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Warren Buffett Rolls the Dice
Placing one’s chips on the “Don’t Pass” line when Warren Buffett holds the dice may seem ill-advised, but we’re not so sure about that $5 billion bet he just made on Bank of America. The news media inferred with all its might that it was a vote of confidence — not only in B of A, but in the U.S. banking system. Yeah, well, maybe. But it would be just like Buffett to make the kind of deal that will return all of his capital come hell or high water while allowing him to reap a windfall if the bank should rise from the grave. In the meantime, the six percent dividend he’ll be collecting each year is a lot better than most hedge funds have been doing lately. Buffett could also become the bank’s biggest shareholder if he is able to exercise warrants to purchase 700 million shares of common stock for $7.14 a share over the next ten years. Had he been able to do so yesterday, it would have been quite a score – worth about $357 million in instant profits — since mere news of the deal caused B of A to gap up to $8.80 a share on the NYSE opening. The stock had settled the night before at $6.99 after trading as low as $6.01 earlier in the week. The hysterical price leap was undoubtedly due to short covering, since it’s hard to imagine anyone but bears caught in a deadly squeeze paying a 47% premium for the stock just because Buffett had signed on.
For all we know, he shares our opinion that B of A, like all of the other money center banks, could conceivably fail. All that’s needed to make it happen, as Buffett must know, is for confidence in Federal Reserve notes – i.e., the stuff we carry in our wallets – to fail. Is that day coming? No one can say for certain, but it seems no worse than an even-money bet to us right now. More immediately, though, look for the press to shill the supposed symbolism of Buffett’s banking play. “Warren Buffett comes to the rescue again,” was how ABC news led the story, while MSNBC anchor Brian Williams fatuously described the Sage of Omaha as “the one man rich enough, and influential enough, to save a bank.” As indeed he may have, even if just temporarily. It was only a couple of days ago that B of A stock nearly slipped below $6 for the first time in decades.
Now, How to Grow?
But for Buffett to realize a fat capital gain, Bank of America will need to figure out how to grow its business. It was easy enough for the big banks to fake good health a few years ago, when the Fed allowed them to dump their toxic loans into the still-nebulous limbo of the central bank’s digital vault. But if there is a sound way to actually grow banking business in the midst of the current real estate depression, we can’t imagine what it would be. Buffett himself was not pressed for his thoughts on this, but we’d be interested to hear them. Surely he has some good ideas, right? In the meantime, the news media accepted at face value Buffett’s white lie that he did the deal because B of A is a “strong, well-led company.” If that is a fact, then investors who have allowed the stock to fall from a high of $55 toward the zero axis in recent months have yet to discover it.
From a technical standpoint, we have B of A shares falling below zero. While this is not technically possible, it is the same result we got a few years ago when we performed a similar analysis on the shares of Bear Stearns and Lehman Bros before they crashed. Incidentally, if you want to follow our analysis of B of A and other stocks, as we update 'round-the-clock, consider taking a free trial subscription to Rick’s Picks. It will give you access not only to timely analysis and detailed trading recommendations, but to a 24/7 chat room that draws savvy traders from around the world.
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i would give this guy and his analysis a lot more credibility if he knew what he was talking about. Below $6 in decades? Does this dope know this stock hit $2 and change in Spring of 09?
I bet it would have went tits up without Buffet's 5 billion and I bet he put up all that cash not because it's a good value but because it's a lynch pin of the status quo he loves lording over. "if you buy gold it's like betting against America." Fuck you Warren Buffet. I buy gold to bet against ass-holes like you and George Soros. We hate you fucking Oligarchs. Enjoy your dumb-ass BoA stock. I hope it goes to zero and I hope you are forced to double down on it before it does.
Buffett & Gates make all their money here, pay almost no taxes, then give it all away to Indians & Africans while the average American gets the Tax bill for their Stock Market bailouts for generations to come. Go figure. That Bumfart from Nebraska should know better. He's not as Patriotic nor as smart as most have him pegged for. Great Vulture though. Would'vew made a damn good Shark too....or maybe a Wolf ....in Sheeps clothing. Berkshire should just get rid of the old Coot now, lest I shan't have to listen to his sickening truisms from the Ivory Tower hence longer.
Obummer had to go with Buffoon because JPM said something like: "Whatchu talkin' about Willis?" when asked to be the backstop in early August. Something about "We have our own problems..."
Becky Quick was giving ol'Oracle some spongebath action and the e-trade baby bought the puts on the gap up...
Political Theater my friends... I'm in on the puts at a serious discount thanks to the talking heads on CNBC and the pathetically foolish retail investor... Failure by November please... I'm suppose whoever it was that bought the $2Mil in Nov11 $4 puts has bigger hairy ones than me, so I will ride the storm out with them.
