ERICOPOLY

Their current forecast is inaccurate. UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist: http://ceridianindex.com/multimedia/video/September-PCI-Falls/ Appears quite coincident to me...... http://ceridianindex.com/ Buffett's set of businesses is a better indicator of the whole picture. That's my view. I put that link to the ECRI in there because it's interesting. I have more faith in Buffett-vision though -- he's got reports from boots on the ground. Thus he can see what the ECRI guy is missing -- the actual results and sentiment of the businesses. Eric, I went back and looked at what WEB was saying back in late 2007/early 2008 when ECRI came out with their recession call, and WEB was saying that there was a high probability of recession. I will admit it will be extremely interesting to see who wins on the economic assessment over the next year or two - WEB v. ECRI. I would argue that Buffett has the best businesses in the country that would most likely, as a group, tend to lag the economy going into a recession (save for his housing-related businesses, which he has said continue to remain depressed). Perhaps WEB is right. It also may be a matter of time horizon - Prem and Friedberg are very worried about the environment over the near term, whereas WEB is looking out over the next 100 years. I'd be curious to pit Prem/Friedberg against WEB regarding the depression-era environment we're in. I think WEB would say the capitalist nature of our economy is healing our economy slowly over time and that there is a very small chance of a depression-type environment going forward - I think Prem/Friedberg would argue differently. As I've said before, that's the wonderful thing about this business, we can all be right at the same exact time just depending on the time horizon! Perhaps CEO Burke will be right over the next five years with his UNP purchase, but at the same time I'll avoid UNP and like investments over the near term due to the economic risk out there and end up being right over the shorter term by picking UNP and other investments up at 50 cents on the dollar at a later date 8) This is a bit like discussing sports or horse racing. I am very relieved that home construction and autos are already in the toilet. The recession of 2008/2009 was especially scary because those industries fell off a cliff and they are enormous parts of the economy. But they didn't climb back up the cliff -- there is only so far it can fall. You can't have home building fall by another 1.7 million units annually when your base is now only 500k-700k units.

Their current forecast is inaccurate. UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist: http://ceridianindex.com/multimedia/video/September-PCI-Falls/ Appears quite coincident to me...... http://ceridianindex.com/ Buffett's set of businesses is a better indicator of the whole picture. That's my view. I put that link to the ECRI in there because it's interesting. I have more faith in Buffett-vision though -- he's got reports from boots on the ground. Thus he can see what the ECRI guy is missing -- the actual results and sentiment of the businesses.

Their current forecast is inaccurate. UCLA-Ceridian pulse of commerce index is down 10% annualized -- symptomatic of a recession if you ask their chief economist: http://ceridianindex.com/multimedia/video/September-PCI-Falls/

