Placing one’s chips on the “Don’t Pass” line when Warren Buffett holds the dice may seem ill-advised, but we’re not so sure about that $5 billion bet he just made on Bank of America. The news media inferred with all its might that it was a vote of confidence -- not only in B of A, but in the U.S. banking system. Yeah, well, maybe. But it would be just like Buffett to make the kind of deal that will return all of his capital come hell or high water while allowing him to reap a windfall if the bank should rise from the grave. In the meantime, the six percent dividend he’ll be collecting each year is a lot better than most hedge funds have been doing lately. Buffett could also become the bank’s biggest shareholder if he is able to exercise warrants to purchase 700 million shares of common stock for $7.14 a share over the next ten years. Had he been able to do so yesterday, it would have been quite a score – worth about $357 million in instant profits -- since mere news of the deal caused B of A to gap up to $8.80 a share on the NYSE opening. The stock had settled the night before at $6.99 after trading as low as $6.01 earlier in the week. The hysterical price leap was undoubtedly due to short covering, since it’s hard to imagine anyone but bears caught in a deadly squeeze paying a 47% premium for the stock just because Buffett had signed on. For all we know, he shares our opinion that B of A, like all of the other money center banks, could conceivably fail. All that’s needed to make it happen, as Buffett must know, is for confidence in Federal Reserve notes
Bank of America
GORO – Gold Resources Corp. (Last:23.00)
– Posted in: Current Touts Rick's PicksGORO looks like it has farther to fall, to at least 19.20 --about 15% below these levels. The good news is that we may get a great buying opportunity if and when the stock gets there. Officially, we'll look to acquire at-the-money calls at that time, with the expiration month yet to be determined. Unofficially, we'll try to initiate a camouflage long when the target is approached, since that can give us an entry opportunity even if GORO does not make it down to the target. Camouflageurs should also be on the alert for shorting opportunities if the current rally pushes up to the 23.97 midpoint of the pattern shown in the chart.
BAC – Bank of America (Last:10.80)
– Posted in: Current Touts Free Rick's PicksFor proprietary reasons, I did not display in today's commentary a weekly chart of Bank of America that shows so clearly why it is headed for the zero axis. The chart is included here, however, so that you can see for yourself how compelling the technical picture is. What is surprising is that we have heard so little about evidently grave problems at the bank as its shares have fallen by more than 80 percent. A silent crash? The chart speaks for itself.
BAC – Bank of America (Last:11.28)
– Posted in: Current Touts Free Rick's PicksB of A shares got short-squeezed viciously the last time they flirted with the $10 threshold, but it should be clear to everyone by now that there is something dreadfully wrong that has yet to hit the news. This is notwithstanding the fact that DaSleazeballs were able to distribute stock to widows and pensioners at a 50% mark-up over last November's lows. We'll be better able to tell how much longer they'll be able to fool most of the people most of the time when we've seen how the stock acts after breaching the watershed low at 10.91.
