ERICOPOLY

I like it. Light trucks are noise polluting as well.

GM to perhaps build $30,000 200 mile range EV: http://online.wsj.com/articles/lg-chem-working-on-battery-to-rival-teslas-range-1407776312?mod=WSJ_hp_EditorsPicks

Says last week's article: Bank of America and the Justice Department are continuing to hash out details and the deal could still fall apart, one person familiar with the matter said. An announcement isn't expected this week. On Wednesday, Bank of America General Counsel Gary Lynch met in Washington with Tony West, the Justice Department official responsible for negotiating with banks over mortgage securities, in hopes of ironing out some details. http://online.wsj.com/articles/bank-of-america-near-16-billion-to-17-billion-settlement-1407355290?KEYWORDS=bank+of+america

Grain deflation shouldn't be a worry for the Fed -- I would think they would rather have deflation than inflation, when it comes to food staples. People don't defer their meals to next year, expecting the prices of bread to be better in the future. Higher food prices may leave them with less purchasing power at Toys'R'Us though. And the Fed does care about that. Okay, pork belly prices have been dropping all morning, which means that everybody is waiting for it to hit rock bottom, so they can buy low. Which means that the people who own the pork belly contracts are saying, "Hey, we're losing all our damn money, and Christmas is around the corner, and I ain't gonna have no money to buy my son the G.I. Joe with the kung-fu grip! And my wife ain't gonna f... my wife ain't gonna make love to me if I got no money!" So they're panicking right now, they're screaming "SELL! SELL!" to get out before the price keeps dropping. They're panicking out there right now, I can feel it. I love that movie.

Grain deflation shouldn't be a worry for the Fed -- I would think they would rather have deflation than inflation, when it comes to food staples. People don't defer their meals to next year, expecting the prices of bread to be better in the future. Higher food prices may leave them with less purchasing power at Toys'R'Us though. And the Fed does care about that.

What sort of control does a name change achieve? Fairfax was out of control 10 years ago, perhaps they could have pulled things together faster if the name had been changed to Watsa Holdings? Clearly, that's silly so you must be speaking of control in another sense. Like having multiple subsidiaries, you want to maintain control, make everyone know who is the big honcho around here. Berkshire Hathaway could do better in this regard if renamed to Buffett Holdings, for example. Or what kind of control if not either of those?

They're just leverage. At warrant expiry... you will have made positively leveraged returns if the total investment returns of the common stock exceed the annualized cost of the warrant leverage. $15.20 - $6.68 = $8.52 $8.52 grows to $13.30 at approximately a 10.5% pace over 4.5 years. So you can think of the warrants as the synthetic equivalent of a leveraged portfolio of BAC common stock where you pay 10.5% a year interest on your loan. You have the advantage of no risk of margin calls. However, there are downsides... for example, you mentioned that you expect a quick burst to 12.5x multiple instead of that expansion coming at the end of the period. Should that happen, you'll find that the cost of the leverage (the warrant premium) for the remaining years will fall. Thus, your leveraged returns might suck on a relative basis compared to somebody who instead leveraged a straight common stock portfolio using margin (with shorter-dated puts to protect it from margin calls). Think about it... who is going to pay 10.5% annualized cost for a $13.30 strike put when the share price is $22? You could, at that time, find puts with strikes in the $20 range at that cost or even less than that cost (most likely). So what I'm doing myself is going with margin to leverage my common and pairing it with 2016 strike puts, at $15 strike. I have non-recourse leverage this way, and it costs roughly the same on an annualized basis as your leverage. Then, this time next year perhaps, if the stock is at $22 as you expect, it would be dirt-cheap to roll those $15 strike puts out to a longer-dated expiration (because far out of the money puts are dirt-cheap compared to at-the-money puts). This strategy, I believe, will produce a better result if there is going to be some significant stock price PE multiple expansion early in the remaining life of the warrants. Your strategy will be perhaps no worse if the stock languishes near these levels, and your strategy would be better if that is coupled with things like an astronomical rise in margin interest rates and perhaps higher volatility premiums when I roll my puts (if the stock hasn't risen and volatility is higher at the same time). But... I chose this path because I don't expect the stock to still be at $15 a year from now, two years from now, etc... Also, you don't expect those outcomes either because, after all, you are leveraged and paying a pretty penny for it. But hey, what do I know.

