Bank of America Halving Dividend

One of the big doubts that I had a few weeks back was the ability of Bank of America to maintain its dividend. Turns out BAC is cutting its dividend by 50% on its common stock and also planning to issue new stock. This is going to be a long, rough financial year. I don't have any positions in BAC nor in any other financials, but right now the entire market is looking gloomy (for people already invested into stocks). If anybody is just entering the market, then you can search around and find some good bargains in companies with low debt. Definitely avoid the financial companies for any long term trading. If you want to do , intra-day high-low trading, you can try high volume stocks - look it up on yahoo here to decide which ones.
One company I would avoid is Citibank group (Ticker: C).

Some of my long term long sentiments include Bristol Myers (BMY), Asae Brown Boveri (ABB) and Nordic American Tanker Shipping (NAT). Do your own analysis, just use these as a starting point.
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Short Selling Ban

Update: An official from the SEC called me at 9:35 am and informed me on the clarifications that I had sought. Those answers are added below my questions in this post in BLUE COLOR. I will have to say that I am impressed with the fairly quick response (within 30-40 mins) by this government agency. I am happy that the response was quick, although I question the logic of the SEC's decision on banning shorting. What they should have done is merely get the uptick rule back in place, that's my personal opinion on this issue. Please read on.

Dear Chairman Cox

REFER: http://sec.gov/news/press/2008/2008-211.htm

I need some immediate clarification regarding SEC ruling 2008-211. In fact I *desperately* need the clarification before markets open today at 930 am. My question is this, the SEC has banned short selling of financial securities till Oct 2 as I notice in the ruling. Q1) Does this affect companies like General Electric (GE) (as an example) that have substantial financial sector involvement. Or does it involve only the purely financial companies?

>> Read funny note at the end on financials.

Q2) SUPER IMPORTANT: If I am short on any financial security as of yesterday (i.e not a newly initiated position but a previously held position), do I need to cover or can I continue holding that position short?


>>the SEC has not issued any guidelines on existing short positions. As long as are legally short, it is your decision alone to hold or cover.

In case I do not cover, will the SEC or the Treasury guarantee my margin position even if the stock price rockets up?

>> The SEC or the government will not guarantee any margin positions of individual investors.
What they did not add but I am saying is that, they might cover you if you are in the league of Bare Sternums or Fanny May or Fretty Mac (BSC, FNM, FRE). Names misspelled on purpose.

I am also concered if the Stock exchanges will halt trading if the rise is too fast in the indexes (they did this in RUSSIA yesterday).

>> No comments on this issue.

This email may not sound very professional, but I need the clarifications as soon as possible, at least before 930 am.

Thanks a lot.

A concerned investor

Investor in NYSE, NASDAQ, AMEX.


Phone

Currently residing in the state of _____________


FINANCIALS AS IN:
for the blog alone: purely financial companies as in the ones that just push paper form one place to another and do not add any real material value or create any goods. Companies that are just middle men, that get to hold your money for 3 business days or charge you wire transfer fees for moving your money immediately. Or companies that charge 21% interest for providing your loans more than 20 days (for purchases) or 23% interest for cash loans the moment you take them out.
END OF POST, please feel free to add comments

Stock Market Predictions

So what is really going to happen in the stock market? (not only in the US markets, but also world over?). I have an answer to that: I do not know. Neither does anybody else. Now that we have that out of the way, let us dissect available news and possible courses of action.

Click on image for full size chart
Many people are already in panic mode after seeing Lehman Brothers fail (and file for Ch. 11 protection to reorganize) and Merrill Lynch bought out by Bank of America. Additionally we have the large insurance American Insurance Group, Ticker: AIG in deep trouble as we speak. We also hear several other companies like MF Global comment that their exposure to LEH was minimal, in order to bolster confidence. But we all know how the mob mentality works right? Investors enmasse pulling their money out of the stock market, does little to help stock price. Pictorially, the story of LEH, as of now is this in the last few days:

Click on image for full size chart
Once they went below 14, it was pretty much a free fall. A lot of things in the stock market work based on perception, so if a collective group of people "perceive" something to becoming valuable in the future, they bid up the prices on those "it" stocks. When they think that stocks are going to go, a few big names start selling and then everyone (almost) scrambles for the exits. Take for instance, AIG. I had long felt that they would run into trouble, but I had not articulated that anywhere except in my paper virtual portfolio. Now, after it became well known to even somebody living in Solomon islands that AIG has big troubles, the three ratings agencies decide to downgrade AIG.

American International Group Inc., the world's largest insurer, was hit by a wave of downgrades by credit-rating agencies worried that the deteriorating housing market is further undermining the company's battered finances.

Read all about that here. Thank you Credit Agencies, you have been doing your job really well in the last few years! Do I hear the barn door being closed now, or wait, should I use the analogy that bad credit is bad credit, you can put lipstick on it but... No, no, no - I am not going to go that route or the other route. To be fair, I am not really bashing rating agencies Fitch , S&P etc, I am just making fun of their delayed reiterations of news that is already out in the open market.

So where does all this leave us. Well it goes back to the old wisdom of being diversified, keeping emergency cash as cash, and having a positive outlook on life, no matter what. I am not sure, if the musical Annie is part of that wisdom, but hey I thought it is cool. I am not giving any tips for stocks here, but some of my favorites are DUK, GE, UTX, ABB, SUN, BMY, ISIS. Several of them are risky, so do your due diligence.

Sorry for run-on sentences and any other grammatical errors.

Merrill-instead-of-Lehman-gobbled-Bank-of-America-dividend?

Now that it is well known that Merrill Lynch will be bought by Bank of America (contingent to a slew of conditions), the big question for BAC shareholders would be: 1) How much would this dilute current stockholder's positions? 2)Would this affect the dividend which Bank of America has been paying regularly and reaffirmed recently? What exactly will happen in the near future (1 week?) and....
UPDATE: Now there is definitely talk of BOFA's dividend cut. Check it out in this interview.
What would happen in the medium term (1 year?) and in the near long term (4-6 years?) - when it comes to the health of these financial institutions. This "crisis" which Wall Street still refuses to call as "panic" is mostly one of its own making. Printing money does not make finances strong, nor does undue leverage make any transaction sound and secure. But this has been pretty much the case with most of the mergers and acquisitions proposed and guided by several of these investment banking firms.
I am not expert on these topics, but it had been my grouse to see the easy availability of large money at low interest rates to big banking firms. Now that is it coming back to them, these firms are all crying and hoping for more bailouts. What is worse of course, is the plight of the middle class "investor" who will be hurt even more by the fall in stock price (or wipeout) due to large margin calls - if someone had been over risky to buy this on margin. I was long BAC sometime back, but sold out for a 2% profit on my capital because I just was not sure which way things would go. Of course my profit had already gotten wiped out by an improperly positioned LEH short, back when it was trading at 23-24. Hindsight is always 20/20.
Disclosure: I do not have any position in LEH or BAC or MER.