Patton said something to the effect that the carefully prepared battle plans are just tossed aside once the shooting starts. I admire the self discipline of those of you who only put 5% into your biggest idea. It began when the AIG warrants had rallied to a peak for the year and BAC's were doing poorly on a relative basis. Impulsively I decided that relationship would change after I read the Q3 CC transcript for BAC. Since then the AIG warrants have declined modestly (7%) and the BAC warrants up in the mid-to-high-teens. This gives me a bit of reason to think about flipping some back actually. Once I had flipped the AIG warrants to BAC warrants I decided that I understood the long term future of BAC better than the long term future of MBI and DELL, so I flipped them too. That's why I got so interested in MBI once it dropped -- but with the way the management was so angry at MBI I took it as a sign that they were worried so I didn't go back in. DELL dropped and has since recovered. So I don't know. Maybe a little of AIG back again. I really want to wait and see first with respect to the capital return plans for BAC.

This is why I'm almost through with this game. My results are so lumpy it's driving me sick with emotional extremes. Really, at this point I want it to be the last big score so I can think less about the markets. In 2008 I was down 23% YTD at one point, but then finished the year up 20%. In 2009 I was down 50% YTD at one point, but then finished the year up 84%. In 2010 I finished up 20% on the year. In 2011 I was down 35% YTD at one point (but it was down 50% from the April high so felt much worse). I finished down about 25% on the year. In 2012 I suffered a 35% decline in July from the March/April high

Just curious, what other large bets has Eric made (near 100% allocated)? Fairfax. There were other large bets, but Fairfax was the only other one he went 100% into as well I believe...is that correct Eric? Cheers! That's the only other time it's been 100%. They're very similar in a way really, as Sanjeev first pointed out. Aren't you hedged for like +40%? So that's not really 100%. I was until the Q3 report came out. I was impressed with their progress and their conference call remarks regarding their having already fully achieved their capital build goals and that they intend to return 100% moving forward. Moynihan then later clarified that they will get all the capital they need to run the business merely from running off loans. Thus, anything generated can be 100% returned for a while because they have absolutely no need nor desire to retain it. It's all "ours".

Just curious, what other large bets has Eric made (near 100% allocated)? Fairfax. There were other large bets, but Fairfax was the only other one he went 100% into as well I believe...is that correct Eric? Cheers! That's the only other time it's been 100%. They're very similar in a way really, as Sanjeev first pointed out.

Great movie. So what is Moynihan's Wonderboy? I think he cracked his bat trying to get that last dividend approval. Then he went back to the dugout, rebuilt his capital along the way, and has walked back to the plate with a new piece of hickory (9% B3). 100% capital return. Shock and awe. To go one step further, he has done just like Babe Ruth during the '32 World Series. He pointed to centre field, swung the bat and hammered the hanging curve ball. The only question remaining is how far past the fence will the ball fly? SJ The succeeding pitch was also a homer, this time Lou Gehrig. The pitcher was then pulled from the game.

Great movie. So what is Moynihan's Wonderboy? I think he cracked his bat trying to get that last dividend approval. Then he went back to the dugout, rebuilt his capital along the way, and has walked back to the plate with a new piece of hickory (9% B3). 100% capital return. Shock and awe.

I think you are right that many people would be scared and just trying to defend. I'm spending a lot of time reading everything Brian Moynihan says, and reading everything the analysts then make claims about. It's sort of like woman is from Venus and man is from Mars. I might be biased, but to me it looks like they haven't listened to a damn thing he has said lately.

I don't know if you watch baseball, but when the ball is hit over the wall between the posts you can consider it a run scored. However you have to wait for the runner to tag all of the bases before the point goes up on the board. With BAC it's more like that scene from The Natural with the lights exploding and everything. Remember how slowly Robert Redford ran the bases? Mr. Market is simply replaying that scene in extra slow motion.

The other banks were employing a strategy of paying dividends while still needing to build capital. BofA's strategy has been to rebuild capital first, then return everything in excess of that. So a 75% payout is conservative in that it's not 100%. Moynihan has stated that as some loans runoff they'll be able to put that money back to work in new loans, so therefore they don't need to retain anything at all for the business right now. JPM was approved for a $15 billion buyback last year. Moynihan has also stated that each dollar of earnings will produce more than a dollar of capital with the tax loss assets. Their $15b approval was pretty lame, but remember the Fed is making them retain capital. It could have been as much as 100% of what they generate, I believe, if they were already at 9.5% B3.