I find it not too difficult to get your $15.20 invested today up to $35 in 4.5 years, but I find it harder to predict if the share price itself will get that high (because it depends on how much is paid out in dividends). But since you are in the warrants, it's more relevant to ignore share price and instead focus on whether the $15.20 of total invested dollars can rise to $35. Assuming 13% ROTE and today's $14 of tangible equity per share, then it's $1.80 per share. Today the shares are $15.20. Assume shares quickly trade at $18 once large capital returns begin (PE of 10x). Ignoring the NOLs and such (assume they get eaten by legal expenses), further assume that all after-tax earnings are returned to shareholders (through dividends and buybacks). Assume the shares trade at 10x earnings throughout this period. Okay, so just compound $18 at 10% for 4.5 years. You get $27.64. So for you (at that point) to get to $35 of total gain per initial $15.20 invested, you then need (in 2019 but not before then) the shares to trade up to 12.6x earnings. So that's the scenario where it trades at 10x for the whole period, and then gets a sudden boost to 12.6x at the end. However... if it instead trades up to 12.5x earnings right away and dividends+buybacks are reinvested at that multiple, then the total value only rises to $32 per share. I'm fine with this scenario because it means the bulk of the contribution to the annualized compounding rate (multiple expansion) is front-loaded and I don't turn fast money down when it just falls into my lap. It seems reasonable but I'm sort of giving up with predicting BAC for now because I keep getting it wrong. The pace of lawsuits being filed 3 years ago really seemed to turn off investors. Lately, there have been several quarters of obliterated earnings due to the pace of settlements. But now that trend of earnings obliteration should stop cold-turkey with the DOJ settlement being the last of the big ones... new lawsuits may crop up but not at the pace of 3 years ago, and won't be settled for a long time anyhow. So perhaps people just need to collect themselves after too many disappointing massively-above-reserves legal settlements. The smell of easy money has got to bring them out sooner or later.

I find it not too difficult to get your $15.20 invested today up to $35 in 4.5 years, but I find it harder to predict if the share price itself will get that high (because it depends on how much is paid out in dividends). But since you are in the warrants, it's more relevant to ignore share price and instead focus on whether the $15.20 of total invested dollars can rise to $35. Assuming 13% ROTE and today's $14 of tangible equity per share, then it's $1.80 per share. Today the shares are $15.20. Assume shares quickly trade at $18 once large capital returns begin (PE of 10x). Ignoring the NOLs and such (assume they get eaten by legal expenses), further assume that all after-tax earnings are returned to shareholders (through dividends and buybacks). Assume the shares trade at 10x earnings throughout this period. Okay, so just compound $18 at 10% for 4.5 years. You get $27.64. So for you (at that point) to get to $35 of total gain per initial $15.20 invested, you then need (in 2019 but not before then) the shares to trade up to 12.6x earnings. So that's the scenario where it trades at 10x for the whole period, and then gets a sudden boost to 12.6x at the end. However... if it instead trades up to 12.5x earnings right away and dividends+buybacks are reinvested at that multiple, then the total value only rises to $32 per share. I'm fine with this scenario because it means the bulk of the contribution to the annualized compounding rate (multiple expansion) is front-loaded and I don't turn fast money down when it just falls into my lap.

US taxpayers owe the dividend tax anyway, even though it's a non-cash adjustment. It also raises the cost basis for US taxpayers, so they don't get it taxed a second time later on as a capital gain.

You probably also have a lot of prisoners being put in the hospital on a regular basis by their violent cellmates. Alleviating the prison overcrowding would lessen that, and reduce the number of associated healthcare workers. More jobs lost. The good news is... so many positions we could create a cleaner society! Paying people to build and maintain proper public toilet facilities seems better than employing them in prisons instead.

