OJO Zafado

Bank of America: Better Than Treasuries

Cross Profit
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I do not own Tech except in a couple of mutual funds. Those funds are lightened up in these Jan effect through the Sell in May periods. I would not own Dell at all. WB is an aggregious example of how the "suits " in the board room have absolutely no reguard for common share holders. Management looks upon them as equity to be sold and sold out. For this reason I own BAC,JPM,C,&GS preferreds as an alternative to their bonds that now are grossly overvalued in terms of inflation risk both short and long term. I do not own any WB-PrS an example of this +8% insanity we are seeing in terms of these financials continuing to float out more and more debt securities at ever higher returns. Perhaps the benchmark for knowing when this credit/liquidity crisis is comming to an end will be when these commercial banks and Brokerage groups start floating out preferreds at lower not higher rates. The US Dollar is toast The only hope we have is for one of the remaining three stooges left in contention for the next leader of the Free Money World to even have a desire to turn things around. Watch the monthly TIC. If we get 2 more consecutive net declines or net loss of cash flows in then it will just pile on the dollar weakness. I agree that WB is crap as compared to BAC but that does not stop their common shareholders from posting on their Yahoo message board their contentions that the two companies are basically the same business model with the same fiscal soundness. As one of today's preferred owners of BAC I do not see any scenario where I would be converted into common shares. It is my expectation to get their stated dividends without the vagaries of their quarterly results impacting the payouts. I expect that some of my shares wil be redeemed at par at some point, at which time I will look at some other income play/opportunities. When my RBS-G was called in several years past the call date, I was able to find some great values in beaten down Canadian Coal, O&G trusts. Eventually the Ten year will get back to +/- 6% . There may be an opportunity to return to the Med term bond market for real risk and inflation adjusted returns. Ben the Dollar Slayer has let the genie out of the bottle and left himself with an empty 6 shooter. Two weeks ago Ben increased the TRCA from $75 Billion to $100 Billion to the ECB and SNB. That was followed by 3 more major European Banks reporting a combined +10 Billion in write downs the following Monday! The BOE is now sniffing around for a "little loan" as well from Ben to tide them over as they embark on a rate cutting campaign of their own in response to a weakening (world) economy. Not half so happy to have destroyed the US dollar and economy, the Dollar Slayer feels that as misery loves company it is now in his job description to export inflation world wide! I do not see how any of these issues supports the managements of the financials in permitting them to stand by their common shareholders. They are in the buisiness of saving their businesses not holding hands with bank share speculators. Speaking of the RBS they recently offered their common shareholders a rights offering for a common new issuance at a discounted price to raise equity. That is what constitutes having some concern for your common shareholders. Floating out 8% preferreds just fully dilutes them.

Eso, Timoteo Del Ojo Zafado

Bank of America: Better Than Treasuries

In the first place no common stock dividend is safe. You can see a year of these posts and blogs indicating that the common dividend on WB was "SAFE". Bloggers and posters scoffed at the idea WB would be forced to cut as they just recently did! BAC is by far the largest holding in my portfolio. $20K in bonds, $20K in BACPRE, $7.5K in MJH, and $5K in FBF-PrN. I would rather own the bonds and take the 5.9% they give me than the common. At least they are Med term notes and will mature at face value. At which time I can re-evaluate whether there is a stagflation or serious inflation. The interest payments are indeed "SAFE"! The BAC-PRE at 5.4% is not such a great yield on a preferred perhaps as the other non-adjustable issuances, but is indeed adjustable to LIBOR and even has a nice default rate built in, in the event LIBOR falls to the levels it currently sits at. The "E" sells at a huge discont to par! The 7.2% on the "SATURN" MJH is as the author says a very nice coupon. Exchange traded notes and Third Party Trust vehicles have a much better chance of being called on or near their first call dates. Perhaps though given the long maturity date I will be "stuck with" the 7.2%. As for the leftover from the Fleet Bank merger the FBF-PRN, it is very likely to get called in the next 2 years and sells so far below par as to provide a very decent 6.8 %.. If called there is going to be a very nice resultant capital gain. So I like BAC, I just do not and would not own the common in this on going re-definition of the banking business. Not since the days when Bonnie and Clyde "went into the banking business" have the common shareholders of banks been so badly fleeced. This time it is by the $800 suits. A POS like Kennedy Thompson is still hanging around as a board member of WB, after being outed as CEO, disgraced for his abysmal performance. As the author points out BAC has just floated another new preferred and at a very huge coupon premium to it's 20 year bond interest rate. Many fools continue to claim that the huge issuance of secondary offerings by ALL the banks are not dilutive to the common shareholder. Preferred means what it says! Before the commoners can belly up to the bar they must give way to the newbie line cutting owners of preferreds. The more of cash flow allocated to preferreds the less that is available to the common shareholder. Now there are mechanisms to pay out the new preferreds as an effective return of capital but in the end the common shareholder is the guy who is going to be squeezed. BAC has a huge credit card business. Another business that as CDOs and MBSs once did, currently looks quite profitable on paper. Merideth Whitney has indeed pointed to that business as a potential source for even more losses next year. Gasoline purchases as a percentage of credit card spending are rising dramatically. Most Americans reguard the family car's gas as a non-discretionary. Where does this lead? There may be some potential for capital gain in some of these banks over a longer term and the purchase of common shares in partial lots may be appropriate. You can not expect that dividends will be getting raised in the next several years. BAC common is not an appropriate "income investment" at all! It is a speculative asset that may indeed return a nice capital gain on the other side of the Emerald City. Only fools will buy this common stock, with out paying attention to and understanding what the men behind the curtains are up to with this on going floating out of +8% subordinated debt. This indicates that the situation has changed. You may want to change your mind in how you invest for capital gain as well as for income.

Insider Trends in the Financial Sector

I tend to agree with Serge. WB looks the most vulnerable. I do not see these financials bottoming until after the annual Summer sell off. We are going to see this bear market persist, after this bear trap rally past 1400 S&P ends. There is still time to get some puts on. BOA is big enough to weather the storm and will most likely rally strongly in the year end rally. JPM has capable leadership. C has a new CEO and he means business. All the deadwood will be out of Dodge at C in short order. Wells Fargo is very much exposed to the Calif. realestate market but was a little more selective than most in loaning money on realestate without equity. They have reasonably capable leadership as well. That leaves WB with their lame CEO who has embarrassed himself and the bank. Many times proclaiming the dividend secure in the months and weeks up to this past week's disasterous numbers and not just triming but brutally slashing the dividend by 40%. WB was still running their PicAPay mortgages ads(Neg amort) on TV just weeks before they reported. WB is the most vulnerable of the top 5! The leadership is either shell shocked or just really stupid! There is one place to gain a foothold in these financials NOW though. There are fabulous and relatively safe yields to be had on the existing prefferred subordinated debt shares of the better banks. USBPrE, JPMPrW, are good yielders. There are also some issues of BOA &WFC that are good as well. The WBPrS is up over 8% and that is a signal to stay away. These can be augmented with ADJ rate issuances like UBS-D, BAC-E & FNM-P for inflation protection. A position in DXKSX will also help offset any inflation issues. WB could easily break through $20 to the down size if they do not have a mangement change soon. Since the exposure of the LIBOR fixing fraud UBS-D has rallied sharply and may be best acquired on a pull back.