Ignore Everything You Hear on TV
Written on May 19, 2009 by Ryan Freund
Ignore everything you hear on television. Especially CNBC (owned by GE). While they’re busy pumping the markets, this is what’s happening in the real world (from Bloomberg):
“Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.
The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.”
By the way, notice that Goldman Sachs (NYSE: GS) put Bank of America (NYSE: BAC) on its “conviction buy” (strong buy) list Monday (the cause of the rally), and today we find that Bank of America is selling 13 billion worth of stock on the public at the inflated price (because of Goldman’s cheerleading). Pretty crazy, huh? The banks are trying to keep each other alive! But the massive dilution (20% from BACs recent offering) will eventually destroy most of shareholders. What’s next for in the dilution game for BAC shareholders? Conversion of private preferred shares to common shares; another 20% dilution at least.
And don’t even tell me the banks will be earning their way out; S&P 500 profits have shrunk by 90%. Yes, 90%. No way they’ll earn their way out of this.
If you’re a BAC shareholder, I’d highly suggest re-thinking (read: sell) your position at the gift price of $11 (compliments of Goldman Sachs). I’d also suggest being in cash for a while until earnings start to come back, but that certainly won’t happen unless people stop losing their jobs.
Freund Investing Managing Member Ryan Freund holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy.
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