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XMFSinchiruna (27.56)

Worst Stock for 2010: Bank of America

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January 21, 2010 – Comments (13)

Come on, Fools ... I need your help with this poll. This is ridiculous ... so far 85% of the vote has piled up against my nomination for BAC as the worst stock for 2010.

http://www.fool.com/investing/general/2010/01/21/the-worst-stocks-for-2010-bank-of-america.aspx

The scariest thing about this whole equity rally is that investors truly seem to believe that the financial crisis is behind us. Obama has begun referring to it in the past tense. This will have ruinous consequences for the investors lulled into a false sense of security.

Help your fellow Americans to understand the persistent risks in the massive ponzi scheme we call a financial system, and vote for BAC as your choice for worst stock of 2010.

Thanks for reading, reccing, and responding. :P

Sinchi

13 Comments – Post Your Own

#1) On January 21, 2010 at 4:20 PM, XMFSinchiruna (27.56) wrote:

And hot off the presses:

http://www.fool.com/investing/general/2010/01/21/these-railroads-dont-lie.aspx

It's not looking good out there, Fools!

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#2) On January 21, 2010 at 4:22 PM, FleaBagger (28.69) wrote:

I think there's probably one worse, but I didn't vote "No" because it said "No. It's worthy of its name." I definitely wouldn't go that far.

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#3) On January 21, 2010 at 4:35 PM, rosemanjhk (51.17) wrote:

What about AIG??  Certainly that stock must be in contention for that honor.....

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#4) On January 21, 2010 at 4:39 PM, XMFSinchiruna (27.56) wrote:

rosemanjhk

Sure, but everyone knows how bad that one is. The problem with BAC is that with TARP monies repaid, people are presuming that it's back on its feet. Nothing could be further from the truth, but that is the widespread perception. I nominated BAC to challenge that perception and urge investors to think twice before diving back into the financial sector in general.

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#5) On January 21, 2010 at 5:10 PM, Teacherman1 (48.38) wrote:

Sorry Sinch, there are many stocks that will do worse for 2010. Of course, I am a FOOL for banks. Actually it may be 2011 or even 2012, but I expect BAC to be trading for $40.00 to $50.00 a share and paying a nice dividend.

Our "Great and Wonderfu  Govt." could of course do something really stupid and bring the whole system crashing down, but then I don't think any of us will be very concerned who was right and who was wrong.

I don't think they are completely "healed" yet, but they are well on their way, and will get there.

JMO and worth exactly what I am charging for it.

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#6) On January 21, 2010 at 9:16 PM, XMFSinchiruna (27.56) wrote:

Teacherman1

Hi fellow Thurgood Marshall Academy supporter, :) I hope you won't mind if I explore the issue a little further with you for the benefit of all our fellow Fools. The reasons for my nomination of BOA revolve around what I consider the most crucial target for financial research and reflection that Fools can undertake to forecast looming trends.

I have no doubt that scores of other stocks will underperform even BAC shares, but for me that is not the goal in my selection. All I ask of myself in the selection process is which stock would be the last one I would ever want to see in my portfolio or that of a fellow Fool during the upcoming year. By these criteria, Bank of America has hovered near the top of my list since before this crisis was well understood.

I have to ask a question, and I guess I'll pose it to all of you who might feel bullish about BAC or its ilk ... how do you propose the banks will double in value and resume dividends when those untold trillions in illiquid "assets" remain locked up in some imaginary vault? These things are STILL illiquid ... there is still no functioning market for many sub-sections of the global trash heap of derivatives. The government added liquidity to relieve the strain from that frozen state, but despite the mammoth expenditures has done little to alleviate the sources of the problem.

The proximal cause of the global financial crisis remains unchanged, unchallenged in many respects, and unaddressed.

Is a company really solvent when the only way it achieves solvency is through fictional accounting conventions?

Without mark-to-market, there can be no safety in financials until all risk of deleveraging is removed from the system. Until balance sheets become transparent ... an honest assessment of assets to exposures, there can be no true confidence in the wisdom of an investment in banks from a fundamental standpoint.

This is the crux in the perception divide, I believe. Most investors today are convinced the problem is subsiding and the worst is over, while another camp views the structural issue with an over-leveraged economy in a state of massive fiscal imbalance as an enduring weight around the waist of the global derivatives market. Remember, with a notional market at 10-times global GDP, derivatives underscore the leveraged nature of the global fiat-based economy. 2008 saw the first big wave of a deleveraging event, and history lays plain that major deleveraging event lasts several years, and as in the case of the Great Depression they often show strong counter-cyclical bouts of reflation and perceived recovery between waves of a deleveraging cycle. This is where I see us today ... near the end of just one such illusory, fiat-printing counter-cyclical bounce preceding an unavoidable second wave of deleveraging that's greater in scale than the first.