Just figuring out the return of the warrant vs other forms of leverage. The trouble I have with the warrant is the high strike. Meaning that if you hold it all the way until $45 per common share (maybe 7-10 years including warrant exercise), you'll be in a highly leveraged position the entire time. Even at $45 you still have 1.42x leverage. When it gets just a few years from expiration it will be a nail biter. Would it feel better to start out leveraged common at a very low price and have the leverage wind down as the stock price rises? The trick is finding leverage that isn't risky at this low price. I guess there is call options but it's expensive leverage. Here is another output (below) where you start off with 1.5x leverage in the common and let it wind down to 1.1x and keep it there. Note that this strategy takes on 1.5x when the stock is very discounted versus the warrant strategy which is still 1.5x leveraged when the stock is at $40 and 1.8x leveraged at $30. Would you rather be 1.5x leveraged today at $6.49 when a margin of safety theoretically still exists and have it wind down to just 1.2x leveraged at $13 (the strike of the warrant) and then let it fall to 1.1x by $23 per common share? Or would you rather have the warrant strategy and be 20x leveraged at common price of $14, 1.8x at $30, and be 1.5x leveraged at common price of $40? I mean, the risks are different of course. You can't leverage in the common completely safely unless you buy puts (expensive). That's why I modeled it with 1.2x leverage as it takes a very large plunge to generate a problem. But it's interesting to learn that 1.2x constant leverage throughout is the same as taking on 1.5x initially and winding it down to 1.1x through natural decay. The thing is, the warrants look great if you assume very high prices -- but how good will it feel to be 1.8x leveraged at $30? I'm just trying to work out to myself what will be the easier and smoother ride. How risky is 1.2x really as an initial holding in the stock, and if I maintain that throughout I can get the same return at $45 per common share as the warrant. The warrant will be relatively very volatile and bumpy when the time to maturity approaches -- can I have a better ride in another vehicle? That's my question, and I'm just modeling the alternatives. Here is 1.5x initial leverage that is naturally decayed to 1.1x leverage and then maintained. It beats the warrant all the way to $45. C:\Users\Admin>cscript bac.js 1.1 1.5 Microsoft ® Windows Script Host Version 5.7 Copyright © Microsoft Corporation. All rights reserved. INITIAL STOCK LEVERAGE: 1.5 MAINTENANCE STOCK LEVERAGE: 1.1 BAC: $7 STOCK_LEVERAGE: 1.447 STOCK_RETURN: 1.12 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $8 STOCK_LEVERAGE: 1.371 STOCK_RETURN: 1.35 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $9 STOCK_LEVERAGE: 1.316 STOCK_RETURN: 1.58 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $10 STOCK_LEVERAGE: 1.276 STOCK_RETURN: 1.81 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $11 STOCK_LEVERAGE: 1.245 STOCK_RETURN: 2.04 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $12 STOCK_LEVERAGE: 1.220 STOCK_RETURN: 2.27 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $13 STOCK_LEVERAGE: 1.200 STOCK_RETURN: 2.50 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $14 STOCK_LEVERAGE: 1.183 STOCK_RETURN: 2.74 WARRANT_LEVERAGE: 20.000 WARRANT_RETURN: 0.22 BAC: $15 STOCK_LEVERAGE: 1.169 STOCK_RETURN: 2.97 WARRANT_LEVERAGE: 8.824 WARRANT_RETURN: 0.54 BAC: $16 STOCK_LEVERAGE: 1.156 STOCK_RETURN: 3.20 WARRANT_LEVERAGE: 5.926 WARRANT_RETURN: 0.86 BAC: $17 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 3.43 WARRANT_LEVERAGE: 4.595 WARRANT_RETURN: 1.18 BAC: $18 STOCK_LEVERAGE: 1.137 STOCK_RETURN: 3.66 WARRANT_LEVERAGE: 3.830 WARRANT_RETURN: 1.50 BAC: $19 STOCK_LEVERAGE: 1.128 STOCK_RETURN: 3.89 WARRANT_LEVERAGE: 3.333 WARRANT_RETURN: 1.82 BAC: $20 STOCK_LEVERAGE: 1.121 STOCK_RETURN: 4.12 WARRANT_LEVERAGE: 2.985 WARRANT_RETURN: 2.13 BAC: $21 STOCK_LEVERAGE: 1.115 STOCK_RETURN: 4.35 WARRANT_LEVERAGE: 2.727 WARRANT_RETURN: 2.45 BAC: $22 STOCK_LEVERAGE: 1.109 STOCK_RETURN: 4.58 WARRANT_LEVERAGE: 2.529 WARRANT_RETURN: 2.77 BAC: $23 STOCK_LEVERAGE: 1.104 STOCK_RETURN: 4.82 WARRANT_LEVERAGE: 2.371 WARRANT_RETURN: 3.09 BAC: $24 STOCK_LEVERAGE: 1.099 STOCK_RETURN: 5.05 WARRANT_LEVERAGE: 2.243 WARRANT_RETURN: 3.41 BAC: $25 STOCK_LEVERAGE: 1.096 STOCK_RETURN: 5.28 WARRANT_LEVERAGE: 2.137 WARRANT_RETURN: 3.73 BAC: $26 STOCK_LEVERAGE: 1.096 STOCK_RETURN: 5.51 WARRANT_LEVERAGE: 2.047 WARRANT_RETURN: 4.04 BAC: $27 STOCK_LEVERAGE: 1.096 STOCK_RETURN: 5.74 WARRANT_LEVERAGE: 1.971 WARRANT_RETURN: 4.36 BAC: $28 STOCK_LEVERAGE: 1.096 STOCK_RETURN: 5.98 WARRANT_LEVERAGE: 1.905 WARRANT_RETURN: 4.68 BAC: $29 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 6.21 WARRANT_LEVERAGE: 1.847 WARRANT_RETURN: 5.00 BAC: $30 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 6.45 WARRANT_LEVERAGE: 1.796 WARRANT_RETURN: 5.32 BAC: $31 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 6.69 WARRANT_LEVERAGE: 1.751 WARRANT_RETURN: 5.64 BAC: $32 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 6.92 WARRANT_LEVERAGE: 1.711 WARRANT_RETURN: 5.96 BAC: $33 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 7.16 WARRANT_LEVERAGE: 1.675 WARRANT_RETURN: 6.27 BAC: $34 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 7.40 WARRANT_LEVERAGE: 1.643 WARRANT_RETURN: 6.59 BAC: $35 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 7.64 WARRANT_LEVERAGE: 1.613 WARRANT_RETURN: 6.91 BAC: $36 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 7.88 WARRANT_LEVERAGE: 1.586 WARRANT_RETURN: 7.23 BAC: $37 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 8.12 WARRANT_LEVERAGE: 1.561 WARRANT_RETURN: 7.55 BAC: $38 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 8.36 WARRANT_LEVERAGE: 1.538 WARRANT_RETURN: 7.87 BAC: $39 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 8.60 WARRANT_LEVERAGE: 1.518 WARRANT_RETURN: 8.18 BAC: $40 STOCK_LEVERAGE: 1.097 STOCK_RETURN: 8.85 WARRANT_LEVERAGE: 1.498 WARRANT_RETURN: 8.50 BAC: $41 STOCK_LEVERAGE: 1.098 STOCK_RETURN: 9.09 WARRANT_LEVERAGE: 1.480 WARRANT_RETURN: 8.82 BAC: $42 STOCK_LEVERAGE: 1.098 STOCK_RETURN: 9.33 WARRANT_LEVERAGE: 1.463 WARRANT_RETURN: 9.14 BAC: $43 STOCK_LEVERAGE: 1.098 STOCK_RETURN: 9.58 WARRANT_LEVERAGE: 1.448 WARRANT_RETURN: 9.46 BAC: $44 STOCK_LEVERAGE: 1.098 STOCK_RETURN: 9.82 WARRANT_LEVERAGE: 1.433 WARRANT_RETURN: 9.78 BAC: $45 STOCK_LEVERAGE: 1.098 STOCK_RETURN: 10.07 WARRANT_LEVERAGE: 1.420 WARRANT_RETURN: 10.10

