Bank of America is Going to Crush Earnings.
Before the bell on Monday morning is perhaps going to be the most important earnings report of the season so far, Bank of America is expected to report earnings of 5 cents per share. There are several reasons why I think recent history proves this number is significantly too low.
Berkshire Has AAA Debt Rating Cut by Fitch?!
Thats right. Berkshire Hathaway has had its debt rating cut by Fitch. Are you kidding! I predicate that there is hardly an institution more culpable for the “economic crisis” than the rating companies. They essentially gave the green light for the whole thing to take place by rating sub-prime mortgages as “AAA.” Only companies with strong balance sheets and solid cash flow deserve such a rank, not pieces of junk sliced up and repackaged. Now I’ve gotten myself sidetracked. Berkshire had $25 billion in cash at the end of the quarter. Buffett has stated multiple times that he would feel uncomfortable with less than $10 billion incase of any ‘acts of god’ (it is an insurance and reinsurance company after all). Does this sound like a company in trouble? The largest concerns about Berkshire relate to its use of derivatives. As I will explain, while they do add a bit of risk, there is always a trade off between risk and reward and Buffett has found a win-win for Berkshire over the long term.
What’s Bad for this Economy is Good for this Company?
One of the problems with many companies today is that their business model has been broken. No one is quite sure how the Goldman Sachs’s of the world are going to return to their previous sky high profit (and bonus pool…) with the new era of increased regulation and oversight. And I have frankly still not heard a convincing argument for the viability of the large car manufacturers or their suppliers. Even the proverbial king of American capitalism, General Electric, appears to only be able to come up with half-hearted responses where their business model of the modern conglomerate is called into question. All of this could make even the most confident CEO question his or her own business model, unless of course you see no end in sight for the demand of a product you sell. This is exactly the situation that Portfolio Recovery Associates finds itself in. Yahoo finance summarizes their business as follows,