ERICOPOLY

I just use their trading workstation app and when you plug in AIG or C you get that dropdown selection menu from which you can select the warrants. However AIG warrants trade as AIGWS on NYSE.

I'd be curious to know how much the collective redemption are to date over the past week. Sanjeev said the buybacks will begin in earnest and I agree. A company buying back shares helps stem the bleeding, and they have tons of cash to throw at it and the cash continues to pour in the door. Doesn't matter if your little distressed company can't buy back shares -- if MSFT buys back some shares, it gives a value manager some liquidity with which to pick up some severely pummeled stocks on the cheap. The rate of cash inflow to the fund managers just needs to meet the redemption flow. Collectively, how long will it take for the weak hands to be swamped by the cash rich corporate buyers? Then there are reinvested dividends of course. By 2013 (long before then) the supply/demand imbalance should be rectified and those calls appear attractive.

People are pouring money into the markets today and the past few weeks. In exactly the same proportion that people are pulling money out. Just different folks. Only thing changing is the price negotiated. No doubt I can troll the headlines tonight and find people saying that "investors are fleeing". Whatever.

My blase attitude comes from the discounted prices in the things I own. I own some WFC calls for example, 2013 with strikes $15 and $20. I expect they'll be earning nearly $4 a share by then and thus on that contract we're looking at forward expiration P/E of practically 5x right now, with probably at least $4 in earnings cumulatively before then. HPQ is at $30. Okay, that's only about 5x forward 18 months consensus earnings. This is just ridiculous.

For the record I think it's over.

I think the stock will be at least as high as $17 by expiration of those 2013 calls. Nearly 7x returns. I didn't go "all in" on the calls, if it blow up 100% I've only destroyed 5% of my fingers -- which I would expect to recover from the warrants. I have the same number of warrants in AIG as I do in BAC. I hope AIG gets their $10b back! That gain in book value alone would repay me for the cost of my BAC warrants.

I guess $50 is a reasonable number if they can grow book at 8% as they are doing now. Later perhaps it's worth more if interest rates go higher -- you can't make a lot from float with low rates. Doubling the book value in 10 years looks pretty doable. Warrants ended around $7 so you need like $115 for a 10x return. That would be like a 1.15x multiple to book. There are lesser outcomes that would still be quite acceptable -- and of course they might do much better. Maybe people go bananas about a hard market in a couple of years and the stock is at $85 all of a sudden? Could that be like a 7x return in just two years possibly? Then if you could triple it over the next 8 years you'd have a 21x return. Stranger things have happened.

I was going to sarcastically reply that the positive earning must be an infinite return on that negative tangible equity!

Eric, either you are going to continue to really enjoy retirement, or you may be coming out of retirement! ;D I'm betting on the former. Cheers! Yes well I spoke to my brother-in-law yesterday who has a financial planning/advisory business on the side. He said he had a client call up last week and sell everything -- including the mutual funds in his kids college funds, with early redemption penalties. His plan was to put it all into gold this morning at the open. I was at a picnic Saturday night at my "old money" mother-in-law's "country club" just quietly gasping at the 40-50 year old heirs of old fortunes nervously chattering about the debt downgrade and the markets etc... This morning I just figure these people are all getting out and the mutual funds just have to sell to meet redemptions. The fund managers want to buy, not sell, but what can they do? Cash levels in funds are at record lows. So once the last marginal retail investor has panicked, guess whas' gunna' happin?

at what price? Looks like they're currently around $1.15. That's about the average price I paid.

You mentioned several ways to play this one... do you mind me asking which option(s) you ultimately went with? I went with AIG & BAC warrants. I also got BAC 2013 $10 strike calls.

I think AIG has bottomed (everybody gets to guess for fun every now and then). Can't believe how many warrants I have now.

Yes but they only have $40b in reserve and can only produce about $130b over the next few years in PTPP. How will they ever survive another $2b hit from Fannie/Freddie?

This is why Citigroup was liquidated after it's stock dropped below $1 in 2009. Don't you remember?