I wrote a script to illustrate my thoughts on the leverage in the warrant. I did this because I wanted to see how much leverage the warrant really brings to the table vs the common. The script compares a margin-leveraged common stock position to the warrant. It assumes that you hold the warrant to maturity and provides the return as if the warrant had just expired -- and the leverage you would need to hold if you were to take delivery on the shares rather than sell the warrants. It tells you how much leverage you have at any given stock price. Unfortunately the script is a bit unrealistic in that it assumes the margin interest rate is 0%. So it will overstate returns from the stock to some degree. The script assumes that whenever the stock goes up by a full $1 you buy more shares to maintain the target (initial) level of leverage. So as the stock rises (or when dividends are paid) you keep on buying, but if the stock drops you hold onto the shares (never selling). The idea is to maintain the starting leverage level. Stock price begins at $6.49 and warrant price at $3.14. The output from the script with 1.2x stock leverage. The warrant doesn't catch up with the leveraged common until $45 is surpassed. C:\Users\*****>cscript bac.js 1.20 Microsoft ® Windows Script Host Version 5.7 Copyright © Microsoft Corporation. All rights reserved. INITIAL STOCK LEVERAGE: 1.20 BAC: $7 STOCK_LEVERAGE: 1.183 STOCK_RETURN: 1.09 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $8 STOCK_LEVERAGE: 1.173 STOCK_RETURN: 1.28 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $9 STOCK_LEVERAGE: 1.178 STOCK_RETURN: 1.48 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $10 STOCK_LEVERAGE: 1.180 STOCK_RETURN: 1.67 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $11 STOCK_LEVERAGE: 1.182 STOCK_RETURN: 1.87 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $12 STOCK_LEVERAGE: 1.183 STOCK_RETURN: 2.08 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $13 STOCK_LEVERAGE: 1.185 STOCK_RETURN: 2.29 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $14 STOCK_LEVERAGE: 1.186 STOCK_RETURN: 2.50 WARRANT_LEVERAGE: 20.000 WARRANT_RETURN: 0.22 BAC: $15 STOCK_LEVERAGE: 1.187 STOCK_RETURN: 2.71 WARRANT_LEVERAGE: 8.824 WARRANT_RETURN: 0.54 BAC: $16 STOCK_LEVERAGE: 1.187 STOCK_RETURN: 2.93 WARRANT_LEVERAGE: 5.926 WARRANT_RETURN: 0.86 BAC: $17 STOCK_LEVERAGE: 1.188 STOCK_RETURN: 3.15 WARRANT_LEVERAGE: 4.595 WARRANT_RETURN: 1.18 BAC: $18 STOCK_LEVERAGE: 1.189 STOCK_RETURN: 3.37 WARRANT_LEVERAGE: 3.830 WARRANT_RETURN: 1.50 BAC: $19 STOCK_LEVERAGE: 1.189 STOCK_RETURN: 3.60 WARRANT_LEVERAGE: 3.333 WARRANT_RETURN: 1.82 BAC: $20 STOCK_LEVERAGE: 1.190 STOCK_RETURN: 3.83 WARRANT_LEVERAGE: 2.985 WARRANT_RETURN: 2.13 BAC: $21 STOCK_LEVERAGE: 1.190 STOCK_RETURN: 4.06 WARRANT_LEVERAGE: 2.727 WARRANT_RETURN: 2.45 BAC: $22 STOCK_LEVERAGE: 1.191 STOCK_RETURN: 4.29 WARRANT_LEVERAGE: 2.529 WARRANT_RETURN: 2.77 BAC: $23 STOCK_LEVERAGE: 1.191 STOCK_RETURN: 4.52 WARRANT_LEVERAGE: 2.371 WARRANT_RETURN: 3.09 BAC: $24 STOCK_LEVERAGE: 1.192 STOCK_RETURN: 4.76 WARRANT_LEVERAGE: 2.243 WARRANT_RETURN: 3.41 BAC: $25 STOCK_LEVERAGE: 1.192 STOCK_RETURN: 5.00 WARRANT_LEVERAGE: 2.137 WARRANT_RETURN: 3.73 BAC: $26 STOCK_LEVERAGE: 1.192 STOCK_RETURN: 5.24 WARRANT_LEVERAGE: 2.047 WARRANT_RETURN: 4.04 BAC: $27 STOCK_LEVERAGE: 1.193 STOCK_RETURN: 