ERICOPOLY

JPM has that same Euro headline but enjoys a much richer valuation. So I think BAC can at least get to JPM's valuation in two ways: 1) settle with GSEs on putbacks (this, after all, at most only costs an extra bilion beyond existing reserves) 2) over next two years those expenses come out. Having a strong balance sheet to protect against a shock is one thing, having an engine churning out a high current level of profits to replenish it is another. It's certainly better to have both as JPM does right now already. Having a machine gun in the trenches that's jammed is not as soothing as having one in full working order -- even if you are promised that the jam will be cleared, you're not certain it will happen before the shooting starts.

Slate has a good writeup: http://www.slate.com/articles/business/moneybox/2012/11/boehner_and_the_fiscal_cliff_the_house_speaker_is_bluffing_about_the_bush.html?wpisrc=obinsite Basically reminds us that the GOP can't stop Bush tax cuts from expiring, and for political reasons can't vote against a middle-class tax cut in 2013 (which benefits even the rich, as some of their income would also be taxed less, being the first $250,000 of income).

Well, here's one opinion on the subject: http://globaleconomicanalysis.blogspot.com/2012/11/prepare-for-demise-of-california.html I actually don't disagree with the direction of results he expects from this, just the severity. I'm quietly hoping that some of the rich people in Montecito will pack up and leave, so I can buy a house here at a discount. This place is crawling with Republicans.

However, when you leave your employer and rollover a 401k to a Rollover IRA, you can have 100% of the after-tax money go directly to a Roth IRA, and have 100% of the pre-tax money go directly to the Rollover IRA. The after-tax money from the 401k can go straight to the Roth IRA even though you haven't yet decided whether or not to do a Roth Conversion on the pre-tax money. That's what I did :) EDIT: Actually, it might have just been the Roth-401k contributions that went straight to the Roth IRA. I had both Roth-401k and the regular pre-tax kind in that company plan.

Well, I'd never thought of that. But a minute on Bing found me this: One other potential planning opportunity involves Roth conversions. While IRA required minimum distributions are not considered unearned income they are considered part of MAGI. Roth IRA distributions are not considered unearned income or MAGI. http://www.thestreet.com/story/11709964/1/2-obamacare-taxes-hitting-high-income-earners.html

There is one other little advantage to Roth IRA conversions. 5 years after you do a conversion, you can withdraw the amount you converted without incurring the usual early withdrawal penalty. There might be some reason for withdrawing some funds early. In my case, if I run out of taxable funds early on I might need to withdraw a portion of my Roth IRA early. Actually, since I did my last conversion in 2010 I only have to wait until tax year 2015. I'll be 42 years old, much younger than the 59.5 that I'd otherwise need to be.

This makes perfect sense -- if the rate is the same or higher. If the rate when you retire or convert is lower, then it might not (let's say that you stop working and has no income except the conversion amount). Right, totally depends on your income you expect when retiring. I flushed my IRA completely into a Roth IRA because I'm expecting to have some taxable income from variable annuities when I'm of retirement age. I'm not sure you saw what I posted earlier, so I'm going to write it again: I will probably invest some of those [taxable] funds in variable annuities (which are effectively mutual funds taxed the same as Traditional IRAs). There are no limitiations on variable annuity contributions (meaning you can put billions into them if you wish). So I will make slow withdrawals from the variable annuities to shelter the profits at low tax rates each year.

I go to sleep reasonably well but I wake up early and check the pre-market quote. As Sanjeev knows, on the West coast that comes pretty darn early... at 4:30am which is a fact I didn't even realize until the past few months.

The BAC management of boom days seemed to keep loan quality well enough in check to survive the crisis. Their aquisition record is what killed things for them. I'll bet if we brought back Ken Lewis today things would work out fine for the bank for the foreseeable decade or two. We might expect more boom time loan standards that are good enough to survive another similar crisis, and nobody these days would let him execute another acquisition-driven growth strategy. Anyways, I sleep very poorly some nights. Only, it's not for the reasons you might think. If you have young children, you could replicate this by telling them that Santa is coming... only tell them you don't know which night he's coming. They'll be up every night waiting.

The dilution is the only part that I care about. Money in BAC's hands is fungible. They recently retired $5b of TRUPS at face value that carried a higher interest rate than what they are paying Buffett. Did that $5b come from Buffett? Who is to say. Maybe the Buffett deal is actually accretive to NIM when viewed in this light. Personally, I probably benfefit from the Buffett deal because I allocated heavier in light of Buffett's seal of approval.