Thinking the same thing. Timmy gives $5B check to Ohblowme, who gives it to Boffo, who does his oracular thing and saves BofA. Stealth QE in action. Or maybe I'm just the suspicious type.
My $ is that Buffet is FAR too smart to dole out 5B, without a solid guarantee of full recourse(if it failed), and if a success, HE wins doubly.
IMHO, he's not risked a dime of that 5B.This is/was POLITICAL from the get go.
Agree 100%. BoA is too-big-to-fail and Buffett probably has assurances of that (I sure as hell would given the beating the WAMU bondholders took).
Bank of America will be one of the select funds allowed to bid on the proposed multi-million (billion?) foreclosed home packages of HUD, FannieMae, etc. and Buffet will become a proxy slumlord.
If you own BoA shares, Buffett has just given you a last chance to get the fuck out of Dodge. Take the present with both hands, otherwise you'll be staring at nothing.
Buffett a hero? Is that Jimmy Buffett. Fuckin Lol.
I cannot read the article due to a fucking sidebar with that asshat buffets face on it. How do I get rid of the sidebar so I can read this??????????
Changing the font size works for me, after that if Buffets face is still staring at you consider an exorcism.
paste and copy to another page .. maybe email ..
Let's revisit this in six months.
Common shareholders got screwed and they don't even know it.
Buffet got a special class of shares with special conditions that the shareholders never had a say in.
Moniyhan is a LIAR and should resign in disgrace.
am i the only one who can't read the article? the right column ad banner is pasted over the text, and i can't figure out how to move it away.
Click on the "Printer-friendly version" link.
Been here two years +, didn't know that. Thanks it works well.
he rolls the loaded dice , watch sevens . deal was made.. all show.. some where his railroad will get a jucy deal, his insurance companys a special tax consideration, govenment will order all furniture from RC willy,,
Buffet stands to gain big especially if B of A fails. His stock is a special prefered and I'm sure he stands in front of everyone (except maybe the IRS) in any bankruptcy. In liquidation, B of A is worth at least $ 5 Billion. Buffet will suck the last of the wealth out of B of A. Is Buffet really the hero the media makes him out to be?
I'm pretty sure that preferred shareholders of Lehmann brothers got nothing, since the bondholders were owed $500 billion or so and they were able to liquidate just a small fraction of that.
When Buffet is involved in a rescue operation, when he takes money out of his investment vehicles and places it somewhere else, it is not a bet at all. Not even close because on a bet there is some chance you will lose your money.
What Buffet gets is an iron clad guarantee that his money will be returned to him at the very least with some virogish attached to it.
You and I make bets, Buffet has no chance of losing even one cent.
+1
Risk? What Risk? If only Leona Helmsley were alive, she would tell us the vulgar truth of this deal. "Risk is for the little people".
Exactly. The first thing I thought was what bet ?
I had the calls before the buy and now bought the 7$ puts on the spike up. I hope this dog runs the way my
Lehman puts did ha! I didn't know how to sell a bankruptcy price ha!
"MSNBC anchor Brian Williams fatuously described the Sage of Omaha as “the one man rich enough, and influential enough, to save a bank.”
Wow....that sounds eerily like what was said about J.P. Morgan shoring up the markets during the crash....
True dat. With the main difference being: in 1894 it was actually true.
Yea, like he bought $5B worth of common shares. Please.
B o' A has got that albatross Countrywide they need to dump on the taxpayers. The Bernank needs to unload their MBS doodoo on the citizens or shove it right back to the banks. We've had the former, now we'll see the later.
I think will be seeing more bankster infighting. Another Lehman event where they all realize they're holding a Bag o' Shit.
It seems the website isn't displaying properly. The RanSquawk News side panel is obliterating the body of the article. I'm one of the lowbrow neanderthals still on IE. Might that be the problem?
Try clicking on the "Printer Friendly Version" link at the very bottom of the article.
Melin,.
I'm one of the lowbrow neanderthals still on IE. Might that be the problem?, not if your on IE 9.....................
No, I get that with most charts on here (don't seem to be able to open these ones in a new window) and I only ever use IE to download a different browser.
It's the media that's farting. Buffet is an insurance guy and only knows banking from the P&L statement. He aint lending money and he aint givin BofA anything without taking from it with the other hand. All eyes on the muni market as the US economy implodes.
Buffet has long lost his touch. If BAC would be at 40 cents, I would say that it was a sound bet because the government will bail them out than yet again and stocks could go back to 50 cents.
Besides that... it's a stupid investment.
I'd buy BAC if it went below zero.
That would be a point, if we were considering common equity shares. Of course, as usual, Warren feels free to put himself well up the capital structure from the steerage class people. Of course, that's left out of the discussion. You didn't actually think he was slumming with the retail people....LOL, fucking stop it.
It appears the "Buffett Effect" was nothing more than a fart in the wind.