ERICOPOLY

He doesn't strike me as believing in EMT. I remember when he talked of "Irrational Exuberance" -- right there that casts him out of the EMT church.

No fear was involved to distort their perceptions.

I think the article makes the point that the debt service is at 17y lows, not the total level, thanks to low interest rates and refinancing. Better than 17 year lows if you expand a bit beyond merely debt service... But now the situation has turned around. The latest figures, for the final quarter of 2011, show that required debt service payments now make up just 10.9 percent of disposable income, the lowest proportion since 1994. A broader measure — which adds in such obligations as property tax and insurance premiums for homeowners, and rent for those who do not own their homes — has fallen to the lowest level since 1984.

These guys never normalize these slides to account for the cost of servicing the debt. (and the rates are primarily fixed given that's it's mostly mortgage) Let's review: 1) The debt service costs are nearly the lowest in 30 years 2) The mortgages are paid off in 30 years without extra payments (so who cares how big they are) 3) Cash flow matters -- slides ignore cash flow Yeah good point. The FHFA posts a monthly survey of purchase SFR mortgages. Adjustable rate share fell from 35% in 2004 to 5% in 2010. If Prem does another one of those question-and-answer sessions online, here is my question for him. Would you refinance Fairfax's debt on these terms?: 1) 50% lower interest rate 2) 30 year fixed rate 3) 25% higher principal amount (so you are gifting 25% to the lender in exchange for 50% lower rate) It's not an academic example. Fairfax's cash flow would increased. Why should that be a reason to feel stressed out?

The analysis is too simplistic. Would you personally rather have a 30 yr $50,000 loan with 4% interest rate or a $40,000 loan with 8% interest rate? Me too -- I'd pick the 50% cheaper financing cost even though it comes with a 25% higher principal burden. Wouldn't Prem? I mean, if somebody came to him and said how about you owe me 25% more principal on your loans but in return I'll halve your interest rates? He should be eager to accept those terms. This is elementary math, and common sense is you'd be better off owing more on the far cheaper financing terms. So why should the consumer be any different? These guys never normalize these slides to account for the cost of servicing the debt. (and the rates are primarily fixed given that's it's mostly mortgage) Let's review: 1) The debt service costs are nearly the lowest in 30 years 2) The mortgages are paid off in 30 years without extra payments (so who cares how big they are) 3) Cash flow matters -- slides ignore cash flow Additionally, going forward housing is already back at historically normal price levels. So new mortgage debt is of normal size. As days go by the new smaller mortgages dilute the average loan size in the pool of larger ones, so the total consumer debt-to-GDP contraction happens through natural decay, not additional payments. Secondarily, the payments (once again) on low interest amortization schedules are very highly weighted towards principle repayment -- so the principle balance on each low interest loan decays at an accelerated rate.

Most of the consumer debt is mortgage, at historically low fixed rates. Household debt service is at historically low levels. Low interest amortizations pay down faster in the early years. Why is this a cause for concern? If the US consumer were to head back to pre2000 levels of debt to income, new loan growth and revenue would be pretty weak for an extended period of time. The household debt service ratio is already at nearly the lowest level of the past 30 years. See slide # 9: http://investor.shareholder.com/common/download/download.cfm?companyid=ONE&fileid=515337&filekey=85746b44-384f-4eab-8c22-498b7d509acf&filename=BAAB%20Conference%20Presentation%20Final_11.4.11.pdf

Most of the consumer debt is mortgage, at historically low fixed rates. Household debt service is at historically low levels. Low interest amortizations pay down faster in the early years. Why is this a cause for concern?

yeah, that one doesn't show up for me =/. The "analysis" section is labeled as new for me, but that's it. It doesn't seem fair. Perhaps call them and ask for the feature to be added to your account. I never asked for it though. Or tell them that you deserve a discounted rate for the discounted feature set that you have been given.

After logging in, I get to the "Portfolio Summary" page. There are tabs for "Summary", "Portfolio Positions", "Portfolio Research", "Performance", "Analysis", "Statements"

Watch the one on "Color Coded Surgery". Amazing.

Fidelity's calculation now claims that the account has cumulative performance since date of inception of 18,474.81%. In March 2010, I wrote that the cumulative performance since date of inception was 25,153.26%. The account since I last wrote about it in March 2010 has increased 80%. It seems reasonable to conclude that they've either fixed a bug in their calculation of performance or they've introduced one. It's weird -- cumulative performance shouldn't decline after an 80% gain. They claim the account is now at 76.87% annualized compounding rate since inception vs the prior number of 118.51% that was reported by Fidelity two years ago.

My uninformed impression is that it boosts their balance sheet.. Reasoning: 1) After a period nonperforming status, a loan has to be marked to net realizable sale value including the legal costs of getting the person out of the property, realtor sales commissions, etc... 2) If you instead just own the property and rent it out you then carry it at a value that doesn't include the legal costs of getting the person out of the property, doesn't include realtor commissions, etc... Just a thought...

As far as the phase in milestones, it's a complete joke. They need to hit 3.5% by 2013. As you read this they are likely already prepared to hit the 2017 numbers. See slide 21 for the rest of the milestones: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDQ3ODAyfENoaWxkSUQ9NDcxNjkzfFR5cGU9MQ==&t=1 They are now saying "above 7.5%" by end of 2012 per latest CC. Those milestones are shockingly low. I guess, because of the problems at the European banks? Also noteworthy is the 0% capital deduction for 2013. Compare that against BAC's guidance for 7.5%+ on a capital deduction fully phased in basis (this doesn't even become the official rule until 2018).