Yes but note that the lawsuit is from AIG, which is down 8%. So if people assume BAC is going to take a huge loss from this lawsuit then this is particularly odd.

He bought NetJets when it was losing money. I think he'd be happy to buy the rest of USG if it fails.

The quotes for C, BAC, AIG seem to be down about 5% -- they seem to be trading on foreign markets and Interactive Brokers is giving those quotes. I never get up this early (being in Seattle) but today I'm particularly eager in a greedy way.

I don't mind buybacks at any price given my capital gains rate is normally lower than my dividend rate, but I can see how Buffett would hate to take a capital gain instead of a dividend when his dividend tax rate at Berkshire is far lower (sometimes only 5%!!!) than his capital gains tax rate which is 35% at Berkshire. Hmm... 5% vs 35%? No brainer. However, for me as an individual, if stock is trading at any level I can just sell some shares to launder my dividend tax rate into a capital gains tax rate. I don't think Buffett is unaware of this.

Recession or not... In two more years you'll have had 4.5 years of bad loans running off replaced by 4.5 years of very high quality loans. The people employed today are largely the ones who remained employed during the past recession, as not that many jobs came back. These employed people are the most "employable" ones, the firms like to cut the fat first. These are the very same people who will have got the last 4.5 years of loans.

That's right. In all the doom and gloom people forget that a dollar deployed in buying back stock at 5x earnings is a 20% risk-free return. So you can have a stagnant economy and still grow EPS at 20% clip.

How does Rochdale get paid? Are his clients big holders of the stock, or rather big holders of short term options?

He is a total crackpot though: Bove stated in a report published Tuesday that Citigroup will be worth $24.75 per share in 2015, more than 6.5 times Monday's closing price of $3.78 and twice the book value he is projecting for the bank in that year. Assuming Citigroup can attain the $12.37 book value Bove is projecting, that $24.75 price would not be far-fetched by historical standards. Citigroup has traded at a price-to-book ratio as low as 0.19 and as high as 4.59, according to Bove's research. The bank currently trades at 0.72 times book. Assuming the same price-to-book ratio for Bank of America in 2015, Bove believes the bank's shares will be worth $99.37 in 2015, well over six times Monday's closing price of $15.40. Bank of America currently trades at 0.73 times book value. http://www.thestreet.com/story/10766588/citigroup-bofa-to-sextuple-by-2015.html

I get a tax deduction for funding scholarships in Nicaragua. Buffett and Gates have reduced their taxable estate by giving it to the rest of the world. Somebody still has to pay for things here in the US.

Here is a filing that explains the anti-dilutive provisions of the AIG warrants: http://www.sec.gov/Archives/edgar/data/5272/000095012311003847/y89089e424b2.htm#605 Good reading. For example: However, if the transaction that gives rise to an adjustment pursuant to this paragraph (3) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a subsidiary or other business unit (i.e., a spin-off) that are, or, when issued, will be, traded on a U.S. securities exchange, then the exercise price will instead be adjusted based on the following formula: If AIG makes a cash distribution to all holders of Common Stock, excluding (a) any cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock does not exceed $0.675 per share of Common Stock in the aggregate in any twelve-month period (the “Dividend Threshold Amount”) , (b) any cash that is distributed as part of a distribution referred to in paragraph (3) above, and © any consideration payable in connection with a tender offer referred to in paragraph (5) below, then the exercise price will be adjusted based on the following formula:

I need to start solving this for a lower risk way without the warrants. Yes, going 2x long the stock today and sitting on it for 9.5 years will get you 10x your money at stock price of $125 -- and that's what the warrants do for you as well. However, you don't need to take a 2x long position immediately in order to match the warrants. Maybe instead you only take a 1.x long position in the common and maintain that constant leverage level (buy more common) as the stock rises. I need to figure this out today and then compare. Maybe it's only 1.3x or something similarly reasonable, which can be done relatively safely with the aid protective puts. EDIT: Okay, unfortunately it's as high as 1.52x leverage (constant leverage) in the common in order to match the gains of the warrant. The warrant is far simpler unless management does something to damage the value of the warrant vs the common.