ERICOPOLY

Iridian admits that BofA can earn the expected loss over the next couple of years -- their thesis is that BofA won't have the capital to bring these loans back onto their balance sheet. It's merely the issue of trying to fund an expanding balance sheet that Iridian says will cause BofA to go to the capital markets. So... doesn't this immediately lead you to ask whether BofA can instead just sell assets to raise cash? On this point, BofA says that they are planning to pay down $150b in debt in the next few years, and by the end of 2011 they expect to pay down about $75b to $100b. Where do they get $75b-$100b by the end of 2011? The answer has to be asset sales. See page 9 from BofA's recent presentation: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njg5MDV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Instead of paying down debt, can't they use that cash to take back these loans (if forced to do so)? Notice that Iridian doesn't even mention BofA's debt reduction plan -- why not?

Regardless of how this plays out, what risks are remaining after this is behind them? I mean, on an income per share basis, they are headed in the right direction today -- absent this repurchase liability. In the absolute worst case they lay out, at what price per share do you think they could recapitalize (to pay the liability). The very next day after the liability is lifted, there won't be a ratings overhang on the bank and it can then be valued on an earnings per share basis. And I expect this liability won't be settled for at least a couple of years as BofA intends to fight in court -- that gives time for earnings to approach normalization as credit losses decline (assumes they do). I mention this because John Paulson has stated that he holds the shares long with a target EPS of about $2.70 in 2012 -- that would be a bit more than a double from today's price level at a 10x P/E. I figure it would be worth 10x P/E if this liability were behind it and if they were earning a strong $2.70 per share. That assumes Paulson is being reasonable in his estimate. Now, given that today it trades under tangible book... do you think it reasonable that a bank with a healthy earnings stream would trade at a discount to tangible bank the day after recapitalization? I don't find it reasonable... in that case, I assume they would recapitalize at a price higher than today, and due to dilution the full $27 wouldn't be realized. But if it's 50% dilution, then the new value per share (post recapitalization) is still in the high teen, probably at least $20 to account for accrued earnings over the next few years. So how do they (Iridian) make money on the short side if a recapitalization two years from now would likely happen higher than the current price per share? What is Iridian's pedigree -- is this just another hedge fund to buy CDS and then pump and dump? Notice they speculate on where CDS spreads will go and only talk about worst case scenarios -- including mention recapitalization in a 2008/2009 type environment, even though we'd be 4 years removed from the credit panic by then. They just smell bad -- I sense a huge agenda in their independent research.

Looks like Hussman is not buying the inflation talk: "Likewise, we clipped our precious metals holdings to only about 1% of assets on price strength."

I have to say, as a Citigroup shareholder, I appreciate the liquidity -- speeds up the runoff. I don't think that brings any jobs back, but it should increase my future earnings.

From the best I can tell, if one insists on using a printing press analogy, this printing press is using "disappearing ink". The money injected will be removed once the bonds mature. I think they are buying 5 year bonds right? Given that they are Treasury bonds, there is a guarantee that these dollars will indeed make it back to the Fed on schedule. How come it isn't this simple? I can see an argument that if they buy muni bonds or mortgage bonds that these bonds might not be repaid, and to the extent that they suffer losses then that's ink that doesn't disappear. But when buying Treasury bonds, it looks very much like disappearing ink.

This year's pace suggests an increase of 50b tangible common equity over next two years -- that covers the 50b settlement proposed in that document. Their analysis assumes no increase in tangible equity. BofA stated they intend to challenge claims in the courts -- how many years does that buy them?

There is some news here about the dividend policy -- see page 25: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9Njg5MDV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 They state that they want to pay out about 30% on trailing earnings as a dividend. They do not want to do acquisitions. They plan to use the rest of the excess capital for share repurchases and special dividends. Thus far in 2010, their tangible common equity has grown by 15% -- not bad for 9 months. That's $17b.