5.48 WARRANT_LEVERAGE: 1.971 WARRANT_RETURN: 4.36 BAC: $28 STOCK_LEVERAGE: 1.193 STOCK_RETURN: 5.73 WARRANT_LEVERAGE: 1.905 WARRANT_RETURN: 4.68 BAC: $29 STOCK_LEVERAGE: 1.193 STOCK_RETURN: 5.97 WARRANT_LEVERAGE: 1.847 WARRANT_RETURN: 5.00 BAC: $30 STOCK_LEVERAGE: 1.193 STOCK_RETURN: 6.22 WARRANT_LEVERAGE: 1.796 WARRANT_RETURN: 5.32 BAC: $31 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 6.47 WARRANT_LEVERAGE: 1.751 WARRANT_RETURN: 5.64 BAC: $32 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 6.72 WARRANT_LEVERAGE: 1.711 WARRANT_RETURN: 5.96 BAC: $33 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 6.97 WARRANT_LEVERAGE: 1.675 WARRANT_RETURN: 6.27 BAC: $34 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 7.22 WARRANT_LEVERAGE: 1.643 WARRANT_RETURN: 6.59 BAC: $35 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 7.48 WARRANT_LEVERAGE: 1.613 WARRANT_RETURN: 6.91 BAC: $36 STOCK_LEVERAGE: 1.194 STOCK_RETURN: 7.74 WARRANT_LEVERAGE: 1.586 WARRANT_RETURN: 7.23 BAC: $37 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 7.99 WARRANT_LEVERAGE: 1.561 WARRANT_RETURN: 7.55 BAC: $38 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 8.25 WARRANT_LEVERAGE: 1.538 WARRANT_RETURN: 7.87 BAC: $39 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 8.51 WARRANT_LEVERAGE: 1.518 WARRANT_RETURN: 8.18 BAC: $40 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 8.78 WARRANT_LEVERAGE: 1.498 WARRANT_RETURN: 8.50 BAC: $41 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 9.04 WARRANT_LEVERAGE: 1.480 WARRANT_RETURN: 8.82 BAC: $42 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 9.31 WARRANT_LEVERAGE: 1.463 WARRANT_RETURN: 9.14 BAC: $43 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 9.57 WARRANT_LEVERAGE: 1.448 WARRANT_RETURN: 9.46 BAC: $44 STOCK_LEVERAGE: 1.195 STOCK_RETURN: 9.84 WARRANT_LEVERAGE: 1.433 WARRANT_RETURN: 9.78 BAC: $45 STOCK_LEVERAGE: 1.196 STOCK_RETURN: 10.11 WARRANT_LEVERAGE: 1.420 WARRANT_RETURN: 10.10 Then I ran it again with 1.15x leverage -- warrant catches up with the leveraged common at $35. C:\Users\*****>cscript bac.js 1.15 Microsoft ® Windows Script Host Version 5.7 Copyright © Microsoft Corporation. All rights reserved. INITIAL STOCK LEVERAGE: 1.15 BAC: $7 STOCK_LEVERAGE: 1.138 STOCK_RETURN: 1.09 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $8 STOCK_LEVERAGE: 1.130 STOCK_RETURN: 1.27 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $9 STOCK_LEVERAGE: 1.133 STOCK_RETURN: 1.45 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $10 STOCK_LEVERAGE: 1.135 STOCK_RETURN: 1.64 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $11 STOCK_LEVERAGE: 1.136 STOCK_RETURN: 1.83 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $12 STOCK_LEVERAGE: 1.137 STOCK_RETURN: 2.02 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $13 STOCK_LEVERAGE: 1.138 STOCK_RETURN: 2.21 WARRANT_LEVERAGE: 0.000 WARRANT_RETURN: 0.00 BAC: $14 STOCK_LEVERAGE: 1.139 STOCK_RETURN: 2.41 WARRANT_LEVERAGE: 20.000 WARRANT_RETURN: 0.22 BAC: $15 STOCK_LEVERAGE: 1.140 STOCK_RETURN: 2.61 WARRANT_LEVERAGE: 8.824 WARRANT_RETURN: 0.54 BAC: $16 STOCK_LEVERAGE: 1.141 STOCK_RETURN: 2.81 WARRANT_LEVERAGE: 5.926 WARRANT_RETURN: 0.86 BAC: $17 STOCK_LEVERAGE: 1.141 STOCK_RETURN: 3.01 WARRANT_LEVERAGE: 4.595 WARRANT_RETURN: 1.18 BAC: $18 STOCK_LEVERAGE: 1.142 STOCK_RETURN: 