Get Out of BAC (Or why Bank of America's Stock is Worthless)

April 30, 2011

By John Titus
 
With Chris Hedges’ speech at the Bank of America protest on April 15, 2011 in Manhattan, we have come full circle from four years ago. 
 

Chris Hedges Speech from BAILOUT on Vimeo.
At the time, early 2007, it seemed like any other year. I was practicing law and investing in large-cap stocks using eTrade’s stock screeners to pick winners and dump losers. I almost always held between four and six securities and would hold them for at least 366 days so gains would only be taxed at 15%, not as ordinary income (~45% or more).
Things got weird when I bought Bank of America (NYSE: BAC) that Spring. Normally I preferred companies that produced real things (tobacco, oil, pharmaceutical products, copper) and thus avoided banks. But BAC’s numbers were better than anything I was seeing in my usual haunts: low price-earnings and price-book, fat dividend, high profitability, positive cash flow, what have you. So I dove in.
It was an odd time in lots of ways. For one, John Fox was around a lot more that year, like all the time. Foxy and I had been friends for going on 10 years, but he was constantly on the road with stand-up comedy gigs. But by 2007, that was coming to a shockingly abrupt end.
“The entertainment dollar is the first one to go,” he told me.
A “normal” work week for Fox had been Wednesday night through Saturday or sometimes even Sunday night. But in 2007 suddenly the four-day gigs turned into two-day gigs as comedy clubs and bars started converting Wednesday and Thursday into karaoke nights. That’s if the club survived at all. Even big-name clubs were simply shuttering their doors. Fox saw his income drop by over 50%.
Fox and I started hanging out all the time it seemed like in 2007. While it was hilarious hearing Fox go off on various subjects—my stomach hurt a lot from laughing so much around the guy—I couldn’t help but wonder what was going on for comedy clubs to hit the wall, seemingly all at once.
The other oddity that year was BAC itself: it was losing instead of making me money. My other stocks back then (FCX, COP, CVX) were rocking the party, and on lesser numbers than BAC. It was really pissing me off. The numbers don’t lie, I thought at the time, so I hung in there and watched BAC steadily tick down from my $51 entry price.
By the end of the year I was livid with BAC hovering around $41. I hate the amateurishness of New Year’s Eve revelers, so I always stayed in and analyzed stock market performance for the year. What I saw at the end of 2007 shocked me.
By way of background, 2006 had been a good year for me, and normal. My portfolio had gone up 34% vs. 13.6% for the S&P 500. There was nothing unusual at all when I looked at the graph at the end of 2006:

 

It’s a fairly linear graph, not too jumpy. When I pulled up the same graph for 2007 I was shocked at the volatility. It was simply out of control:

 

That one graph was enough to make me hit the sell button. I’d beaten the S&P 500 again (which is not hard unless you listen to the “pros”), but let’s face it: the stock market in late 2007 was flashing like the electro-cardiogram of a heart attack patient.
I dumped everything. 
Over the next two weeks I started searching for an answer to one question: what is wrong with the market generally and specifically with BAC?
What I found was a group of bloggers who sardonically reported on the “news” outlets I’d been reading. In short, these bloggers (and the comments on the blogs) painted a pretty clear picture: the financial “news” you get from the usual mainstream media outlets was in large part just a pile of propaganda made up by Wall Street marketing departments and complicit government statisticians.
And it wasn’t just one blog that I gleefully turned to every day at that point to get the straight dope on what was really going on. I’d started with Yves Smith’s naked capitalism, but that quickly led to calculated risk, Mish Shedlock, Karl Denninger, Jesse’s Café Americain, Max Keiser, and Eric deCarbonnel. There were lots of others I read too, but mostly I stuck with these.
There were all these people writing prodigiously and insightfully about economics. And they all seemed to have a great time kicking the ever-living dogshit out their counterparts in the mainstream media who seem to function as little more than pro-market touts. 
(Newer blogs like dailybail and zerohedge weren’t even born back then. After they were, I started commenting on them. I actually struck up a friendship of sorts with Steve Magremis of dailybail; more on this topic later.)
Eventually I became so incensed at the Wall Street-Washington D.C. axis of incestuous corruption that I decided to just up and make a movie about it all—to depict the rot that Wall Street has inflicted on the U.S.
In doing so, I’ve gotten fairly close with a group of very talented young people, the film crew, who are all under 35—exactly the demographic that does not read econ blogs. And yet, when I explained what was really going on, they quickly got almost as pissed off as I’ve been for the last three years from watching Americans drool as Wall Street flat-out robs them blind. It was cathartic to say the least, letting three years of bile out to sympathetic minds.
Crew members have taught me a lot. Travis Rimes, for example, turned me on to Chris Hedges, who’s just terrific. When we found out that Hedges was part of a protest against Bank of America, a bailed out bank whose fraudulent practices are responsible for wrongly evicting 10’s if not 100’s of thousands of Americans from their homes, it was an easy choice for all of us involved on the film: send Travis and Jeremiah Hammerling to New York City to cover Hedges and the BAC protest.
And they did. We’ll have the footage up soon. It’ll be better than what you’ve seen of the April 15 protest.
For now I’ll cut straight to the money quote from Chris Hedges’ speech:
Life is not only about us. We can never have justice until our neighbor has justice. And we can never recover our freedom until we are willing to sacrifice our comfort for open rebellion. The president has failed us. The Congress has failed us. The courts have failed us. The press has failed us. The universities have failed us. Our process of electoral democracy has failed us. There are no structures or institutions left that have not been contaminated or destroyed by corporations. And this means it is up to us. Civil disobedience, which will entail hardship and suffering, which will be long and difficult, which at its core means self-sacrifice, is the only mechanism left.
As sweeping as that paragraph is, it’s largely correct. My only quibble is with the bit about the courts. Having practiced law in federal courts for more than 16 years, I can tell you that there are many jurists who simply cannot be corrupted. Look. There are over 700 members of the federal judiciary, all of them lifetime appointments. As much as it would like to do so, Wall Street simply lacks the creativity and resources to get to all of them.
It’s no accident that the only branch of government that hasn’t been corrupted by bankers entirely (the Presidency) or functionally (Congress; there are many good people there, just not enough to stop the sociopaths on Wall Street) is the judiciary, what with its lifetime appointments to office. 
You see, many of the luminaries in this country’s founding had a pretty fair notion about the darker tendencies of bankers themselves.
And some jurists have started standing up to the banks, giving them much-needed bitch slaps that unfortunately the banking lapdogs in the media ignore.
We’ll have more to say on that later.