I like the idea of telling them that they will just have to live on what they earn. Later, perhaps when they are 40 surprise them by paying off their mortgage. Something that doesn't ruin them too much but makes life more comfortable. That was the spirit of the tax idea. The reason being that if you try to hide your money and pretend like you don't have any, but you live in Montecito, their imaginations will perhaps overestimate what you really have. No, I won't tell them what I have, but I think it's going to be hard to pretend there will be nothing left for them. They currently go to public school, but Montecito Union Elementary is different from most public schools... example, one of my kids was in class with Don Johnson's son and I actually backed into him at the 2nd grade fair. Pretty funny. So it's not normal. However there are a lot of families who are much more modest in means -- they rent tiny houses near the freeway just to be in the school district. They'll move to a more affordable area once the kids finish the public school. So we meet some pretty down-to-earth families and that's who our kids play with at our BBQs and whatnot. Not the super-high-rollers. Absolutely not, I think he would only get worse. That's why you don't want to create an incentive that is purely based on how much they earn. I'm going to encourage them to pursue what they want to do in life, but unfortunately society has already provided the incentives. Careers are paid very differently -- I can't change that. Society says a banker has more value than an educator. It is what it is. I'm not sure I have the power to change that while at the same time telling them they'll get nothing. Difficult dilemma -- although perhaps I should be raising them in Australia where pay is more equal.

So you want to measure what your kids achieve and how you value them based on how much money they earn? Really? You prefer to have the next Sadar Biglari as a son as opposed to the next mother Theresa as a daughter? Or just to pay a son more than a daughter because women earn statistically speaking less than men? Wow. Spin doctor, can you at least provide some lubricant -- you're chafing me. I want them to fit in with their peer group. I don't want to shower them with riches, for example, if their peers may feel envious. You believe that Sardar would stop being hungry if you paid him more? Me, I think he would just want more. You can't stop Sardar from being Sardar just by throwing more money at him.

I have never counted the NOLs either. I went through the most recent 10Q looking for a quantification but didn't find it. Its probably buried in the 10 k somewhere. 10-K page 255 (I d/l the report from the investor relations part of the website) provides both the DTA and the Net DTA post valuation allowance. I'm using the Net DTA just to be conservative: US NOLs 3.06 bn UK NOLs 7.42 bn Other Non-US NOLs 0.12 bn US States NOLs 1.01 bn General Business credits 4.03 bn Foreign Tax Credits 5.38 bn Total 21.02 bn FTCs begin expiring in 2017; NOLs - some in 2027, some never (in the UK) Valuation allowance is around 1.6 bn So, if BAC's theoretical tax rate is 35% and we assume 19 bn profit, each year you get almost 7 bn of NOLs you can use to shield, which would mean finishing them off in 3 years if BAC could completely avoid taxes. Assuming it takes six beginning in 2014 (i.e. 3.5 bn) and still disregarding the valuation allowance, the PV of the NOLs at the 10.7% cost of capital Eric calculated is roughly 15 bn USD, or about 1.42 USD/share. Of course this is before the NOLs they will get for the DOJ settlement, but we'll have to wait for the numbers on that to figure our what the NOLs will be worth. What are the NOL in the UK worth? Do they actually have enough earnings to make 7B$ in the Uk in the foreseeable future? How did they loose 7B$ there to begin with? Are there creative ways to manufacture gains in certain tax jurisdictions? Like suppose I have a securities portfolio within an American subsidiary that I want to write covered calls on. But I also own a subsidiary in the UK. So instead of writing the covered calls in the American subsidiary, I write naked calls in the UK subsidiary. They are far out-of-the money and generally speaking will almost certainly expire for a taxable gain in the UK. Netted out though, including both subsidiaries, it is effectively a covered call in the aggregate. That's just a simplistic example. The bank has a large derivatives book and I'm wondering if they can play creative games, or whether this is strictly disallowed and viewed as some sort of a tax fraud.

