Friday, November 28, 2008


As an unhappy owner of Bank of America, I reviewed the story about UBS slashing its target on Bank of America Reuters  The downgrade appears to be based on BAC's recent acquisition of Countrywide and the pending acquisition of Merrill Lynch which together add a lot of toxic waste to BAC's balance sheet.  Thanks, I already knew that but does anyone outside of the bank really have a handle on just how many problems Ken Lewis has added by his relentless pursuit of acquisitions.  I doubt that the wise sages inside the bank even know the answer to that query, let alone an analyst from UBS or an old man whose headquarters is a house in the SUV Capital of the World.  I have always suspected that banks did not have a thorough understanding of the risks on their balance sheets and the events of the past year merely confirm my beliefs, as did prior events from the early 1990s, the late 1970s and early 1980s, and 1973 to 1974.  Give them time, and the banks will find a way to blow themselves up. As I have said, if you dig a deep hole in the ground, some banker will come around and jump head first into it.  In that respect, I have about as much confidence in holding a bank stock as I would a homebuilder, whose capacity to be going 100 mph-peddle to the medal in a Yugo- into a concrete wall is unmatched by any other industry group, not even the bankers-though the bankers are close in the degree of reckless behavior.  The latest examples are well known and I have discussed them already in excruciating detail.  I have not mentioned the absurd bridge loans that they made in 2006 to 2008 to private equity firms seeking to acquire corporations by borrowing most of the money. Money was lent to the tunes of billions of dollars in these highly leveraged deals, with the hope the banks could get their money back by later selling bonds in the now debt ladened acquired company. The big banks were happy to oblige, winnowing down any of the traditional protections for lenders in the loan documents, accepting covenant lite conditions, and then finding that they had to eat the loans because no one would buy them. Seeking Alpha : 2008 : Live-Blogging the KKR PE Investors Call

I am a holder of BAC, and regret it, and classify it as a mistake.  I am no hurry to sell, however, and will probably be stuck with my investment for a few years.  I need to learn my lessons that I try to teach myself better.  Sometimes I just do not listen.   Is it possible that Bank of America will be in need of a bailout just like Citigroup, as suggested by a money manager?  Reuters  I suspect that BAC is better managed than Citigroup but the acquisitions of Countrywide and Merrill probably does place BAC near the top of major banks that may need a Citigroup bailout. 

Glimcher has a troubled mall in Charlotte, North Carolina called Eastland.  I knew about it when I made my recent foray into GRTPRF.  Judging from a recently filed 8-K, it appears that the existing loan on the mall for 42 million was non-recourse. GRT will pay some operating expenses while an attempt is made to sell the mall but GRT can cede title to the lender in the event this effort is not successful before 9/2009  and will simply pay interest on the outstanding loan with no principal payments until that date or earlier if the mall is sold. Summary of GLIMCHER REALTY TRUST - Yahoo! Finance  
I may be reading that wrong but that is how I interpret this filing.  It is always advantageous to a REIT to have a non-recourse secured loan in the event the property runs into trouble, as this three decade old mall apparently did at some point.  I would add that Glimcher had to accept on recent loans  a 50% recourse provision which indicates that it has lost some leverage with lenders.   Yahoo! Finance  This could be trouble a few years down the road. 

I have always wondered about my unknown compadres in the investing world.  On Monday of this week , I bought shares in Lincoln National at $6.45 Time to Fire my Head Trader: He Bought LNC
Today, after a shortened trading week, it closed at 13.73.  Is that insane or how would you characterize it when the stock of a large company gains more than 100% in a week?  I always wondered about being rational, maybe I ought to be drinking whatever everyone else was having. How could anyone call the market efficient and rational?  But, more than the wild fluctuations in individual stock names, the price of U.S. treasuries makes no sense to me at all.  Prices  just hit a 50  year low.  Investors are lending the U.S. government, hardly the bastion of prudent spending and behavior,  money at negative real rates of return, guaranteed to lose money after inflation, let alone after taxes. Disaster will have to happen to bail out those lending the U.S. money at 3% for 10 years.  Maybe they are right and everything will just go to hell in a replay of the Great Depression.  I do not see it that way and believe that the ones loading up on treasury debt, fleeing all other asset classes, have let their fears get the better of them. Nonetheless, I do hold some treasuries, just in case these fools are right. 

No comments:

Post a Comment