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Posted by W. Wells on January 9, 2008, 3:04 pm
I would to know as much as I can on BAC subprime exposure. The 6% dividend
looks good but I'm worried about their ability to pay future dividends.
Buffett bought it at $50 a few months ago but he can afford to loose his
money more than I can.
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Posted by Elizabeth Richardson on January 9, 2008, 7:04 pm
> Buffett bought it at $50 a few months ago but he can afford to loose his
> money more than I can.
Yes, but Buffett isn't a gambler, he's a highly successful, long-term
investor. If Buffett is buying, it is probably the best recommendation
you'll ever get.
Elizabeth Richardson
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Posted by Elle on January 11, 2008, 11:31 am
W. Wells, I thought this an interesting article on the lack
of transparency in general of subprime exposure:
http://www.thestreet.com/newsanalysis/ratings/10344210.html
(dated March, 2007). Notice that Washington Mutual is not
mentioned. Generally speaking, WaMu has been one of the ones
hit hardest, behind Countrywide and maybe a few others it
seems. You can google using {subprime exposure banks} and
find more.
I agree with Elizabeth R. about Warren Buffett's savvy in
general. He made the BAC purchase in the second quarter of
2007. It's less than 1% of his portfolio. With this being
such a small stock position, one could say his risk was
small. Still I wonder what Buffett says about the disconnect
between what he knew then and what we know today, hindsight
being 20/20 of course.
>From the media: WaMu cut dividends drastically (some 70%) in
December. Many analysts predicted this move, based on WaMu
fundamentals. National City Corp. cut its dividend by half
in early January. Citigroup has not ruled out a dividend
cut. But importantly and relevant to your question, the
media has not made similar predictions for BAC. I hope it's
not too obvious, but you want to look for announcements
about bank "writedowns." These denote a reduced appraised
value of assets, in this case tracing back one way or
another to reduced valuation of mortgages. Articles such as
http://www.streetinsider.com/Basic+Content/Bernstein+Sees+Citigroup+(C)+Q4+Write-Downs+of+$12B/3229599.html
suggest that BAC's writedowns are not nearly as severe as
Citigroup's.
It's a highly anomalous time for dividends, particularly (or
maybe only) in the finance industry. This is trickling
through the whole economy, as I am sure you have read.
"Depression" is a nasty word, but I think it's important for
laypeople to understand that an overabundance of credit (c.
1929 and in the last few years) can lead a nation to
economic chaos and sometimes disaster. Too much credit is
when wealth all of a sudden disappears, because it was built
on a house of cards in the first place.
I think the government is smarter today and we will not have
a depression, but I am seeing a year or more of recession.
Sit tight, and reinvest those dividends now when so many
stock prices are down, so as to buy more stock at bargain
prices. I can't say that WaMu is a good buy now, but even
with the dividend cut (and due of course to the fall in
stock price) its dividend yield is now over 4%. This should
entice at least some investors to keep holding it. Likewise
with other bank stocks.
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Posted by Evojeesus on January 13, 2008, 10:49 am
> I think the government is smarter today and we will not have
> a depression, but I am seeing a year or more of recession.
What do you think the government can do in this situation?
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Posted by Douglas Johnson on January 13, 2008, 12:11 pm
>
>> I think the government is smarter today and we will not have
>> a depression, but I am seeing a year or more of recession.
>
>What do you think the government can do in this situation?
Out of respect for our moderators, I'll stick to what the government can do, not
what it should do. The short answer is not much.
The Fed can lower interest rates, but that takes about 18 months to have much
effect on the economy. The Keynesian possibility is to increase the deficit,
either by lowering taxes (such as a cash rebate like was done in 2001) or
increasing spending. That would have a more immediate impact on the economy,
but it would require a massive increase in the deficit to have a significant
effect.
-- Doug
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