3.21 WARRANT_LEVERAGE: 3.830 WARRANT_RETURN: 1.50 BAC: $19 STOCK_LEVERAGE: 1.142 STOCK_RETURN: 3.42 WARRANT_LEVERAGE: 3.333 WARRANT_RETURN: 1.82 BAC: $20 STOCK_LEVERAGE: 1.142 STOCK_RETURN: 3.63 WARRANT_LEVERAGE: 2.985 WARRANT_RETURN: 2.13 BAC: $21 STOCK_LEVERAGE: 1.143 STOCK_RETURN: 3.83 WARRANT_LEVERAGE: 2.727 WARRANT_RETURN: 2.45 BAC: $22 STOCK_LEVERAGE: 1.143 STOCK_RETURN: 4.04 WARRANT_LEVERAGE: 2.529 WARRANT_RETURN: 2.77 BAC: $23 STOCK_LEVERAGE: 1.143 STOCK_RETURN: 4.26 WARRANT_LEVERAGE: 2.371 WARRANT_RETURN: 3.09 BAC: $24 STOCK_LEVERAGE: 1.144 STOCK_RETURN: 4.47 WARRANT_LEVERAGE: 2.243 WARRANT_RETURN: 3.41 BAC: $25 STOCK_LEVERAGE: 1.144 STOCK_RETURN: 4.68 WARRANT_LEVERAGE: 2.137 WARRANT_RETURN: 3.73 BAC: $26 STOCK_LEVERAGE: 1.144 STOCK_RETURN: 4.90 WARRANT_LEVERAGE: 2.047 WARRANT_RETURN: 4.04 BAC: $27 STOCK_LEVERAGE: 1.144 STOCK_RETURN: 5.11 WARRANT_LEVERAGE: 1.971 WARRANT_RETURN: 4.36 BAC: $28 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 5.33 WARRANT_LEVERAGE: 1.905 WARRANT_RETURN: 4.68 BAC: $29 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 5.55 WARRANT_LEVERAGE: 1.847 WARRANT_RETURN: 5.00 BAC: $30 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 5.77 WARRANT_LEVERAGE: 1.796 WARRANT_RETURN: 5.32 BAC: $31 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 5.99 WARRANT_LEVERAGE: 1.751 WARRANT_RETURN: 5.64 BAC: $32 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 6.22 WARRANT_LEVERAGE: 1.711 WARRANT_RETURN: 5.96 BAC: $33 STOCK_LEVERAGE: 1.145 STOCK_RETURN: 6.44 WARRANT_LEVERAGE: 1.675 WARRANT_RETURN: 6.27 BAC: $34 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 6.66 WARRANT_LEVERAGE: 1.643 WARRANT_RETURN: 6.59 BAC: $35 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 6.89 WARRANT_LEVERAGE: 1.613 WARRANT_RETURN: 6.91 BAC: $36 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 7.12 WARRANT_LEVERAGE: 1.586 WARRANT_RETURN: 7.23 BAC: $37 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 7.34 WARRANT_LEVERAGE: 1.561 WARRANT_RETURN: 7.55 BAC: $38 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 7.57 WARRANT_LEVERAGE: 1.538 WARRANT_RETURN: 7.87 BAC: $39 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 7.80 WARRANT_LEVERAGE: 1.518 WARRANT_RETURN: 8.18 BAC: $40 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 8.03 WARRANT_LEVERAGE: 1.498 WARRANT_RETURN: 8.50 BAC: $41 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 8.26 WARRANT_LEVERAGE: 1.480 WARRANT_RETURN: 8.82 BAC: $42 STOCK_LEVERAGE: 1.146 STOCK_RETURN: 8.49 WARRANT_LEVERAGE: 1.463 WARRANT_RETURN: 9.14 BAC: $43 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 8.73 WARRANT_LEVERAGE: 1.448 WARRANT_RETURN: 9.46 BAC: $44 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 8.96 WARRANT_LEVERAGE: 1.433 WARRANT_RETURN: 9.78 BAC: $45 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 9.20 WARRANT_LEVERAGE: 1.420 WARRANT_RETURN: 10.10 BAC: $46 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 9.43 WARRANT_LEVERAGE: 1.407 WARRANT_RETURN: 10.41 BAC: $47 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 9.67 WARRANT_LEVERAGE: 1.395 WARRANT_RETURN: 10.73 BAC: $48 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 9.90 WARRANT_LEVERAGE: 1.383 WARRANT_RETURN: 11.05 BAC: $49 STOCK_LEVERAGE: 1.147 STOCK_RETURN: 10.14 WARRANT_LEVERAGE: 1.373 WARRANT_RETURN: 11.37

