How far will gold and silver fall?

It came from the YouTube link I posted before. I'm not sure why you're disagreeing because I said the same thing you did in regards to comparing preferred stock to regular stock. I just didn't mention the bondholders.

 

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I was commenting on the statement that "Since the nature of preferred stock is that it will be paid back even if BAC goes under", which is clearly incorrect.

 

What is a scenario where Buffett will clearly lose his investment in BAC? A takeover by the FDIC? Bankruptcy? Some sort of congressional action?

It is very clear how the common stockholder can be wiped. Not so with preferred stock especially when said stock is clearly a one-off where the exact terms have not been revealed. Buffett, despite his words, clearly demonstrated what he thinks of BAC by avoiding the option with risk VS the one without.

 

Thought this was a thread about gold/silver prices falling? Seems like it turned into a stock market thread....specifically a Warren Buffet/BofA thread.

As far as the metals go, look up, they won't fall. We'll likely never see the levels of 1999/2000 ($250 or so an OZ for gold, $5-6 an OZ silver). I wish they WERE that low now, I could kick myself for buying Morgans bacxk then. I thought gold was too expensive back then (I was a YN then). I loook back, 3 of my Morgans could have bought an OZ of gold. I could be sitting pretty, but alas, I kept on with the Morgans.....which I have since sold...only when silver hit $50 March 1st, when MS63 Morgans went for more than they had since '80.

 

I suppose I could have worded things better than I did, but what I was trying to point out was that his risk is not as great as it appears on the surface.

Per Wikipedia: http://en.wikipedia.org/wiki/Preferred_stock

 

This is what happens when opinions vary =)

The owner of my local coin shop said if he would have gotten into bullion instead of rare coins he'd have retired already. At least you had the opportunity and wherewithall to buy at the bottom though. I didn't get in until 3 years ago, and I was thinking about it since 2004-05 so I was kicking myself for not getting in sooner, but right now I'm just glad I got in when I did.

 

I was just a casual buyer till recently last 2 years now i have been buying more and more gotten some good pieces also

 

Hindsight is always 20-20 especially when it comes to beating up one's self about past investment opportunities. I know, I've done it too. The good thing is that you got in. I was talking to someone yesterday who asked me about the wisdom of getting into gold now that it's north of $1800. We got into a long discussion on why its rising and everyone who got in in the last 10 years, included myself asked the same questions. "what happens when it goes down?" This was asked when people said it wouldn't get into $300, $500, $1000, $1200, and so forth. No doubt $2000 is the next milestone. My own belief is that it will continue to rise because the official currency is being printed to oblivion.

For anyone else reading it, it's not too late to start buying gold. There isn't a gold bubble. How many people do you know that are buying gold? If there was a bubble, the Cash4Gold places wouldn't exist. As I said in another topic, start worrying about gold bubbles when you see it for sale in places like walmart. Until then, get in and enjoy the ride.

 

The Wikipedia quote applies to companies with little or no debt. But in the case of companies with substantial debt and/or other liabilities like most banks, the preferred stock [even the senior preferred stock] is junior to the claims of all debtors, secured and unsecured, and usually doesn't fare well in a bankruptcy. Ben Graham used to say that preferred stock has none of the upside inherent in common stock, and all of the downside inherent in the most junior debt security so it is the worst of both worlds. That's why the dividend is usually more than a normal interest rate or common stock dividend.

In Buffett's case, he probably has great confidence in the stability of BAC, otherwise he wouldn't have bought the preferred stock.

 

Buffett's deal gives him the right to purchase 700,000,000 shares of common stock at the set price of about $7.15. He can buy the stock at any time if it rises, yet avoid it if it falls. He has this right as long as he owns the preferred stock. So the comments of Ben Graham do not apply in Buffett's sweetheart deal.

I'd be interesting in hearing of any examples of large holders of preferred stock in too big to fail banks losing anything.

 

Before I respond, I need a little information from you because your prior posts are completely confused.

