ERICOPOLY

They need a minimum of 6% tier 1 common ratio in a severely adverse scenario. BAC had excess capital of over $20 billion last year, so I don't think this will be a problem. It is my understanding they can return all earnings from the previous 12 months as long as they meet the minimum capital requirement in severely adverse scenario. Since BAC has earned over $16 billion over last 12 months I think they'll be able to return all of that to shareholders in dividends and buybacks. I'm hoping for unchanged dividend and the rest in buybacks. And $16 billion is just the net income. They generated a lot more capital than that due to the tax thingy. So even if they returned all $16 billion, they would still have built capital and left with even more excess than last year under the same scenario. Plus it just keeps coming in the door at $20b a year pace. So even while they are returning the $16 billion they would still be continuing to build capital. And at $16.03 today, it's at 9x earnings. Because it's so risky ya know.

It's probably a good thing that Toyota isn't a leader in the area of autonomous self-driving vehicles. Imagine a self-driving Toyota Hilux. The US drones would be fighting against the ISIS drones.

I'm not ignoring the retained capital. It isn't material to my study. Mentioning it isn't necessary. What I'm doing is asking what it would be worth today if it was already earning $1.86 right now. So I come up with a present value for today of $18.60. So the stock is worth $18.60 today provided that from this day onwards, they earn $1.86. So you just knock 72 cents off of that price because for the first two years they only earn $1.50. And that's pessimistic if the expectation is that they'll earn gradually more and more each quarter over the next two years. So knocking 72 cents off of today's $18.60 valuation bring us to $17.88. And today's REALITY stock price is only $15.64. And that's fully $2.24 discount below our adjusted (for low first 2 year earnings) price of $17.88. And $2.24 exceeds the $1.86 per year that BAC earns (excepting the first two years already discounted in the $17.88 price). THEREFORE, it trades at less than 9x earnings today. It has to be less than 9x because $2.24 exceeds a year of earnings.

The owner's earnings yield for BAC is greater than 11% given that it currently trades for less than 9x earnings as reasoned in my prior post. So again... with such low interest rates, why is a franchise like BAC priced to generate 11% owner's earnings yield? Isn't there all this easy money pushing up asset prices, and so why does easy money hate 11%? Just a bit of leverage and you are in the teens -- which with these crazy low margin rates these days is really easy. And again, if they surprise you with a rate hike it only gives a tailwind.

Another way of saying it is this: Stock price at 10x $1.86 is $18.60. Earnings at $1.50 per year for first two years comes in 72 cents light cumulatively. So 10x earnings would be a stock price of $17.88 after subtracting off 72 cents (which is actually a bit too much subtracted because of the time value of money). $17.88 would be on the light side considering that there would be gradual and incremental progress between now and then. So it wouldn't be a shortfall of 36 cents a year if the earnings steadily improved. Anyways... Stock today is roughly $2.24 below that 10x multiple. So it trades at less than 9x multiple because today's price is more than a full year's worth of $1.86 earnings below the adjusted level of $17.88 (which is 10x earnings less the 72 cents of earnings shortfall).

Maybe Bruce was assuming that interests rate would have been raised lot sooner? If it really takes two years from now to get to $1.86 earning, then the stock isn't cheap at the current level. It's fairly cheap as far as low risk things go -- basically the stock is acting like they will only be generating roughly 36 cents per year before now and then. Not per quarter, per year. Personally I think 36 per year is a low expectation. I'll explain what I mean: 10x multiple on $1.86 would be an $18.60 stock price. Today the stock is a full $3 less than that. Going by Q3 earnings, they are currently earning $1.50 a share. Anyways, $3 discount applied over two years is $1.50 per year. $1.86 - $1.50 = $0.36 So by discounting the stock price by $3, or $1.50 a year for the next two years, the market is basically pricing in only $0.36 in earnings over the next two years. Even though they currently made more than that in each of the past two quarters. Or the market doesn't believe they can earn 12% ROTCE in two years.

A Bloomberg video interview of Moynihan today has him saying that their target is 12% ROTCE. So that's $1.86 per share and that it would take a couple of years to get there. It's nice that they are being a bit more realistic -- remember when Bruce Thompson in early 2014 told Mike Mayo that it would be difficult to believe that they'd be making less than $2 per share in 2016? I imagine that's why they had to let him go, putting out such expectations they cannot hit, if not one of the reasons.