Just wait until someone starts a thread to discuss religion and morality. Then you can derail it with a discussion on drugs and prostitution. Or derail it discussing white slavery in Africa... oh well, sorry. http://en.wikipedia.org/wiki/Barbary_slave_trade The European slaves were acquired by local pirates in slave raids on ships and by raids on coastal towns from Italy to Spain, Portugal, France, England and as far afield as Iceland. Men, women and children were captured to such a devastating extent that vast numbers of seacoast towns were abandonded. According to Ohio State University history Professor Robert Davis, who has studied the often neglected white slave trade, at its peak, the depopulation of the European coasts probably exceeded the damage done to the African interior by European slavers. http://en.wikipedia.org/wiki/Slavery_on_the_Barbary_Coast Life for the white slaves in Africa was no better than the worst conditions of the black slaves in America. White slaves worked in quarries, mines and as rowers for the Barbary Pirates' corsairs. Commercial ships from the United States of America were subject to pirate attacks. In 1783, the United States made peace with, and gained recognition from, the British monarchy. In 1784, the first American ship was seized by pirates from Morocco. By late 1793, a dozen American ships had been captured, goods stripped and everyone enslaved. After some serious debate, the US created the United States Navy in March 1794.[6] This new military presence helped to stiffen American resolve to resist the continuation of tribute payments, leading to the two Barbary Wars along the North African coast: the First Barbary War from 1801 to 1805[7] and the Second Barbary War in 1815. Payments in ransom and tribute to the Barbary states had amounted to 20% of United States government annual revenues in 1800.[8] It was not until 1815 that naval victories ended tribute payments by the United States. Some European nations continued annual payments until the 1830s.[9]

I have never counted the NOLs either. I went through the most recent 10Q looking for a quantification but didn't find it. Its probably buried in the 10 k somewhere. 10-K page 255 (I d/l the report from the investor relations part of the website) provides both the DTA and the Net DTA post valuation allowance. I'm using the Net DTA just to be conservative: US NOLs 3.06 bn UK NOLs 7.42 bn Other Non-US NOLs 0.12 bn US States NOLs 1.01 bn General Business credits 4.03 bn Foreign Tax Credits 5.38 bn Total 21.02 bn FTCs begin expiring in 2017; NOLs - some in 2027, some never (in the UK) Valuation allowance is around 1.6 bn So, if BAC's theoretical tax rate is 35% and we assume 19 bn profit, each year you get almost 7 bn of NOLs you can use to shield, which would mean finishing them off in 3 years if BAC could completely avoid taxes. Assuming it takes six beginning in 2014 (i.e. 3.5 bn) and still disregarding the valuation allowance, the PV of the NOLs at the 10.7% cost of capital Eric calculated is roughly 15 bn USD, or about 1.42 USD/share. Of course this is before the NOLs they will get for the DOJ settlement, but we'll have to wait for the numbers on that to figure our what the NOLs will be worth. It's a nice margin of safety... "unexpected" greater-than-normalized fines can be paid out of this time-release slush fund of NOLs.

Check this out: http://en.m.wikipedia.org/wiki/Vehicle-to-grid That says the value to the utilities is "up to" $4,000 per year per car. Well, the value to me is much more than that... I have an 85 kWh battery... I charge it off the grid after midnight at 9 cents per kWh per day and discharge it after 10 am for 47 cents per kWh. So I "could" make a spread of 38 cents per kWh. 85*.38= $32.30. (I earn a gross profit of $32.30 per day) $32.30 * 365 = $11,789.50 (I earn a gross profit of $11,789.50 per year). So you see... this demonstrates that I would earn "up to" 3x their estimate. I could make $11,789.50 per year. So of course I will be buying a Tesla battery for my house once the Gigafactory cuts their prices in half. I would have a free electricity bill. My actual bill is more like $6,000 per year -- I doubt they will pay me anything in excess of that. So if my battery costs me $12,000 or $18,000, I'll be paying it off after only 2-3 years. This post also demonstrates just how poorly electricity is priced in California. It's ridiculous. EDIT: Actually, the battery may only cost me only $6,000 to $12,000 (forgot to cut the price in half for a battery only 1/2 the size... I don't need 85kWh because it holds twice as much electricity as I can sell before zeroing out my bill). So the payoff time for a Tesla residential gigafactory battery may be only 1-2 years. That is, until California changes their extortionist rates. The math is sweeter than it looks because this is all un-taxable "imputed" income. Same logic that can help justify a solar panel installation or a private well. Utility bills are paid with after-tax dollars, so anything you can do to offset them while skipping taxes on that "income" is much better than it otherwise would seem.

