Today Bank of America has fallen below $5. Investors believe that Bank of America will eventually have to be nationalized (Government takes over the company) to stop it from going bankrupt. Next week the Treasury will announce their plans on how they will move forward with big institutions that are “To Big to Fail.” There options are:
1. Nationalize the company (stock goes to zero)
2. Do a major cash infusion that dilute the shares (stock will lose more value)
3. Guarantee their bad assets (stock pops if the plan is solid)
4. Buy some of the bad assets (Stock goes up)
Hence a lot of institutions are selling their shares since the risk are to great that they will lose all their capital. I believe that the government will not be too extreme in it’s actions. Anything that will cause Bank of America stock to go down will have a cascade affect on the entire market. So I believe their statements will cause a temporary pop in the stock shares. So today we are buying some Bank of America stock and will take profits after the Treasury announces it’s plan.