I'm venting at that WSJ article from a day or two ago that talked about the big writedowns coming if corporate tax rates are reduced. The point of the article was clearly to scare the reader about the coming "losses".

One thing we could do is lobby our local Congressman to bring the corporate tax rate up to 90% so that the value of the DTA would soar.

That's why I don't have a bearish sentiment on the stock :D

Your explanation that their ratios were really strong and they made a big profit that quarter are the reason why I'm wondering why they couldn't retire the TRUPS without selling stock. You say the TRUPS were a good deal. I agree. You say they had all the ratios and made a big profit. I agree. So, they were a FORTRESS if you look at the ratios, yet they couldn't handle the retirement of the TRUPS unless they sold equity. That's what really confuses me. They were also in the process of facing and settling multi-billion dollar lawsuits. I think they just felt that a capital raise was necessary to maintain ratios, retire the TRUPS and still settle litigation. Cheers! I maintain that it was a mistake to retire the TRUPS at a discount when the cost comes at $6 per common share. We'll soon see them paying $12+ for those shares, eviscerating whatever "gain" they made on the TRUPS and showing it would have been better to maintain patience and just retire the TRUPS at face value down the road.

Come to think of it, that could be construed as cooking the numbers. Raise common and buy TRUPS at a discount (book earnings gain on the discount paid) Later buy the common back for twice as much at a huge economic loss (no loss ever reported in EPS).

They are going to buy back the common they sold at a huge premium to the price they sold it for.

Your explanation that their ratios were really strong and they made a big profit that quarter are the reason why I'm wondering why they couldn't retire the TRUPS without selling stock. You say the TRUPS were a good deal. I agree. You say they had all the ratios and made a big profit. I agree. So, they were a FORTRESS if you look at the ratios, yet they couldn't handle the retirement of the TRUPS unless they sold equity. That's what really confuses me.

I suspect that the Fiscal Cliff was born out of the Republican hopes last summer for a Republican White House. Why negotiate for fiscal reform from a weak position when you firmly believe you've got a shot to control the White House in 2013? So the fiscal reform was punted to a post-election date. Now both sides can get serious, knowing which cards they hold. The most important outcome of this election is that it's over.

Which was worse though. Do you think it was worse than selling common at $6 last December? There might have been something going on. Perhaps they had to beef up collateral for derivatives due to the Europe scare last Fall? It's puzzling to me that they claim to have been so liquid, yet they go and sell common at $6 in order to retire TRUPS. Are they trying to say that the TRUPS were more valuable than the common at $6? What a message.

In the last statement, I assume that by "Traditional IRA", you actually meant "Roth IRA"? I meant Traditional IRA. I don't think my paragraph was very clear. I'm trying to point out that I expect my IRA to be huge, meaning if I hadn't converted it already then one day when withdrawn it would effectively be taxed at the top rate. Today's top rate at 35% isn't that bad. Who knows, we could get some Republican presidents to jack up the rates again, like Eisenhower did (to 92%) and like Hoover did (from 25% to 63%!). But even if today's top rate of 35% is still the same down the road, it's still better to convert now rather than later. In that last sentence of my prior post I was trying to convey that it's better to pay 35% of the account value now rather than later because I'm using funds from my taxable account to pay the tax. There is no way that my taxable account is growing at the same pace as a Traditional IRA can grow (with it's tax deferral). So if you don't pay the tax today, then you wind up using an ever larger % slice of your taxable funds to pay that tax down the road (this is because your taxable funds grow at a slower pace than your Traditional IRA). Hypothetical, if future tax rates aren't higher at retirement (i.e. time of withdrawal) than today, and if one can compound at a high rate, then one should be indifferent between Roth and Traditional, in my view. At a low rate of compounding, one should prefer the Roth. Huh? I just explained why it's better to do the Roth conversion now rather than later even when the tax rates are identical. Let's say two things first: 1) your tax rate is 25% on $100k worth of conversion whether you convert today or in 5 years' time. 2) Your accounts (taxable and IRA) are all going to double over the next 5 years. Scenario A: Convert Today: $25,000 in tax paid on conversion amount. You pay this in cash from your taxable account Scenario B: Convert Five years from now: $50,000 tax paid on conversion amount. There you have it. So now do you see how you've stuffed it up? The $25,000 that you could have used to pay your tax was doubled, so now it's $50,000. You kept that $25,000 invested in your taxable account, it's now worth $50,000 pre-tax. It's not worth $50,000 after-tax. You've blown it. The IRS is thanking your for your mistake.

