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BREAKING NEWS
September 6, 2007
Countrywide Drops Below Bank of America's Deal Price
Countrywide Financial Corp. shares briefly dropped below $18, erasing the $700 million paper profit Bank of America Corp. made when it invested $2 billion in the nation's biggest mortgage lender two weeks ago.

Bank of America, the second-largest U.S. bank, bought preferred stock on Aug. 22 that can be converted to common shares at $18. Countrywide, which surged to $24.46 the day after the deal was announced, fell as low as $17.95 today on the New York Stock Exchange. The stock closed at $18.48.

For Countrywide, the cash infusion erased the threat of bankruptcy after a global credit crunch sapped investor demand for mortgages. Buying a stake in the Calabasas, California-based lender reflected Bank of America Chief Executive Officer Kenneth Lewis's determination to generate profit growth at home, while his competitors expand abroad.

``It's not a signal automatically of a bad investment because they get a 7.25 percent yield, and the option to convert has a long term,'' said Jefferson Harralson, an analyst at KBW Inc. ``They're supporting a company from bankruptcy that they have loans out to, and that benefit of the transaction doesn't go away.'' Harralson rates Bank of America ``market perform.''
Bloomberg


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In the Early Phase of a Credit Crunch, Hope Springs Eternal
Category:
By: Pete Kendall, September 10, 2007

When credit tremors started to appear in the subprime mortgage industry last spring, economists cited in the media quickly calmed the fearful by calling it an “isolated,” “contained” and thus temporary credit disruption. On July 13, with the DJIA within 100 points of its peak and credit problems emerging on a world-wide basis, a Bloomberg news story said, “Lehman, Bank of America and Barclays Say the [Credit] Rout is Over.” It must be early [in the rout], because many large investment companies are treating damaged [credit sectors] as a great buying opportunity.
The Elliott Wave Financial Forecast, September 2007

``It's not a signal automatically of a bad investment because they get a 7.25 percent yield, and the option to convert has a long term,'' said Jefferson Harralson, an analyst at KBW Inc. ``They're supporting a company from bankruptcy that they have loans out to, and that benefit of the transaction doesn't go away.'' Harralson rates Bank of America ``market perform.'' Whew, that must be a relief to B of A stockholders to learn that two (more) billion into Countrywide wasn't "automatically" a bad investment.
--Merrill Kinstler

Here’s another quote from the March 2007 issue of The Elliott Wave Financial Forecast that offers more insight into the psychology behind Bank of America’s faltering bid to rescue Countrywide: 
There is one other frequently cited reason for forging ahead with ever greater amounts of debt. Many bulls say that there is way too much concern about credit for the debt bubble to actually break. As the pied piper of credit creation, Alan Greenspan, said in the midst of the initial subprime washout in early March, “People ask me what kind of shock I worry about, and I say, ‘If I worry about them and other people worry about them, they won’t happen.’” By this logic, the more worried they get, the safer people should feel. To the average contrarian, it probably makes sense.

But contrarianism has its limits, and one of the most valuable aspects of the Wave Principle is that it reveals where these limits are. In third waves and in c-waves within long-term A-B-C moves, the direction of events coincides with the direction of equity prices. The rising wave of anxiety over debt and default is not a “wall of worry;” it’s a “wall of reality.” The current belief that it is otherwise is all part of Bob Prechter’s coined phrase for bear markets: the Slope of Hope.

 

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