Buffett buys BAC from his bathtub

      Legendary investor Warren Buffett purchased 5 billion worth of preferred shares in Bank of America in a vote of confidence for the management and in America.  Bank of America's stock price had fallen nearly 40 pct this month as investors questioned whether they had enough capital on hand to meet mortgage putback liabilities and whether their assets were worth what they said they were.  Buffett got superior terms to other investors as he has the rights to buy 50000 shares of $100,000 preferred stock with a 6% dividend.  Translated to common Buffett's cost basis is around 7.15 and with BAC trading at 7.61 that gives Buffett a paper profit of over 200 million already!  BAC stock shot up on this news nearly 25% in early trading although it pared gains later on to nearly 10%.  It's another sweetheart deal for Buffett who made similar deals with Goldman Sachs and General Electric at the height of the financial crisis in 2008.  Buffett profited handsomely on those deals adding to the already legendary stature of the long time investor.  Reportedly, Buffett came up with the idea of buying BAC whilst bathing in his tub on Teusday.  He thought it was such a good idea he called BAC CEO Brian Moynihan the next day to discuss terms.

     You know its a skittish market when rumor mongering can send the DOW down 200 pts in a short period of time.  Rumors of a credit rating downgrade of German debt and a ban on short sales flash crashed the German stock market earlier today.  The DAX dropped 5% before quickly recovering after the credit ratings agencies reiterated their AAA rating of German sovereign debt.  It is things like this that frustrates investors and causes them to think the market is rigged.  The Dow sold off and never really recovered finishing down 170 pts at the close.  I would have thought the markets would recover after the rumor proved false but I guess it was excuse enough for traders to pare positions ahead of Bernanke speech tomorrow.

     While Bernanke's speech tomorrow is important perhaps even more important is Trichet is speaking as well.  Many of the markets fears are centered around Europe so Trichet can go a long way towards restoring confidence if he can show the markets that he is on the ball and will take care of the situation.  While there is no easy solution to the debt crisis, if he can demonstrate he is not asleep at the wheel and is coordinating with governments on a policy response, that should help.  Markets, I believe, have low expectations of Europe's policy makers so Trichet could surprise everyone.

    Apple surprised me by holding up so well after the announcement yesterday of Steve Jobs departure.  AAPL finished at 373.70 down only a couple of bucks as investors took the opportunity to buy the dip.  This was very bullish action for me as AAPL finished near the highs of the day even with the market selling off hard.  I will keep my AAPL for now.  I remain constructive on the market as bank stocks seem to be stabilizing.  Buffett's investment in BAC signifies he thinks it's cheap and I agree with him.  I won't be buying any at this time but will keep my eye on it.  Happy investing.