I only wish. Voids the warranty. Remember, supercharging is free for life... Free charge, sell back to grid... Repeat. Plus, it would shorten battery life perhaps and might tarnish reputation of battery life for normal vehicle use, But Tesla does supply residential battery packs to Solar City for same usage. I was thinking you could just make an app that would arbitrage the high demand and low demand periods. The more EVs the more temporary storage the grid has and the less worry there is about intermittent power sources. Not sure if it would be worth it with conversion loss and wear on the battery though. I guess they are dealing with that exact issue with Solar City. I'm on time of use metering. I have my Tesla plugged in, programmed to begin charging at 12 am. I pay 9 cents per kWh between 12 am and 6 am. Then I pay about 31 cents between 6 am and 10 am, then it goes to 47 cents between 10 am and 6 pm. So if Tesla didn't have that restriction, I could make a 5 bagger every single day! You guys would never hear the end of it. BYD doesn't restrict it -- you can run the house off your BYD car. I really wish Tesla would allow it -- I mean, after buying an 85 kWh battery I feel like I could easily pay it off over 8-10 years if I could run my daytime electricity for just 9 cents per kWh (using the nighttime charge). Plus, what a great backup generator for power outages. I'll definitely get a battery for my house when the Giga-factory cuts the prices in half.

I only wish. Voids the warranty. Remember, supercharging is free for life... Free charge, sell back to grid... Repeat. Plus, it would shorten battery life perhaps and might tarnish reputation of battery life for normal vehicle use, But Tesla does supply residential battery packs to Solar City for same usage.

The fremont plant has at least 500k/year capacity (maybe more since they're probably more automated than average). http://www.teslamotors.com/no_NO/forum/forums/tesla-double-its-production-fremont-plant I wonder how much easier (faster) it is to build an electric car vs such a complicated internal-combustion car. Tesla is doing their own aluminum stamping at the Fremont facility, they also build the motors there. Were the GM/Toyota guys doing similar work or was it mostly assembly?

I suppose that's 12.5x earnings versus the high 12x end of my range. I don't disagree, since I pulled the 12x out of thin air and the two are largely the same. I sometimes talk about 10x but I can't see it lasting at 10x forever -- it's just too easy to compound money at 10% when you have 10x in such a low-leveraged (relative to a small bank) heavily regulated utility like this. People will leverage it and make a much better return than that -- so that kind of mentality should support something like 12.5x eventually.

Porsche was bought by VW in 2012 for about $22b and still today is barely selling 150,000 cars annually. Tesla's facility can make 500,000 cars a year, or roughly 4x more than Porsche was making back in 2012. In theory, 500,000 Model S,X,etc... can be made there. Maybe those are all high-margin cars like the S and the X, and they make the GenIII elsewhere? Or perhaps they are making 250,000 high-margin cars by 2020, and they are only making 250,000 GenIII cars. Why after all, would they sacrifice a high-margin slot in the production facility simply because they could build a low-margin car instead? I expect them to be either building or planning to build a new facility by the time 2020 rolls around -- to prepare for their continued success selling low-margin GenIII cars, pickup trucks, 2-seat roadsters, etc.... On the other hand, if they are eating somebody else's lunch, perhaps they can purchase their factory on the cheap like they did with their Fremont facility. Somebody is going to start showing excess capacity, however you are just taking a bite from each major automaker so perhaps nobody will be missing too many sales to justify closing a factory. Oh, but you were talking about peers.... Wait, they have peers?

It's like you are hunting a sitting duck. When will it take wing? You can't legally shoot a duck unless it is in flight. It was flying early this year but then it landed again and here we are >:(

Now... let's assume that interest rates stay here forever and the 100bps rise never happens... Translation is that at 10x earnings, BAC should be trading at $17.50 less the amount that earnings come in light over the next two years. So $17 worst case, but if you average the progress it's more like $17.25. Or $20.70 at 12x earnings. So that would be my range of selling if taxes were not an issue. Somewhere between $17.25 and $20.70. Every other banks (WFC, JPM, etc) will also celebrate the 100bps rise. So my thinking is BAC is worth staying in for the return to 13% ROTE under present interest rates.

It solves the moral hazard. Tiny banks are the ones that draw on the FDIC's reserves when they fail. The big banks pay a lot of money towards establishing those FDIC reserves. You can see where this is leading... the small banks aren't paying their own fare. This interference with the free market creates moral hazard.