Wednesday, January 7, 2009

BAC: A Need for the Couch & Psychoanalysis/Bad News needs a penalty for piling on:Intel & Jobs

One of these days, I going to have a serious discussion with myself about staying with Bank of America throughout 2008.  My reasoning, which was known to be suspect by me no later than early 2008, was that I could be wrong about the full extent of the developing credit crisis.  I certainly know than any judgment made about the future may have varying degrees of error associated with it.  As sort of a hedge against my own negative opinion about financial stocks, I decided to stay with BAC and reinvest my dividends.  Partly as a bet against financials, and to a lesser extent a hedge against my hedge of keeping BAC, assuming that makes sense to anyone, I bought SKF about the same time as I made the erroneous decision to stay with BAC, late in 2007.  (if any of that makes sense to anyone, then possibly they could explain it to whatever side of my brain that set it up-possibly I need to lead a search and destroy mission against the brain cells that generated the plan)  The SKF worked out just fine, until I was unnerved by the sheer degree of its gyrations, and sold it before it really started to bloom.   I am not critical of my decision to sell SKF too early, but I needed to pare the BAC position at the same time or I had to keep SKF and just not look at it.   

Maybe I am just compounding mistake onto mistake, but I have decided to stay with BAC at least for now.  I saw that Whitney estimated its 4th quarter loss provision at 6.7 billion.  Yahoo! Finance  While I can not creep into Ken Lewis' head, I suspect the sale of shares in China Construction Bank, raising 2.8 billion, was done because BAC needed the money.  You really have to look way out into the future to say positive things about the Countrywide and Merrill Lynch acquisitions. A bank in need of capital is generally not a good thing.  I further expect another dividend cut soon.   I try not to compound mistakes which I sometimes do to my chagrin.  But I am more likely to add to BAC than to sell any shares now. I do not intend to do that anytime soon and probably will wait at least until after the next earnings report.   However, I know that any recovery in BAC may not start to gather steam until 2010. 

While some have said that Obama needs to scare people in order to get a big stimulus package passed, and that explains his dire forecasts concerning budget deficits, I was still able to be scared some by the magnitude of his statement that the U.S. could expect trillion dollar budget deficits for years to come. Obama predicts $1 trillion deficit 'for years to come' -  A trillion or more deficit is already bake into the cake for fiscal 2009.  It is still unnerving to hear a President to be say expect the same for years to come.  My initial reaction is that those kind of statements will cause investors to reconsider even more what they are receiving from the U.S. in yields.  If some crazed heavily indebted government borrower asked me for a lot more money, I think that I would want a much higher yield than 3% for 30 years.   But there is a tug of war going on between those who still believe that shelter can be found from the current storm in treasuries and those who believe those people are more than a little off their rocker. 

One prediction that is highly likely to come true, made earlier in these posts many times, is an acceleration of job losses into 2009.(see, e.g. Notable News 10 23 2008)  The ADP report of 693,000 job losses in  December will soon be followed this week with another dismal report from the government on jobs.  Yahoo! Finance
On top of the negative news from Alcoa released yesterday, Intel announced this morning that revenues came in lower than expected for the 4th quarter, down 23% year over year. Yahoo! Finance
There are many posts discussing the acceleration of the downturn in sales for the tech titans which can be found by entering Intel or Cisco in the search field at the top of this blog. 

 I have a small starter position in Intel and I know that the holding period will have to be at least 3 to 5 years. INTEL
The general idea is to gradually take baby steps in making purchases over a period that may extend a year, knowing that it is impossible to time an upturn for a person in my position and the current prices look to be good entry points for an investor with deep pockets, a very long time time horizon, and  patience in abundant supply.   

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