Wednesday, May 13, 2009

BAC - Three Days Late But Worth The Wait

A week ago, I stuck my neck out when BAC was at $14 and said, BAC will go to $11.... By the end of the week. I based this on fundamentals and nothing else.

It was three trading days late, but it was worth the wait. It went up to $15 and almost shook me out. But I held until yesterday when I covered my short position. But this morning, I can see that fear had truly entered financials so I put in a pre-open order on May 12.5 puts at .75. Even though BAC opened essentially under $12, the order was filled and I enjoyed the rest of the day.

It is not a good idea to play short term options like that. It is more gambling. But even when gambling, playing the odds will pay off more than it will hurt. I took a chance and it paid off.


BAC has fallen about 30% from its recent high. But is the fall over? BAC has a major problem in front of them. They were planning on raising about $7B in capital via a secondary offering. But they blew the timing. They could have easily done this last Friday or even Monday but they put it off. With their stock price now lower, their secondary price will have to be lower which means more shares will have to be offered, thus creating dilution and most likely driving the price even lower.

BAC would now have to price their secondary offering around $9 or lower. The longer they wait, the lower the price. The result will be a fall in the stock price much lower than anticipated.

I look for BAC to see $7.50 before the end of the month. Based on fundamentals, their exposure to credit cards and first tier residential loans, and their need to raise capital via a secondary offering.


The VIX was up today almost 2 points but it is still 2 points from the 20 dma. This has me concerned that this pull back is not for real. I want to see the VIX above the 20 dma before I think it is worth adding more to my short positions. Until then, I will watch and wait.

This could just be a healthy pullback. TA is not telling me that it will go lower than 878 but fundamentals say this market is way overbought and the economy is not in recovery, but instead, at a bottom. Until we really start to see recovery in the way of increased job openings and more new jobs than lost jobs, we are not in recovery.


  1. Hi Beamer Dog,

    You probably know this already, but since you're holding a lot of SRS, I thought I'd post this bit today from CNBC about CRE:

    According to Greene, commercial real estate deals have yet to reach truly distressed levels.
    As for real estate investment trusts, he thinks they are a "slow-speed train wreck."

    Greene expects REITs will be hit by a "triple-whammy" that includes tenants renewing leases at highly reduced rents, higher financing costs and equity dilution.

    According to investor Philip Blumberg, the real troubles for the commercial real estate market have yet to materialize.

    "In the next three years, 2010 — that's when it really starts — to 2013, we've got about $300 billion in (commercial mortgage-backed securities), of which $70 to $100 billion is not refinanceable. But to put it in real perspective, on top of this is $1 trillion in bank loans written in the same timeframe, with the same dubious underwriting, coming due in that period."

    Blumberg expects this wave of debt will be a "real blow to the belly of the banking sector."

  2. So true, but I don't think it will take that long. You see, the real problem with REITs is debt. They got buy this year with their secondary offerings to pay off some of the due debt. But they are tapped out on credit and if the issues listed in your post come to fruition, they will need more credit sooner rather than later and they will get crushed very quickly unless Timmy and Ben have some extra cash to throw at them, pissing off the tax payers once again.