I want you all to read the key line in this article and stop trading in worthless shares!

the exchange would hand control to its bondholders and wipe out common stockholders.

This is what happens nowadays when there is a highly leveraged (and often bailed out) entity where the debt exceeds the value of the assets.  Pretty simple math.

Bob

Who is doing the math on AIG??  When are we going to see a government entity to bring them in and bust them up?  I think it will happen unless the story fades away.  If it fades out of the spotlight, the politicians won’t care to act.

Consider your high risk shares.  We are in

via The Associated Press: Report: CIT Group again on brink of collapse.

When Julian Robertson talks, you should listen.  Sorry to add to the doom and gloom that we feel is ahead, but this market is on shaky ground.  The upside moves don’t appear to have big volume behind them.

Julian Robertson: “We’re in for some real rough sledding” | Phil’s Stock World.

The article below is a must read if you want to go long AIG.

AIG Needs Dissolving — Seeking Alpha.

I have gotten stuck holding the bag on some AIG puts due to the huge, crazy, run of late. $54?? Wow.  This thing should not be around.

I will stick to the point I made in my article about AIG Going Away.  My feeling back in June was the the government was going to find a tidy way to wind things down and then bring AIG in via a vehicle similar to the FDIC or RTC.  There was talk of any agency to bring in non-bank financials, but that doesn’t appear to have gone anywhere.

Edolphus Towns and other politicians have to stop listening to those proposals brought to them by people who have the most to gain!

AIG Fading to Failur

WHAT, why??

This is bazaar and sick!  It makes me realize that the deck is stacked hard against the common man.  AIG was a reckless and aggressive company who put our entire financial system at risk with risky coverage on risky loans.  They essentially insured what they assumed couldn’t go bad.  When the housing market collapsed, AIG was left holding the bag, naked, with billions to pay and billions more still at risk.

NOW!  The man with the most to gain from it’s recovery (Hank Greenberg) is floating a proposal that will have a greater impact on his personal wealth than anything he has done before.

GET THIS! Congress is listening!!  Edolphus Towns met with Greenberg behind closed doors and Towns came out with a proposal later that day.

Representative Brad Sherman, a California Democrat on the House Financial Services Committee, said he “couldn’t imagine” that his committee would support a revised rescue.

“The effort is clear: Take more risks with U.S. taxpayer dollars,” Sherman said in an interview. “If there are profits to be made, they go to enormous bonuses for executives and big money for Greenberg. If there are losses, they’re borne by the people in my district and other districts.”

I am at a loss here.  This company shouldn’t really exist.   They are way under water.  However, a fundraiser here, a donation there, a job there, and congress is fast to act!  Sick!!

The company’s bailout includes a $60 billion Fed credit line, a Treasury Department investment of as much as $70 billion, and $52.5 billion to buy mortgage-linked assets. AIG owes more than $39 billion on the credit line as of last week, and has tapped the Treasury for more than $40 billion.

Towns May Seek to Ease AIG’s Government Bailout Terms (Update3) – Bloomberg.com.

AIG - Absurd Proposal gets Towns to listen

I can’t help but feel we are in for some downward action once the economic results and corporate results are fully analyzed.  Sure the stock market is a leading indicator, but this run in the past couple of weeks has been pretty sick.  Bernanke says that the recession is over.  How is Mr. Bernanke’s track record?

• July 2005:  ”There was no housing bubble and housing prices are supported by the strength of the economy.”
• Nov 2006: ”The motor vehicle sector is already showing signs of strengthening” and “The rate of decline in new home construction should slow as inventory is worked off.”
• Feb 2007: “We expect moderate growth going forward.  There is not much indication that sub-prime mortgage issues have spread into the broader mortgage market.”
• July 2007: “Home sales should ultimately be supported by growth in income and employment…  The global economy continues to be strong.  Overall the US economy is likely to expand at a moderate pace over the second half of  2007, with growth strengthening a bit in 2008.”

Bernanke says the recession is over

I would rate that track record as “not great”.  I am going to hold steady here.  I HATE MISSING GAINS, but prudence and patience should pay off at the end of the day.

Sept. 14 (Bloomberg) — Joseph Stiglitz, the Nobel Prize- winning economist, said the U.S. has failed to fix the underlying problems of its banking system after the credit crunch and the collapse of Lehman Brothers Holdings Inc.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview yesterday in Paris. “The problems are worse than they were in 2007 before the crisis.”

via Stiglitz Says Bank Problems Bigger Than Pre-Lehman (Update1) – Bloomberg.com.

Boy oh boy, it doesn’t feel that way to me right now.  Many companies have not yet come to grips with the financial truth.  There are plenty of folks who feel we are out of the woods, but it doesn’t feel that way to me.  The market is the tail that is wagging the dog (economy).

Perhaps things are turning.  The market doesn’t want to go down on bad news.   Is there terrible news to come?  We’ll see.

What I do know is that there is certainly a shift in the economy.  There is still money out there.   Rather than a call center selling magazine subscriptions, they are manning the phones making collection calls.  There are plenty of collection agencies that are thriving right now.  Banks needed capital and sold off bad debt at bargain basement prices.  Collectors are bringing the funds in and getting paid.  They are able to settle debt for lower amounts than they might normally have.  The debt cost basis was less because the banks needed to raise cash and a book of bad debt was a relatively easy sale.  The collector wins, the deadbeat consumer wins, and the taxpayer looses.  Remember, we are covering the banks on a lot of these losses.

I also see an interesting trend in the insurance business.  I am not talking about the grand scheme, I am talking about the Main Street insurance agency.  There are a couple of companies eating the lunch of some old players who raised rates to make up for investment loses.  Large public carriers, such as Allstate, need to keep Wall Street happy.  Investment returns over the past couple of years haven’t exactly kept the boat afloat.  Let’s not forget the fact that the companies also have solvency requirements.

Insurance companies, especially public ones, tend to be very shortsighted.  They need to make a change now… tighten guidelines…. raise rates…. etc.  What this allows for is a carrier such as Geico or Esurance to continue down the path to win market share.  Sure Geico is part of a public company (Berkshire Hathaway), but they are shielded by the massive parent.  Because of that, they can be patient, grab share, and become the dominant player.  Who wins here?  The consumer, the company (GEICO).   Who loses? Main street insurance agents?  Perhaps.

Money is out there.  It is shifting.  Biotech…. tech….dot com…financials… next.

Bernanke Recession

It was a big deal for Apple to support Exchange Server.  This news is troubling for current users.  You wouldn’t expect a simple update to kill a service the way this did.

Apple must move to fix this quickly and answer any questions regarding the service as it stood before this drop.  Read the details below.

Bottom line: If you use your iPhone with your corporate e-mail, do not upgrade your software yet.

Apple betrays the iPhone’s business hopes by InfoWorld: Yahoo! Tech .

Apple

This is where things will get interesting.  Is there enough capital to take the government out of the market?  How much of an impact will this have on the shares?

Citi is looking to rid themselves of the government stake.  The dividend paid to the preferred shares is not insignificant.  Capital is much less expensive elsewhere.

Who would be next?  Certainly not AIG!!

Citigroup Explores Bid to Pare U.S. Stake – WSJ.com.

Something just doesn’t feel right to me about this market.  The government money is drying up and there needs to be real spending behind it.

Tsunami Warning

Signs of an Approaching Decline in US Equities That Could Be Quite Impressive.