A while ago wasn't Fairholme trying to get itself listed as an offering for one of AIG's variable annuities? Does anyone know if this is still happening?

I've heard that said before but it doesn't make sense to me really. People who want to start businesses can generally get funding from the bank. I'm not sure what the 401k brings to the table in terms of jobs. I guess maybe the bank securitizes the loan and sells it to the 401k. At any rate, I think there is already enough idle money available to fund the companies that want to expand. We could cut this subsidy for a few years and I doubt it would restrict job growth. Then of course some people just buy government bonds in their 401ks. The government borrows money (the bond) and lends it to the 401k interest-free. The 401k then buys the bond and collects the interest from the very same government that gave them the loan interest-free. The poor should be really pissed about this.

I wasn't really saving for retirement though beyond a certain point. Past a given threshold it's just a tax shelter boosted with interest free non-recourse loan. $60k per year joint pre-tax savings -- and I was 30 years old. On top of that I was also saving another $7k in after-tax 401k contributions as well as after-tax IRA contributions of another $5k each. The reason I was doing the after-tax is so that I could then roll them into RothIRAs when I quit, which I of course did :) That was a back-door Roth contribution (front door contributions were disallowed due to our incomes). So that's like $77k per year in savings. For "retirement"... which shouldn't have even happened for another 35 years anyhow. There's a limit to how much I can hold back a smile while I justify these contribution sizes "for retirement". Retire where? Oh, on my yacht of course. You'd be surprised at the cost of retirement these days :D I think you could limit the pre-tax subsidy to something reasonable. If I were self-employed like my wife we could have bumped it up to about $85k pre-tax (would be even higher if we made more money). The self-employed enjoy the "profit sharing" contribution which is 25% of profits up to about $160k of income. I think the limit on pre-tax contributions is somewhere near $110k. Then maybe around $120k if you count after-tax IRA contributions as well. Meanwhile the only discussion in Washington is about how we can't afford Social Security and must cut back on it.