Forget Berkowitz and Buffett, I'm long because a month ago hardincap wrote that he wanted the company to buy back stock before it hits $15-$20 in a year.

And the passing of 12 months hasn't led Moynihan to change his estimate at all. He said $35b-$40b pre-tax income in March 2011, and he reiterated those same numbers in March 2012 -- he is sticking by his $35b-$40b pre-tax income numbers. So Moynihan didn't change his story over the past 12 months. He has had a lot of time to think about it, learn the company better... yet no change in his conclusion. So $35b-$40b is the number I'm going with too. I'll take his estimate over the rest of the analysts out there. He made the comment at the Citigroup Financial Conference on 3/8/12: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/bac-longs-already-know-this/msg71351/#msg71351 I don't know where to find the video anymore. The trouble is we wont be in a "normal" environment for a long while. People have to get used to "new normal" subpar growth from here, as Charlie Munger and Bill Grows says. Revenues have collapsed in all of BAC's businesses--not just due to higher mortgage related provisioning, but credit card rules, poor investment banking climate, etc. It's interesting he mentioned 35-40bn number, because during one of the conf calls last year when someone asked him that question he sidestepped it, saying something to the effect of the economy is running poorer than he anticipated. I agree environment won't be normal for a while. However I think he is being conservative in the 35-40bn number in that he (I don't believe) is not adding in any gains from cross selling success.

As far as the phase in milestones, it's a complete joke. They need to hit 3.5% by 2013. As you read this they are likely already prepared to hit the 2017 numbers. See slide 21 for the rest of the milestones: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDQ3ODAyfENoaWxkSUQ9NDcxNjkzfFR5cGU9MQ==&t=1 They are now saying "above 7.5%" by end of 2012 per latest CC.

And the passing of 12 months hasn't led Moynihan to change his estimate at all. He said $35b-$40b pre-tax income in March 2011, and he reiterated those same numbers in March 2012 -- he is sticking by his $35b-$40b pre-tax income numbers. So Moynihan didn't change his story over the past 12 months. He has had a lot of time to think about it, learn the company better... yet no change in his conclusion. So $35b-$40b is the number I'm going with too. I'll take his estimate over the rest of the analysts out there. He made the comment at the Citigroup Financial Conference on 3/8/12: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/bac-longs-already-know-this/msg71351/#msg71351 I don't know where to find the video anymore.

But Tom Brown is right in that Mayo asks questions which should lead us to wonder how well Mayo understands the business of the companies that he is covering. For example, when BAC reports a revenue decline in excess of $10b and doesn't realize that what caused it was how R&W is accounted for. From Q4's conference call: Mike Mayo - CLSA: Just one separate and last question. New project BAC, are you cutting enough? I guess, if you look at results for last year, revenues reported were down $17 billion, expenses were down $3 billion, that’s a big gap between the decline in revenues and decline in expenses and you can back out LAS and some other items, it's still seems to be a pretty big negative gap. So are you cutting as much as you need to? Do you have the structural project, but perhaps more cutting through this cycle, is that needed? Brian T. Moynihan - CEO: ... snip ... I would say you need to be -- just to remind you, and you know this Mike is that, there is negative revenue, rep and warranty cost is actually a negative revenues, so that has a fairly big impact. ... snip ...

Judging by the tone and content of Mayo's comments and the tone of the replies Mayo gets from executives at banks like BAC and Citigroup, I decided to Google the phrase "Mike Mayo obnoxious". I came up with this commentary on him: http://www.bankstocks.com/ArticleViewer.aspx?ArticleID=6379&ArticleTypeID=2 Mayo set a new mark for sell-side absurdity last month when he put out a note lambasting Bank of America for not having the guts to take a question from him on its third-quarter conference call—then had to issue a retraction soon after when it turned out he’d mistakenly dialed in on the listen-only telephone number. ... When I was on the sell-side and heard some of the questions Mayo used to ask at conferences and on earnings calls, I got the impression that his work was perhaps slightly above average, but not much better than that, and that his grasp of the banking business could be shaky. When I moved to the buy-side and began reading his work more often, that suspicion was confirmed. (Since he moved to CLSA, I haven’t read a single report of his.)

When you say exposure, do you mean R&W expenses beyond what have already been reserved for? Correct. "Possible" exposure if you will - BAC estimates possible exposure is around $5B, whereas I think it's more like $25B. BAC estimates "non-GSE" exposure at possible $5b above accruals. What about the GSE exposure? It's not included in that figure and the bank has not estimated it for us. GSE claims grew by nearly $2b in Q1 2012.

I have been buying again this week. I don't see the connection between the stock price and their Spain exposure.

I reached the same conclusion after reading this document: http://www.newyorkfed.org/research/staff_reports/sr189.pdf The general public should be very happy with BofA. The taxpayer made a HUGE profit on the BofA bailout and left the BAC shareholders with the CFC tab! Otherwise, it would already be in the FDIC hands and wouldn't have that $3b injection by the generous shareholders of BAC.

I read that Pandit pocketed $165 million when he sold his hedge fund to Citigroup. Why not just go back to that business and join the higher paid people who are now complaining about his pay?

He states that the "normal" growth rate for the economy is 6%. This kind of fairy dust can wave off a lot of bad news. I suppose it's very easy for him to find value given that macro model. Wouldn't you be concerned if your money manager said something like that?

He also says the economy normally grows at a 6% rate.