Wednesday, May 6, 2009

It's Like a Bad 1950's Horror Movie

You know the ones. Where everyone in the town become zombies or all become possessed, slowly but surely, and you don't know if your friends are one of them or not. Terrible movies but classic nonetheless.

That is what today feels like (along with the last 2 months) as news that B of A has to raise $34B in capital, meaning there tangible common equity is way too low if the economy goes to the lows it is expected to go.

B of A market cap is $70B. They are short $34B in capital. they are not insolvent but if asset values continue to fall, credit card and loan defaults rise, they are not far away from insolvency.

All of this and B of A is up sharply. Obviously investors have turned into zombies like in the old movies. They are not themselves but they are just drawn to buy BAC no matter how bad the news is. And more and more are popping up. Soon it will be you that turns into the zombie!

It all ends when the hero figures out what is happening and either destroys the entire town or finds the anecdote to cure everyone from this dreadful problem.

In the end, BAC will have to dilute their common shares by anywhere from 20-34%. That would tell us that their stock should be down, oh, 20%. but instead it is up 10% as the town zombies take over.

1 comment:

  1. All of this and B of A is up sharply. Obviously investors have turned into zombies like in the old movies. They are not themselves but they are just drawn to buy BAC no matter how bad the news is. And more and more are popping up. Soon it will be you that turns into the zombie old horror movies

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