I can't predict when that will occur, but I sense we may be nearing another round of deleveraging as loan portfolios continue to deteriorate and housing prices continue to decline. Greece looms, and our own state economies are in tatters. As global defaults mount, the very fiat currencies that underly the global financial system are ultimately on the line, and their future trajectories in my opinion are etched in stone as still larger interventions will be employed to combat the next round of deleveraging.

This, fellow Fools, strikes at the heart of why I have invested my portfolio so heavily in gold and silver mining shares. What you witnessed in 2008 was not a full deleveraging event ... it was a moment of panic that triggered a reflation/stimulation response ... which historically precedes deleveraging wave 2. In my opinion, it is often the pitfall of a Keynesian economic paradigm that one can perceive the threat of deleveraging, but trust in its containment by a reflationary response within an accommodative fiscal policy. With due respect to the Keynesians among us, I beseach you to think long and hard about that single assumption.

I have been watching this crisis develop for years, having turned my attention to gold in silver in 2005 and 2006 as a result of my investigation into the sturctural state of the USD and the scale of leveraged derivative threats. I say this just to point out that I've been paying close attention to these macroeconomic issues for some time now. I'm lucky ... my job is to sit here and conduct research all day long between writing spurts. 

I wish I could have gotten more Fools to take note when I called the collapse of BAC shares and all the major mortgage lenders before the worst of the collapse, urging Fools in February 2008 to "run, not walk, to the nearest exit". BAC shares on that date closed at $42.72. At the time, the consensus public opinion had total financial industry loss exposure in the range of a few hundred billion USD. I wasn't even successful at convincing good friends to reduce exposure to the financials at that stage. While being right last time doesn't mean I'm right this time, it might just make you more likely to give the matter a litle extra thought. I hope I'm wrong about all of this, but this is what I see developing. 

And from today's article, I repeat:

"These many months later, I see a management structure that has been shaken but not stirred. I see a scale of exposure to toxic assets that has only been exacerbated by the ill-fated Merrill Lynch acquisition, and I take note of an exceedingly accommodative fiscal environment combined with bearish macroeconomic indicators that virtually guarantee another round of deleveraging in the making. Add to this the specter of a proposed punitive tax that would place Bank of America on the hook for about 22% of estimated 2010 earnings, and Bank of America shares are simply unfit for risk-averse capital."

 

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#7) On January 21, 2010 at 9:25 PM, XMFSinchiruna (27.56) wrote:

From my blog December 18, 2007:

"Pimco's Bill Gross put it like this: "What we are witnessing is essentially the breakdown of our modern day banking system." Gross is right, but he only covers a small portion of the problem. The economist Ludwig von Mises is more succinct in his analysis: There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

We have seen that voluntary abandonment of further credit expansion has not been the path chosen, which unfortunately makes scenario #2 at least still in play as a distinct possibility. It's a scary thought, but I do honestly believe that the potential scope of this crisis remains that severe.

I hoping for the best, but preparing for the worst.

I wish the best for each and every Fool in the coming year. Invest cautiously. :)

Fool on!

 

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#8) On January 24, 2010 at 1:51 PM, bothisellhigher (< 20) wrote:

What a plan hey what? 

Give the sewer rats billions in Tarp...Let them keep gouging and cheating their credit card holders while loaning none of the money out to small medium or other large businesses...they then repay in full...and proclaim Voilla! the worst is behind us, the recession is over, the witch is dead everything is ok and the markets will soar...

I'm not buying it either and think that Sinch has again told it like it is....not like he wants it to be. 

P.S.  After months of bull trades I went short with BGZ and TZA toward thursday's close.  I expect to be back to gold and silver soon enough.  I don't expect to be in too many other long trades this year.     

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#9) On January 24, 2010 at 2:28 PM, DarthMaul09 (29.74) wrote:

The question on your article was a bit tricky since if the economy tanks and BAC tanks, then option number two would also be a good answer.

BAC lives up to its name.

 

I agree with your analysis and I suspect that you have a long lost twin brother named Peter Schiff.

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#10) On January 25, 2010 at 8:52 AM, XMFSinchiruna (27.56) wrote:

DarthMaul09

Maybe a fraternal twin, but I'm much more handsome than Schiff. :P

bothisellhigher

I have been pressing a few index short ETFs recently, and have been gradually dipping the cash I raised at $1,220 gold back into miners during this correction (especially late last week). 

 

Thanks to both of you for commenting ... for a few days there I was thinking my lengthy diatribe in comment #6 would go unread.

 

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#11) On January 26, 2010 at 8:58 PM, LiveOakGrey (< 20) wrote:

Hi Sinch,

I added my vote against Bank of America to your poll.  