The savings subsidy increases the debt. So point taken. The 401k/IRA plans are not a replacement for Social Security -- you can see this in the participation rates. The savings subsidy is a zero-interest non-recourse loan to the relatively high income people. The cost of the subsidy is born by the tax payer. You can't expect me to believe that the wealthy need a subsidy in order to save? Some people may need one, but look my wife and I were making pre-tax contributions of about $60k per year when we were working. That's an aweful lot. It effectively meant that the government each year was giving us a new $15k interest free loan to be repaid when we draw down the account. Could we still afford to save even without the $15k interest-free loan? Of course we could, don't be stupid. It's just a free handout.

They could temporarily eliminate/reduce pre-tax 401k and IRA contributions. People can still save on an after-tax basis. Perhaps allow an after-tax 401k or IRA contribution instead. Generally speaking those contributions reduce government revenues. By definition that money wasn't going to be spent anyhow, so a tax on it would not take money away from private sector spending. That money was also not being used to pay down debts, thus taxing it doesn't slow down private sector deleveraging. The govt wants more private sector spending yet it is subsidizing savings via this program. Genius isn't it? And largely it's the higher income people who contribute to these plans, so at a time when we can't figure out how to fund retirement for the lower income, we respond by increasing retirements for the relatively rich by way of a tax subsidy. In order to afford this tax subsidy we borrow money and thus add to the deficit. Right, and nobody wants to cut this one eh?

Anyways, how far along are we with the putbacks? Last year Goldman estimated $25b total costs for BAC, including the $7b already reserved for and charged off. BAC added $1b to reserves in Q1 and $14b in Q2. That brings the total to $22b right? By Goldman's stale estimate we're at 90% of target. How close are we to getting that one behind us?

There was probably a point during the D-Day invasion where the battle was viewed to be "going well". Somebody perhaps then said "you think all these dead bodies piled up is good?".

It's doing fine as long as $1 trillion is borrowed and spent every year. But that seems not likely to change for a while yet. Other theories: 1) People say that when Europe collapses it will hurt our exports and people will get fired 2) The guy from the ECRI is one of the few who is always right (until he isn't :D)

So if this is all about the impact on the share price from the Merrill deal then I'm left wondering what the heck? They knew about the BAC stock price drop and were happy with it -- happy enough to vote YES anyhow. That is the perplexing part -- they had a really good idea of how the market would value BAC with Merrill and they went along with it. Not much changed in that regard when the loss was disclosed. Actually, in the week after the Merrill loss was reported WFC dropped another 30%. That's actually more than the 29% drop that BAC suffered. Then over the next week they both fully recovered to the level seen before the Merrill loss report.

Shareholders collectively held $65 billion worth of BAC (that was the entire market cap) before voting on the Merrill acquisition. But they are suing to recover $50b? Huh? In other words, they argue that the Merrill deal left them with only 23% of their prior value (they measure value in terms of share price). It destroyed 77% of shareholder value... huh? But then again I don't decide these things -- who knows what the judge will be talked into.

