I have had many subscribers emailing me asking about the stock value of Bank of America going into "freefall" mode. As of Monday BAC was down another 8% and is now trading below 6.50. I touched upon BofA in the latest Friday Road Trip and here's what I was discussing:
Bank of America's Backdoor TARP
http://themancommon.blogspot.com/2011/08/bank-of-americas-backdoor-bailout.html
But there's a much larger situation unfolding at the moment with the slow implosion of Bank of America and it has to do with the VERY Shaky Derivative Complex. You know...those pesky "Weapons of Mass Financial Destruction" that Warren Buffett likes to play with these days.
As of the last US Office of the Comptroller of the Currency release for the first quarter of 2011 Bank of America was participating in DERIVATIVES with a notional value of...
$52,504,829,000,000
http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/derivatives/derivatives-quarterly-report.html
That means they were on one side or the other of a "side bet" totaling over $52 Trillion. Win or lose that's A LOT of money to play with for a bank with total assets of only $1.4T and a market cap of $62B. I would say that Bank of America would fall into that "catch all" category of so many banks these days..."Too big to fail...but too big to save!"
I'm not saying that this $52T in derivatives will all fail but if only a small portion of them do (lets' say 1% or $520B) it will set off Buffett's chain reaction much like a NUCLEAR REACTION!
For those who don't think the Good Guys have the power to take down the entire Global Financial System I, uncharacteristically, would have to agree with you...but it looks like they won't have to:
THE BAD GUYS ARE DOING IT FOR US!!!
MY ADVICE: Stay in your bunkers for the remainder of the year!
May the Road you choose be the Right Road.
Bix Weir
www.RoadtoRoota.com
PO Box 10626, Oakland, CA 94610, USA
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