They are rolling out the "Autopilot" software update: http://money.cnn.com/2015/10/14/news/tesla-elon-musk-autopilot/index.html?iid=hp-stack-dom Hopefully the autonomous unmanned car bomber doesn't happen as I fear it eventually will.

It`s because we are looking at deflation at the moment, look at the transcript from Fastenal that gives a good look at the current state of americas industrial sector. Nobody is really expecting the FED to raise rates over the next 6-12 months anymore. 6-12 months doesn't have much to do with the valuation. What would that do if they hiked it today, maybe raise earnings by 30 cents over the next year? Okay, so that bumps BAC's market valuation up from $15.70 to $16.00. That's immaterial. Who is "we" that is expecting deflation? The market? Does the valuation of the Russell2000 and S&P500 reflect a deflation thesis?

The claim is that ZIRP is inflating asset prices. So beware if interest rates go up and asset prices go down. BAC is exactly the opposite. ZIRP is responsible for asset deflation of BAC because ZIRP is deflating it's earnings and the thing is trading at 1.02x tangible book versus 1.3x or 1.4x if the interest rate environment were normal. Other than that, I just don't quite understand why there is not more enthusiasm amongst speculators for a stock with such a dependable and low P/E when there is so much cheap money available -- it's one of the only things you can leverage at low interest rates that would actually benefit in a major way if the Fed were to surprise you with a rate hike. Normally that would be the primary fear of using leverage during low interest rates -- that if rates went up, you'd get pummeled. But not with BAC. I mean you would WANT that to happen, but you don't need it to happen.

So now Mike Mayo says BAC is worth somewhere between $20.60 and $25.80: We estimate that the sum-of-the-parts is worth one-third to two-thirds more than the current valuations at Citigroup, JPMorgan Chase, and Bank of America. http://www.cnbc.com/2015/10/12/why-hillary-clinton-should-stop-bashing-banks-commentary.html?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=103070375

The next Tesla Roaster will likely be quicker than the Porsche 918 Spyder is my best guess. What else would "Maximum Plaid" be referring to other than 1.x seconds? And probably at about 1/8 the price. Literally 1/8 the price! 2.2 seconds isn't relatively impressive considering the size of the vehicles. Heck, the huge Model S does it in 2.8 seconds and you can bring the entire family along with you -- it even has almost as much cargo volume as a BMW X5. The Spyder has room for the trophy wife but not her shopping bags.

That's because it is a minivan. Just look at the seating capacity. They just don't want to tell you that, so they tell you it's an SUV instead. The reason why they went with gullwing doors is for two reasons: 1) because they thought it would be less "minivanish" that way. 2) so that you can carry a child into the rear seat without bumping your head or wrecking your back. That's the minivan giveaway right there -- it's a "family friendly" feature. The other thing (aside from the doors) that makes it less like a traditional minivan is that the sporty version goes 0-60 in 3.2 seconds. See, it's not a minivan when it accelerates better than most models of Porsche 911. How slow is a Porsche sports car? It's slower than a Tesla minivan!!!

Well, the rate disappointment is now baked into the stock price anyways. A $2.00 drop from summer's levels has discounted 50 cents of annual earnings disappointment for the next four years. So if the market was pricing in 10x an annual rate of $1.80 during the summer, it now seems to be saying that it will only be $1.30 for the next four years before climbing to $1.80. The risks to shareholders from low rates do seem to be getting fewer. Doesn't mean the stock will recover anytime soon though.

I agree properties are highly priced and the price-to-rent ratio is high... I have been singing this tune for a long time. The ratio might normalize by rising rents. Rent control has alot to do with it. A new unit is not subject to rental controls until its occupied. Kingswood's website indicates they do property management. Anyway, We dont have details. A cursory look at major cities in developed countries shows how the trend unfolds. London, Manhattan, SF for example. House prices dropped after the crisis but they are right back up. The density increases. The world population is not dropping. Canada is not getting any less safe from a stable governance perspective. So what if Van. is in a housing bubble. If prices adjust downward 40% they will just turn around and start the march back up. This has been going on in Van. for nearly 40 years. My uncle was complaining 35 years ago about Chinese buying houses in Richmond, tearing them down and building monster homes on tiny lots. Are the prices really outlandish when you compare them to London, or Manhattan, rather than comparing them to rural or small city Canada? I am seeing the same effect in Toronto. At some point Toronto prices will correct, but it will be temporary unless The rest of the world suddenly gets good government. I would think rent controls would drive advertised rents higher, not lower. Anything that hurts the property investor would make him less interested in property investment -- this would lead to fewer apartments developed if fewer investors are interested. In theory anyway. Fewer apartments for rent means higher rents. Therefore, rent controls drive rents higher.

