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"The fundamentals haven't changed, but the prices certainly have," says fund manager Mark Egan,...
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Monday, October 22, 2012, 1:07 PM ET"The fundamentals haven't changed, but the prices certainly have," says fund manager Mark Egan, explaining why he recently sold Bank of America (BAC) bonds yielding 3% that he had picked up last year when they were yielding 8%. He notes the great balance sheets of the financials mean good times for bondholders, but not so much for the owners of the common stock.
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And a great balance sheet is NOT good for common stock? Do you know all the reason the BAC stock came down so low is mostly due to investor's worry about B/S, esp more capital raising? Now the B/S is bullet-proof, and you said it's bad for investors. Is this guy insane or totally stupid?
As for the second point, a strong balance sheet is good for everyone but disproportionately favors the bondholder. Common holders benefit more in times of expansion not consolidation. Hence why BAC shares have been stagnating and/or falling for awhile. Future profits look grim, hence current price action. Bondholders get paid either way.
Last time BAC saw teens was April 2011.
But at least it's moving in the right direction.
I must have missed something as it seems to me the opposite is true. The bonds look less attractive at lower yields, whereas the balance sheets can generate cash that can be returned to shareholders even if management can't make great returns on equity.