Berkshire Invests in Bank of America — Does it change anything?

The big news today: Berkshire will invest $5 billion in preferred stocks that yield 6%.

(Bloomberg) Bank of America Corp. (BAC), the biggest U.S. lender, said Warren Buffett’s Berkshire Hathaway Inc. will invest $5 billion to bolster the company after losses tied to subprime mortgages drained capital. Bank of America led a rally of U.S. lenders in New York trading. The lender will sell cumulative perpetual preferred stock to Berkshire, the Charlotte, North Carolina-based bank said today in a statement. The preferred stock pays an annual dividend of 6 percent, and Omaha, Nebraska-based Berkshire gets warrants to buy 700 million shares at about $7.14 each.

My comments: I still believe that BofA — we are very confident, we don’t need to raise capital, but we just rose capital for the fun of paying a 6% guaranteed coupon — will go quickly to ZERO. Now that Buffett has cleaned off all the shorts, there is a nice potential for decline. I might try and enter a position if the stock stays where it is.

Moreover, during the past week, all the analysts have been very bullish on the stock, even the likes of Meredith Witney, who tends to be bearish, so it doesn't give the foundations for a real and durable bottoming process.

[Update: the stock already lost 12 of the 25% gains while I was writing this post]