On 1, that is a great point that I feel silly for not considering. Ultimately I do not think the effect eclipses the huge efficiency gap between residential and utility, but it certainly counts for something. On 2, you're helping me surface my primary question. Why on Earth is your utility buying your kWhs at 40 cents, when they could be buying it from a farm at 4 cents? How distorted must the policies and regulations in place be to produce such an effect, and how prudent is it to invest on the thesis that those distortions are going to remain in place indefinitely? Regarding your question on #2: Why on Earth is my utility charging me 40 cents per kWh if they are only paying 4 cents for it? I think these policies help to keep them honest -- if they don't like paying me 40 cents per kWh, perhaps they'll take into consideration the fact that I don't like paying them 40 cents per kWh either. They can lower their rate if they want to pay me less -- the ball is in their court.

There are a couple of reasons why residential solar makes great financial sense to the person making the decisions -- the consumer with the rooftop: Reason #1) Remember that residential systems generate imputed tax-free income. A residential solar installation owner with a 50% tax rate is no worse off even if the utility-scale system could generate power at 1/2 the cost. The way to normalize this issue would be to make electric utility bills tax deductible, but I don't think that will happen. Reason #2) The other thing is that with time of use metering, the solar generated is (for Southern California Edison users) crediting the utility bill with more than 40 cents per kWh during the daily peak pricing period. Enough said. It's better "home economics" than utility scale solar.

I tried to find info on that. Curious what area of performance is being improved? I have a 2013 as well.

Eric, I don't doubt it will receive great fanfare. Questions of when and at what level of profitability to shareholders are important, no? Yes, and with regards to shareholders, and the stock... I just want to comment that I don't see this as a value investing stock because it's track record is more ahead of us than behind us. I think it's speculative just as much for short sellers as for longs. It isn't a company with a long established track record where you can more accurately grasp it's future returns (and hence IV) -- when you have such a company that's relatively predictable, then you have some degree of insight into when it's expensive or cheap. This stock is loaded with biases anywhere from "they can do anything" to "it's an auto company and it's worthless based on their present sales volumes which are unlikely to get off the ground with any sustainable margins". There are more tempered opinions in between, but I say just call a spade a spade -- it's speculation either way. I really admire Buffett because he doesn't guess around on these kind of things and I'm trying to aspire to be more like him (I've not even close yet though).

The Model 3: It will likely be a $35,000 car that will do something like 0-60 in 4 seconds and win the highest marks on safety in it's class. Nah, nobody will want that. .

0-60 in 3.2 seconds if you get the P90D version of the Model X. I think that's relatively good for an SUV? Does the Cayenne do that? "The Model X is expected to get 5-star NHTSA crash safety ratings in all categories, Musk said, including rollover avoidance. It would be the first SUV or minivan to do so." http://money.cnn.com/2015/09/29/autos/tesla-model-x/index.html?iid=hp-grid-dom I think one of the nice things that Tesla is doing is dragging the rest of the sluggards across the finish line -- they won't be able to sit back and continue to make these death traps for much longer without working to improve their safety.

You cannot say it failed to work. You don't know how much worse deflation would be in the absence of it. Therefore, how do you know? For example, would be perhaps be a roaring success if you achieved 1% deflation instead of an otherwise 4% number. And the same argument would apply to you - you can't say that it worked because you don't know what inflation/deflation would have been without it. We could have ended in the exact same place. But I do think it's clear that the results have not been what was targeted by any of the policy makers that implemented it, which is a better gauge of failure than people who claim it was a success have. Yet I don't argue that it succeeded. Nor do I argue it failed. I just know that we don't know.

You cannot say it failed to work. You don't know how much worse deflation would be in the absence of it. Therefore, how do you know? For example, perhaps it might be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.

It is more like 7500 shares and 10000 shares. Not much but 75000$ for a CFO at Horsehead is not completely insignificant especially when he doesn't usually do that. Agreed not major but they were not forced either... Got it. I need more sleep.

What if the market hardens when they are sitting on large hedging losses (like right now)? Doesn't that limit their ability to write more business (than otherwise) into the hard market?