Mr. T is a better source of information on gold: http://video.forbes.com/fvn/business/mrt-on-gold

This thread got me interested and I bought some BAC warrants on Thursday and Friday. I thought about those 2013 leaps. Decided to go with the warrants given it's the only place I can get long term leverage with no financing risk for 8.25 years. Someplace else in my portfolio I'll buy some 2013 calls on another name. This gives me diversification of maturities. I have started to contradict myself now. I'm keeping the warrants but I'm adding some $10 strike 2013 calls. They break even at $13.65, and tangible book value is nearly $13 today. I used margin to buy the calls (not a dangerous amount of margin). I figure by 2013 the tangible book value will be higher than $13.65, so mentally I'm writing this down as an investment two years from now below tangible book value. By then hopefully I will have the cash to take delivery if that is necessary -- from trimming other investments like SSW which should have worked out by then. So this is sort of like staking a claim for what I can reinvest in two years from now. Downside risk... don't you think they could easily raise $10b to $20b of equity capital at current prices if it comes to that? 10% or 20% dilution isn't exactly going to make the shares worthless. Aside from this repurchase risk, BofA shares were trading much higher than today for most of the year, and two years from now you'd be adding accrued earnings and a brighter outlook as they'd have shed another two years worth of bad loans and added two more years of good ones.

It sounds like they are telling the market to expect the debt will be rolled over. The caller gave Mr. Wang the opportunity to say something conservative regarding repayment of debt but instead he just talked about rolling it. So in terms of retained cash flows, I figure they'll buy new ships with it. So it sounds like growth. From the CC: Urs Dur – Lazard Capital Markets All right. It was more of a question and that's a great point, Gerry. And I hope you – I think I might have been slightly misunderstood. If you – you have some debt maturities coming up in 2015, I believe. Let's just say it is 2015 today in today's bank environment and those ships are five years older, would you feel confident in the ability, given the length of the contracts you have remaining on those vessels that are encumbered, that you'd be able to redo that debt at this time, or would that be more challenging? Gerry Wang We think we should be quite easily doing the debt renewal given the charter profile that has with those ships and also our own overall balance sheet in terms of financing capital structure.

Thanks for finding this comparison to the Singapore firms. Useful information. No, sorry.

Regarding $300m distributable cash flows in 2013 -- it's $290m (at least) distributable cash flow in 2012. Those last 3 ships are delivered in January, March, and April 2012. Each one produces cash flow of $46,545 per day. So that's looking like maybe $10m maximum cash flow that they're missing out on in 2012 (vs 2013). Then on the conference call they indicated that COSCON wants the ships delivered sooner, leaving open the possibility that all ships are delivered by end of 2011. One thing I think we forgot to include is the cut that management gets when they pay the cash out. $300m distributable to shareholders -- that's somewhat of a fiction if management is going to take a swipe at it in transit as their bonus. Perhaps they should rephrase it as "distributable to both shareholders and management". Does the Singapore company you mention have a similar bonus arrangement?

I have trouble comparing SSW to a REIT because you don't scrap an office tower after 30 years. That's why I'm possessed with this quest to figure out what the terminal value of these ships are. Assuming zero inflation (to make it simple to understand), with the REIT you'll still have your book value intact after 30 years even if you pay out all the cash flow. With SSW, you won't -- your scrap value won't be enough to cover the debt, so terminal book value is likely negative. Therefore, I would assume a REIT should trade at a richer valuation relative to cash flow.

There are a couple of scenarios -- there's the scrap in times of distress (what you are referring to), and then there is the practice of just running the ships for 30 years and then scrapping when they are obsolete. The question is... will the scrap value retire the debt used to finance the ship? If not, then what does this "cash distributable to shareholders" really mean? Does it mean that if entirely paid out we'll just stiff the banks that financed the ships? Or does it mean that management assumes scrap value will be greater than the debt owed? Or does it mean that management is exaggerating how much money can be paid out?

I found some data on scrap prices in July 2007 (only source I found yet). Looks like it's in the $425/ton range. See page 11: http://www.robindesbois.org/english/shipbreaking9.pdf I don't know how much these ships weigh, but I have the feeling that the scrap value is nowhere near as high as 1/3 the cost of a new vessel. Unless a $100m vessel weighs 77,000 tons! (I think not).

On the conference call he talked about the major liners replacing 25 to 30+ yr old ships -- not because of rust, but because they are simply inefficient. They are harder to load, they are not fuel efficient, and relatively high polluters. True there would be some rust but my guess is that these commercial ships are maintained fairly well and rust would be superficial. I hope you find the scrap estimates -- perhaps in the quarterly or annual reports there will be mention of cash flows from scrapping old ships. Those ships are probably depreciated to zero so the scrapping should show up as a taxable gain.

I saw that at Citi in the recent quarterly release -- however, despite a multi-billion dollar loan loss reserve release their reserving as a percentage of total assets actually increased. They reduced Citi Holdings by $40b, which is largely responsible for the math. So you could say their reserves actually increased, relative to their remaining asset size.

