Is There Any Reason Why BAC Should Not Be At Citi's Price to Book?

[Rabbitisrich]

Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

Indeed.

 

In my opinion, the BAC story also shoots down the theory that you must focus on the less followed names -- particularly, those stocks that operate in countries that are secular economic growth stories -- to make outstanding returns.  My opinion is that this is a myth that RIAs or hedge fund managers perpetuate because that's their niche in the market.

 

When you get a punch card opportunity like BAC, one of the most followed stocks on the planet, you damn well better take it if you are confident in your analysis and can summon up the intestinal fortitude.

 

Unless you're an RIA, of course.

 

Less followed stocks don't typically have loud contrarians who show up on CNBC whenever the stock dips. You have to say that those contrarians are wrong exactly at the time when they are making money and you are losing it. It's easier to tell your clients that the stock is being dragged down by market + liquidity premium.

[Parsad]

Someone messaged me a few months ago, and I forgot who it was, but everytime "Munger" shows up on the board...just go long!  ;D  I suppose absence makes the heart grow fonder. 

 

Regardless, while I think the U.S. will do better than just about every other economy in the world going forward, we are now officially out of bullets.  So it's either this thing gets its legs going and GDP starts revving, or we go through a continued slow, slog of deleveraging for another 3-5 years.  Cheers!

 

 

If and when ECRI's call (http://www.businesscycle.com/news_events/news_details/5065) materializes, it will be interesting to see what bullets we try to conjure up - Dalio's interview back in October at the Economist's Buttonwood conference seemed to indicate the next downturn may not be pretty....

 

There truly isn't much left that would assist the economy and not cause any future problems.  QE3 would create problems going forward.  I think we'll have a better idea of how things are as the housing inventory shrinks.  If prices don't start to rebound, and unemployment doesn't rebound, then it could be a slow slog.  So far, things look quite positive, but China is slowing and we will have to wait and see exactly how they stop the hard landing.  Cheers!

 

Someone said today that it will be interesting to look back in ten years at the fact that Apple's market cap is greater than the entire US retail sector. I think the same can be said (not a new revelation whatsoever, I'm just saying) for Bernanke's ZIRP. I'm not nearly smart enough to figure out what he is distorting, but there has to be some type of distortion building up in the system right now that will materialize within the next ten years. I'm not particularly anxious to find out....

 

I agree.  I think what they have done so far is manageable and can be unwound, but the longer it goes, the more you artificially manipulate the system, the greater the distortions you create...and there truly is no way for them to know or anyone else to figure out.  Just so much money has flooded the system, and you still have a very weak economy.  It could slow down further, or it could rev up and become difficult to control.  Either way, the balance is incredibly tricky!  Cheers!

[Uccmal]

Once again BAC is proving that EMT fans are wrong. From 5$ to 9$ stock price in 3 months for a large cap company! Did BAC sign a major contract lately? Did they made a one time big gain lately? Did they improve their balance sheet in just 3 months? No! All has changed is PERCEPTION. And in this market you can make a whole lot more betting on change of perception than on harvesting earnings from the asset you invest in.

 

 

FT, Ben Graham at the senate committe circa 1970: And Mr. Graham, how do you know these special sitations will rise to intrinsic value?  G: that is one of the mysteries of our business.

 

I must find the proper quote - its been rattling around in my head all day today.

[ERICOPOLY]

I'm not nearly smart enough to figure out what he is distorting, but there has to be some type of distortion building up in the system right now that will materialize within the next ten years. I'm not particularly anxious to find out....

 

One such distortion is the damage done to net interest margin for banking.  Killing ROE for all kinds of companies, like AIG for example.  At the same time it's boosting companies who are borrowing at low rates.

 

I'm looking forward to BAC's net interest margin improving over time.

[Parsad]

I'm not nearly smart enough to figure out what he is distorting, but there has to be some type of distortion building up in the system right now that will materialize within the next ten years. I'm not particularly anxious to find out....

 

One such distortion is the damage done to net interest margin for banking.  Killing ROE for all kinds of companies, like AIG for example.  At the same time it's boosting companies who are borrowing at low rates.

 

I'm looking forward to BAC's net interest margin improving over time.

 

Yup.  Very good example.  It's going to kill off a bunch of life insurance companies too if it goes on too long!  Just like in Japan.  Cheers!

[PlanMaestro]

Yup.  Very good example.  It's going to kill off a bunch of life insurance companies too if it goes on too long!  Just like in Japan.  Cheers!

 

American life companies don't do as much or as high in guaranteed rates as Japanese life companies. They are also much better matched. They have been also raising prices.

[beerbaron]

Yup.  Very good example.  It's going to kill off a bunch of life insurance companies too if it goes on too long!  Just like in Japan.  Cheers!

 

American life companies don't do as much or as high in guaranteed rates as Japanese life companies. They are also much better matched. They have been also raising prices.

 

Don't pass these judgments so fast. I just purchased a 20 year life insurance (150k, 19.50$ per month) for me and my girlfriend. There is a 2.8% chance of my girlfriend dying in the next 20 Year and me a 6.7% chance for a total of 9.5%. Based on a 5% annual interest earned on my premium you could see that the money they would earn would be around 7000$. Divide 7000$/0.095 and you get 73 000$, which means the lifeco is running an actuarial deficit of 77 000.

 

*Please note, this is a rough calculation, we are both non smoker so the death rate should be a bit lower. But on the other hand I'm not calculating the brokering fees on the lifeco side. Plus, something tells me they still use a 7% return rate on their assumptions, if you paid yearly for the premiums you could save 7%. 7% seems very high in this environment!

 

P.S. For those that are EL. Financial shareholders that does not looks good since the insurance policy was from Empire Life. I've kept EL Financial on my watch list up until I got that insurance contract from them :)