1. At first you were contending that BAC could never pay back their loans and was doomed. Now you contend that the warrants, the most risky security in the capital structure of a company, purchased at about at $1 premium to the stock price on date of issue, are a good deal. Which is it?

2. Do you understand that Buffett took a reduction in the rate on the preferred in return for out of the money warrants?

3. Do you understand that I believe Buffett made a reasonable investment in a well capitalized bank?

4. Do you realize that nobody buys a package of preferred stock plus warrants if they think a company will enter bankruptcy during their holding period?

 

Large holders in GM and other firms have lost everything holding preferred stock. Cloud gives a great definition of Preferred Stock. Because it is in many ways the worst of both worlds, which is why its issuance has been going down for decades, it is not uncommon at all to be given option prices into common stock. If someone would look at existing preferred shares, they would see this is common practice.

BAC got good press by the Buffett investment, and they got some needed liquidity. Not a bad deal for them nor their shareholders, (and I am one). To me it appears a good deal for everyone involved, which frequently makes it the best type of deals.

Sorry, but throwing around terms like "sweetheart deals" makes it sound like he was given preferential treatment, or insider trading. Please back up slanderous remarks such as that if you choose to say them in a public forum. This deal is worst than what Berkshire made with GS and that deal also benefitted both firms.

Chris

 

Give some specific examples. Are you contending that BAC is close to being taken over by Obama as GM was?

(Though a topic for a different discussion, IMO, GM should have been allowed to be bankrupted, and it's finance oriented CEO, Rick Wagner, not allowed to walk away with 10s of millions. GM has not developed the cars that it needs to survive and the devils spawn of financing, GMAC, is now known as Ally Bank, is sucking up public funds like a tornado. It should not be suprising to anyone that Ally Bank is located across the street from BAC and staffed by many former members of BAC, Wachovia, First Union, Wells Fargo, etc. It's one big happy club. ")

 

I asked you a simple question. Certainly there should be no confusion about that.

 

You are getting answers, but you pretend not to see or understand. I already gave you Lehman. Chris gave you GM. You might also look at Washington Mutual, which was the largest failure where the preferred stockholders got wiped out along with the common stockholders and most of the bondholders. You can go down a list of the largest bank failures and most of them had preferred stock issues that were severely impaired or wiped out. This is easy to research if you have a mind to.

 

Lets bring back this oldie but goodie post where you seemed to indicate that BAC had no hope of repaying its debt. Yet now you claim BAC preferred stock, which is junior to the debt, is risk free. This is why I believe you don't know what you are talking about.

 

BofA just yesterday completed the sale of it's stake in the China Construction Bank. This netted them another $8.3B in cash they say they don't need. It's a foriegn sale just as I said in that post. Since I made the post that you you claim is wrong, BofA has sold off assets worth $13B. (including the sale of preferred stock to Buffett).

If you can't figure out this is what a business does which can't pay it's bills via normal operations then there is no hope for you. If you can't pay, then you sell off stuff until you can. Sorry Son, but you are simply wrong again.

 

Yes you did. And when asked to expain it since it made no sense compared to what else you said, you simply ignored it. No cigar on that one unless you are willing to revisit it. I'm willing to bet you won't.

 

Actually BAC selling half of their minor share in Chinese banks, increased my interest as (1) it is over $3B after taxes cash whether they needed it or not, (2) They made a 5X gain on the investment, and needed to bank some profit, (3) I personally think that China is headed for financial problems for several reasons and with poor transparency to the rest of the world. I wish BAC would sell the remainder and probably will as soon as they are allowed to as they were a "founding member " and have sales restrictions. IMO.

Jim

 

I don't know half of what you here seem to know but the reason I still don't like BAC. I believe the BAC issues are deep and that countrywide hasn't allowed the fallback from the bad loans to hit BAC yet. Couple that with the government forcing a slow down in the foreclosure process and BAC is still doing ok. However, I think once those two things are allowed to progress - the real 'state of affairs' inside BAC will come to light.

This is just my opinion and I could be wrong but I believe I'm correct - haha don't we all.