I'm wondering how much money could be realized by scrapping their fleet. Here is an article from late 2008 http://blogs.telegraph.co.uk/finance/theasiafile/5990607/Container_ships_are_a_load_of_old_scrap/ Quoting: A leading executive from one of China’s biggest shipbuilding and operating firms told me that some analysts fear that even brand new $100m container ships may be worth more as scrap metal than ocean-going transports. I'm not really sure how much of a discount the ships sold for, but I'm guessing it wasn't greater than 70%. So let's say it's like 30% of the market price of a new ship -- were brand new $100m ships going for $30m in late 2008? Or were they going for more, like let's say 40%? Somewhere in there perhaps is the truth... and if the quote is accurate then scrap value is somwhere between 30% or 40% of the cost of a new ship. Or perhaps this is a completely wrong assumption... can somebody help me out here? Here is what I'm getting at... steel prices will likely triple (or more) in nominal terms over 30 years. They might be depreciating these ships on paper, but I think in reality there will be no depreciation. Their fleet on average is only 5 years old. Therefore, I'm sort of banking on the cash flow to be entirely distributable to shareholders and let the depreciating dollar (rising steel prices) pay off the cost of these ships (cancel all of the debt upon scrapping in addition to return of invested capital). Who knows, perhaps scrap value will be substantially higher than the initial cost of the ship?

Need vs Want. It's a struggle to keep them in check. My grandmother has a very expensive property near Sydney with a view to the west overlooking Pittwater that's been in the family since 1949 (my father and grandfather built it themselves) -- it's a 5 minute walk down to Whale Beach. This is where I've been spending a month the past few North American winters. She is 93 and the place is expensive -- I want to keep it in the family when the time comes, and I'm trying to beat the clock. I've been taking vacations there ever since I was 6 months old -- I have a lot of memories there. I don't really need the property, but I want it. It would cost 1/3 of my present net worth -- so I'm trying to grow it. Not in BAM anymore, sold it along the way to buy ICO (not in that anymore either). I would have done well if I'd kept it in BAM, but I did slightly better with ICO because it worked out sooner and I made further gains with the money after I sold ICO.

This one is fueling my returns this year. I had a 50% portfolio weighting with cost basis of $11 when it was trading at $10 this summer. I was just checking the newbuild order book: http://www.seaspancorp.com/fleet-newbuild-orderbook.php It looks like by this time next year they'll have most of the ships in place. Should be good for another 50%-100% return from here. So I haven't sold anything.

This thread got me interested and I bought some BAC warrants on Thursday and Friday. I thought about those 2013 leaps. Decided to go with the warrants given it's the only place I can get long term leverage with no financing risk for 8.25 years. Someplace else in my portfolio I'll buy some 2013 calls on another name. This gives me diversification of maturities.

Additionally some people on this board hold cash as a percentage of their portfolio. To beat the S&P500 all you had to do was go long SPY with a percentage of your portfolio and hold a reserve of cash with some other percentage -- the more cash you held, the greater your outperformance. There may be less people beating the market during a period where the S&P500 outperforms cash. However I think the majority of people made their money from their picks -- and the S&P500 outperformance was large in most cases... too large to be explained by just cash (my guess).

A lot of my outperformance was due to Fairfax. I give them the credit because they chose the underlying investments (largely the CDS) that went up and delivered gains while the markets tanked. It's a bit like if I'd put a large percentage of my net worth in Paulson's fund -- yes, it would have taken some degree of aptitude to select him, and some nerve to hold on, but can I count the performance as my own? At some point it's the fund manager that really generated the results.

There is some news today -- expected, but welcome anyhow: HONG KONG, CHINA--(Marketwire - 10/22/10) - Seaspan Corporation (NYSE:SSW - News) announced today that it has signed two financing transactions that position the Company to fully finance its built-in fleet growth and increase its financial flexibility. http://finance.yahoo.com/news/Seaspan-Transactions-iw-4049444085.html?x=0&.v=1

Do these show up on the bill that the corporation (paying for your business trip) sees? Sort of another reason to not like billing it through the room. And if you are not on business, it still might be embarrassing at checkout (depending on the movie title). Give it a decade and I'll probably be able to carry around an entire collection of movies on an IPhone. Just stream it to the Bluetooth monitor -- at home / in the car headrest / in the hotel. We'll see, but that's what I imagine to be perfectly reasonable.