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Monday, April 28, 2014

$bac - lacking catalyst

Management fucked up, hard. Seems like every so often a major bank fucks up like this now and again. (JPM with their risk procedures via the london-whale, costing about $7b!) BofA fuck-up doesnt seem as bad, but the perception of incompetence is not diminished any.  I mean seriously, the top dogs are paid millions to get this shit right, so get it right!!

The technicals on the daily are now shit.

The technicals on the weekly are not to encouraging. The trend has been to bounce off the 20-28 sma, but the "re-adjustment" fucked that up. Now its testing its 50sma.

The monthly suggests the 9sma may hold, but its a await and see game for now. (Will need to see some better structure in the daily to confirm.)

No one likes to see readjustments, but a reality remains: BAC has a tangible book of 13-14, and a book value of 20-21.  Prior to contracting "shooting-self-in-foot" syndrome, BAC was on its way towards the final large litigation settlement which would have facilitated a return to book value. (As a major uncertainty would be lifted.)

Now there is procedural uncertainty. Will these uncertainties be enough to drive the stock towards tangible book? Is it justified vs book value?

The long thesis on bac: an improving economy leadsto a more certain book value. The economy has improved and is improving. As uncertainties ease, the trade is to have bac trade at or above book value.

Longer-term, the thesis is earnings / cash flow valuation, but one step at a time.

Update: when JPM had their London-whale issue, the stock dropped another 14-15% after it's initial drop. IMO, their issue was worse cause it was procedural controls that lost them real money. (BAC's issue was purely an accounting fuck up on a tiny bit of assets.) Not expecting the same type of reaction.

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