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Fri Mar 7th 08:32 AM | Rating: 0 0
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Will BofA Really Buy Countrywide?

This is a typical case of the human brain putting way too much emphasis on what's happening today vs. the long run. It's why so many people sell at the wrong time and buy at the wrong time. As Jason Zweig wrote in his article, Can't Save? Blame your brain, "New discoveries in neuroscience labs are helping to explain why it's so hard to resist the allure of instant gratification. It turns out that your brain is much more aroused by $1 today than by $1 tomorrow. And $1 six months from now barely registers", and then again "... the temptation to buy dotcom stocks in 1999, energy stocks in 2005, real estate in 2006, emerging markets in 2007 or gold right now - what's hot when it's hot - is overpowering for many people, no matter how often they've been burned before."

BoA's acquisition of Countrywide is an excellent long-term deal. Sure, today it looks like a terrible bet. CFC recently reported that 71% of their ARM's are making only the minimum payment allowed. That could sound scary, but ... they're paying! I think we tend to forget that people DO NOT want to loose their home. It's a dream of everyone to own your own house. With all the programs to save peoples homes, prevent foreclosures etc, I would say that most of the 71% paying right now will be able to move to products that are fixed and that they can afford, and they will CONTINUE paying their mortgages to avoid loosing their dream.

The nightmares of Countrywide are happening now, and BoA knows it and that's why they scooped it up so cheap. In a few years, it will look like a bargain and Ken Lewis will be in the cover of Money magazine. In fact, many big time investors of CFC feel that CFC shouldn't accept BoA's offer because after the nightmares are over, CFC will be worth SO MUCH MORE than BoA is paying.

So Richard, question for you: Have you sold all your investments lately?
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