I'm trying to figure out what the shareholders might have lost because of Merrill. You have to admit, they were going to suffer some pretty radical stock declines in early 2009 just by virtue of not only being a bank, but by having Countrywide to boot! Even WFC lost 33% in the first two weeks of 2009. Thus it's not too instructive to look at the stock drop alone for BAC over the first two weeks of 2009 -- but rather look at how much further it dropped once the "bomb" was dropped on shareholders regarding the Merrill losses. A few dates in 2009: 1) Jan 1: Merrill deal closes 2) Jan 2: BAC closes at $14.33 (same as the range before shareholders approved Merrill purchase) 3) Jan 15: BAC closes at $8.32 (the day before Merrill loss is disclosed) 4) Jan 16: BAC closes at $7.18 after Merrill loss of $15.31b is disclosed 5) Jan 28: BAC closes at $7.39 Alright, you could have sold your shares for about 15% less after you found out about the loss. $50b in damages? That's ridiculous.

Lower interest rates? The wealthiest 5% of U.S. households saw incomes fall 7% after inflation in Bush's eight years in office,

Yes the gains will be higher with the warrant vs the common I expect. You will get some time value. Warrant might be worth $11 if the stock is at $20 by end of 2012. I'm granting it 5% time value per annum -- thus $4 of time value if 6 years are left. Maybe 5% annualized is too low? What's other's opinion on what the time value is worth for deep-in-the-money warrant? That would be a gain of 3.39x in the warrant and a gain of 3x in the common.

If the stock were to triple, what asset base is required to justify the market cap? That's where I get stuck with the warrants for a big bank like WFC. It takes only the current asset base growing at 3% a year for the next 7 years. They could earn $4 right now if losses were normalized and yield curve looked better. The company stock could trade at 12x earnings. That gets us to $48 per share. Then let's say they buy back 3% of shares a year for next 7 years. That gets us to $60 per share. Then let's say they grow business/assets by 3% a year. That gets us to $75 per share.

I suppose it's reasonable to make 5x in the WFC warrant -- stock needs to triple in 7 years' time. But it's sort of the same thing -- once the stock hits $50 the obvious gap is closed. Common and warrant are both returning 100% at that point. To hold it from that point going forward you are taking on more than 2:1 leverage in a fairly valued stock. More like 3:1 leverage

A while back I switched to the common from the warrant. And I have some out of the money calls as well. Are you really going to want to remain 2:1 levered in the warrant when the stock is no longer trading with any perceived margin of safety? You can go out and find a fairly valued stock pretty much anytime you want and lever it 2:1. It doesn't feel very good. That's where you'll be at when the stock is at $26.60. Think ahead -- how will you really behave when you are at that point? Let's say BAC is trading at $26.60 tomorrow morning. Are you going to say it's time to load up 2:1 or are you going to say that you are a value investor and you'd rather be finding 50 cent dollars because of the margin of safety?

They might also be playing fast and loose when listing the ingredients: http://newsok.com/high-fructose-corn-syrup-in-soda-has-much-more-fructose-than-advertised-study-finds/article/3510173 The high-fructose corn syrup (HFCS) used in soda is supposed to contain no more than 55 percent fructose and 45 percent glucose, according to the Corn Refiners Association. ... The Keck researchers found that the sweeteners in Coca-Cola and Pepsi contained as much as 65 percent fructose (and only 35 percent glucose), and Sprite registered as much as 64 percent fructose (and 36 percent glucose). Tested samples of Mexican Coca-Cola — which is supposedly made with cane sugar instead of high-fructose corn syrup — contained no sucrose, only fructose and glucose in a 52 percent-to-48 percent ratio.

Why do they add loads of salt to a sweet drink like Coke? I've heard conspiracy theories but is there a practical reason?

I was wondering the same thing about muni insurance. Did lowering the interest rate on munis via the regulated bond insurers contribute to the municipal over-indebtedness? For that matter, did lowering the tax rate take it a step further?

Polls show that 70% of Greek voters are against leaving the Euro. http://www.guardian.co.uk/business/economics-blog/2011/nov/01/greek-referendum-papandreou-canny-move Trouble is, the same polls show that 60% are against terms of the bailout. What do the other 130% of Greek voters think?