Oh yeah, and there's more to my thinking that I left out. Traditional thinking is that you don't convert 100% of your Traditional IRA because you want some money to withdraw a little bit each year at low tax rates after you reach retiremenet age. My approach would seem wasteful to them. However, I will also have sizeable funds in my taxable account. I will probably invest some of those funds in variable annuities (which are effectively mutual funds taxed the same as Traditional IRAs). There are no limitiations on variable annuity contributions (meaning you can put billions into them if you wish). So I will make slow withdrawals from the variable annuities to shelter the profits at low tax rates each year. Thus, I have no strategic use for a Traditional IRA and it's better for me to convert the entire account to Roth IRA as I have done.

In the last statement, I assume that by "Traditional IRA", you actually meant "Roth IRA"? I meant Traditional IRA. I don't think my paragraph was very clear. I'm trying to point out that I expect my IRA to be huge, meaning if I hadn't converted it already then one day when withdrawn it would effectively be taxed at the top rate. Today's top rate at 35% isn't that bad. Who knows, we could get some Republican presidents to jack up the rates again, like Eisenhower did (to 92%) and like Hoover did (from 25% to 63%!). But even if today's top rate of 35% is still the same down the road, it's still better to convert now rather than later. In that last sentence of my prior post I was trying to convey that it's better to pay 35% of the account value now rather than later because I'm using funds from my taxable account to pay the tax. There is no way that my taxable account is growing at the same pace as a Traditional IRA can grow (with it's tax deferral). So if you don't pay the tax today, then you wind up using an ever larger % slice of your taxable funds to pay that tax down the road (this is because your taxable funds grow at a slower pace than your Traditional IRA).

I rolled my 401k to a Rollover IRA at the beginning of 2008. I waited until the end 2008 to convert the first 1/2. That was my first mistake as it appreciated a lot in 2008 while I sucked my thumb. My second mistake was waiting until 2009 to convert the second 1/2 of it. I was planning to not book any gains until 2010 (to keep my income below the allowable conversion limit) but then Fairfax bought out Odyssey Re and blew my income sky high. Then I had to reverse the conversion and do it again in 2010 (with no income limits). I wound up paying tax on 5x as much conversion principle this way, compared to if I'd just converted the entire thing on day 1 in 2008. Don't wait is my advice -- you never know how much gains you'll make. After paying taxes, do you think that you are still ahead comparing to invest that amount in traditional IRA? Oh, yes, no doubt. For one thing, Washington state didn't have an income tax. Now I live in California. Big difference right there. 1/2 of my BAC warrants are in my Roth IRA. Now, suppose that account is worth $25 million in 2019 at age 45. What's it going to be worth when I'm 70 and I start getting hit with forced withdrawals? At 10% per annum, I'd say north of $250 million. No doubt in my mind getting it all into Roth IRA is the best move as early as possible. Here is the short reason why: Let's assume the rate of compounding (I invest in the same things) is the same in the taxable account as well as in the Traditional IRA account. I would be trying to grow a present tax bill (to do a Roth IRA conversion today) in a taxable account at the same rate as the Traditional IRA (which compounds tax free). So a Roth conversion today is a no brainer unless you can make after-tax returns in your taxable account grow at least as fast as your tax-deferred compounding rate in your Traditional IRA. And if you can do that, then do it in your IRA too!

I rolled my 401k to a Rollover IRA at the beginning of 2008. I waited until the end 2008 to convert the first 1/2. That was my first mistake as it appreciated a lot in 2008 while I sucked my thumb. My second mistake was waiting until 2009 to convert the second 1/2 of it. I was planning to not book any gains until 2010 (to keep my income below the allowable conversion limit) but then Fairfax bought out Odyssey Re and blew my income sky high. Then I had to reverse the conversion and do it again in 2010 (with no income limits). I wound up paying tax on 5x as much conversion principle this way, compared to if I'd just converted the entire thing on day 1 in 2008. Don't wait is my advice -- you never know how much gains you'll make.

That's strange. Under the new rule I ask for $100b, and they say I miss by $95b. So then I say, okay, I ask for $5b then. Why don't we cut to the chase and just have the Fed tell the banks what they can return?