Have you got any pointers on Canadian discount brokers to buy stocks directly on the Toronto and Vancouver stock exchanges, as an American? Since I'm an American, would I need a Canadian bank account set up for any dividends, when and if they are paid?  I could use American discount brokers I guess, but it may be cheaper (safer?) to use respectable local Canadian brokers to buy stocks directly on their exchanges.  Any thoughts on this reasoning as a diversification of risk?  In any case, if you know of some respected discount brokers in Canada, that would be very helpful.

Thanks, and keep up the good fight.  It boggles my mind that people believe everything is ok, because the MOPE put out there says so. Journals I formerly had respect for, are very low down my list of credibility these days.  A bunch of cheerleaders for the status quo, in every country, regardless of whether the party in office is supposedly pro-big business or pro-union/labor.  

Catch you later,

-Grey 

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#12) On January 27, 2010 at 9:19 AM, XMFSinchiruna (27.56) wrote:

LiveOakGrey

I used to read the newspaper every day, and sucked up their "news" like a sponge. I used to believe that politicians were on the whole a well-intentioned bunch despite the obvious exceptions. I remember watching tv news before I began to see through their cunning propaganda. The world through my eyes was a much nicer place back then. 

If I were not hard-wired to seek truth from the very core of my being, I would dive into the comforting MOPE and the relentless propaganda like it was a fountain of youth. How amazing it would be to shed the burden of concern and sadness that I feel for the direction the world is moving in.

I'm afraid I am not familiar with any specific Canadian brokers. At this point, I would think that the too-big-to-fail banks remain too big to fail, so I am feeling relatively safe there for now. From what I have read, the best way to achieve the next level of security for your equity assets is to go through the process of having the actual paper stock certificates released directly to you. The system is in the process of going digital, but for now most major establishments still have the means to relinquish stock certs.

Good luck!

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#13) On January 31, 2010 at 6:37 PM, LiveOakGrey (< 20) wrote:

Sinch,

Thanks for those pointers.  I'll look into getting the actual paper stock certificates.

Do you have any discount (or other kinds) of brokers you'd recommend within the U.S.?  What recommends them?

You mentioned that you see some kind of stagflation coming, but that our dollar is still toast.  Do you see us having a currency collapse, and a new dollar with that?  How long could it take?

It's my thinking we're headed that way.  There have been mentions that of something like 28 hyper-inflationary currencies in the 20th century, once a country's debt payments pass 40% of yearly GDP, there is no turning back.  I may have mangled those statistics, but after all, it's good wishes, vanity, and personal short term self advancement that count when discussing numbers, math, and other people's money.  Just ask Bernanke, Krugman, Obama and Paulson. 

As far as being hard-wired to seek the truth, its something I live with all the time, and can't understand how anyone else can be capable of shutting off unpleasant awarenesses.  I find that unless I keep drilling down and searching more broadly for resolutions to cognitive dissonance, there's no peace of mind.  The world would be a much better place if more people didn't avoid the unpleasant facts, and instead resolved to actually look for answers at some cost to their immediate peace of mind.  That's not being idealistic, just an observation of the road that can't be taken with what human evolutionary-driven psychological biases being what they are.  The next step is looking to see what the situation actually is, and what to do to protect yourself from it.

I find that the newspapers, tv, magazines, and most online bloggers, are all so bound and determined to prove a pre-existing assumption or goal, that most of the articles they print all have subtle to not so subtle dismissals of contrary thinking, the dishonest use of intellectually indefensible semantic tricks (think The Economist, big time!);  or just what I call a willingness to fail to print anything not in support of their "pre-determined outcomes of preference." Lead the reader by the ring you put through his nose to the 'sanctioned' ideological viewpoint, by 'any distortions necessary,' (to paraphrase a certain 60s figure).

What a waste of human potential, and potential for our societies.  Nobody watches the short-sighted and avaricious politicians, because they all benefit from either blissful ignorance, or they themselves get supported further down the food chain with jobs, promotions, or social recognition by those that don't realize the shallowness of the manipulations being perpetrated on them.  Unlike one of Mao's titles, nobody is actually at the helm of the ship of government, the central banks, big business, big unions, academia, etc.  

Once you realize how truly short sighted the people running the governments, big businesses, social welfare organizations, unions, in every country are (and the U.N.), you have this thunderstruck moment (at least I did) of: "If nobody worth having as a leader wants the job, and those that take the job are like Roman governors who buy their positions for a few years and spend them ruthlessly deal-making for personal profit and post-office retirement positioning....then we are on our own as individuals to deal with the social chaos our leaders are right now marooning us in."

That wasn't just a rant, but some of what I've come to think are the basic world-wide underlying realities guiding the minds that tell us they have another expensive wasteful solution and not to worry enough to stand up to the callousness of their self-serving agenda.  We should think twice when we hear various leaders wish to pursue more of the same programs, with more of our public finances.  

"Cui bono?"

-Grey 

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