Attention Locusts: The Party Is Moving to Merrill and AIG

Ok locusts, we've fed off the lands of Bear, Countrywide (CFC), Fannie (FNM), Freddie (FRE), Lehman (LEH), and Washington Mutual (WM).

Time to concentrate our forces and take down AIG (AIG) and Merrill Lynch (MER) - let's get to it.

Who said it's hard to make money in this market? This is like shooting fish in a barrel? Now whose going to start the rumors this time around?

Folks, if they ever investigate the coordinated attacks (collusion) and rumor starting that I believe is going on here, I think in 2-3 years time you will see potential jail sentences for some of the things happening. Banks are all about trust - it is the one sector where it is so easy to start rumors and cause a run on the bank. Again, I do not think they will investigate because hedge funds have become among the biggest political donors, but just saying... *if* they did. Daniel Loeb is one guy feeling the heat. We'll see if it spreads.

• Third Point Management fund manager Daniel Loeb told his investors last night the firm is the target of a formal investigation being conducted by the Securities & Exchange Commission. According to Loeb, the subject of the investigation is his communications with other hedge funds.

I would be short Merrill and AIG here folks if we were up and running. Not on facts but on the

power of hedge funds to create panic

. It will take time but they will use these as their new playings. Can you imagine how rich they just got off Freddie, Fannie, Bear, Lehman, WaMu? All that new money has to go create a panic somewhere new. David Gaffen writes,

• The trading reflects increasing fear among investors – or attempts by some to promulgate panic, and this is evident when looking at indicators other than the share prices, namely, activity in the options market and in the credit-default swaps market.
• Merrill options activity would certainly suggest that some are taking disaster bets, or doing so to undermine confidence in the shares. “Once the downdraft starts in one of these stocks people start selling,” said one market strategist, who asked not to be identified.
• More than 30,000 September put options have traded at the $10 strike price, and more than 17,000 put contracts have traded at the ridiculously low $5 strike price ...
• “The investment community is at the point where it believes that failures have been replaced by shotgun weddings,” writes Mike O’Rourke, chief market strategist at BTIG, in a late Thursday comment. “It is apparent that the most feared market on Wall Street is not the bond market or the stock market, it is the credit default swap market. As a result, problem companies are finding themselves targets of rescue mergers. This is the ‘playbook’ for the current market environment.”

Free market capitalism.

Comments

[G23ROCKS:]

I love the locusts analogy. It's so fitting! I think it's a healthy part of the bottoming process. The market wants a few big names to fall before it gets the sense of relief it needs. Perception is the rule of law in this market.

2008 Sep 12 02:00 PM

[Iron locust:]

If Gold will rust, what shall iron do?

Well, who would have guessed?, the gold certainly did rust...

signed, Iron

2008 Sep 12 02:16 PM

[birder:]

Gee, I don't suppose these risk takers deserved what they got. Hey, guys lets stock up on these high paying CDOs and crank up our bonuses. The real crime here was instigated by Greenspan for giving these guys free money to bet with.

2008 Sep 12 02:20 PM

[joker:]

It would be very satisfying to spoil those hedge funds' fun: Let's spread out counter-rumors all over the places, like saying LEH already got $10 billion infusion from Russian banks, MER got bid @ $50 from an Saudi funds, AIG has actually found that they have all their CDS hedged but has been buried in their attic somewhere and now re-discovered, etc.

It won't take too much since as those guys fighting for the exit, they will push up prices just as they pushed down them in the first place.

That surely is fun. Ha-ha-ha...

2008 Sep 12 02:35 PM

[Jason Rines...:]

Exactly Birder. And to your thought user 2043, that thought does make me chuckle but even in direct media I could not sink so low to propoganda :) I leave that for the other communists. Meanwhile shorting is a fine way to make a living on the obvious.

2008 Sep 12 02:45 PM

[joker:]

I don't think therer is anything wrong with rumors and propoganda. Spread negative rumors, you make money on short side; spread positive rumors, you make money on the long side, of course at the cost of those caught in short :-). longing is a fine way to make a living as well.

2008 Sep 12 02:57 PM

[Did U Think...:]

Oh shut up. When stocks rising nobody talks about conspiracies. Its only when prices are falling that something must be wrong. Well there is something wrong - financials went crazy with leverage in their unmitigated greed and many of them are insolvent. The piles of level 3 assets need no rumor mongering. The fact that they exist speaks for themselves.

Did you really think the Ponzi scheme would last forever?

2008 Sep 12 03:22 PM

[yogatrader:]

As has been pointed out a million times, it's way harder to rumor monger good fundamentals down, than the inverse.

These firms levered up 40x and got long housing at the top. It's not panic, just proper greed from the short side. Market discipline and free market Capitalism, indeed.

The over-all market seems to be saying these failures will no longer touch us -"contained". hmmm, heard that one before. . . .

2008 Sep 12 03:23 PM

[Baby:]

Help I have a question....We have an IRA and are getting ready to retire...But we keep losing money sooo fast its scary. My question is:Do we watch our numerous stocks and mutual funds for rise or decline and worry or our Company(MER) I never have got the gist us this as I leave it all up to our broker.Any advise and answers??? THANKS and HURRY!!

2008 Sep 12 03:37 PM

[yogatrader:]

Baby, if you are near retirement, and you're "losing money fast" dump your broker. Only reason you're down a lot is bc you have to much in stock (mutual funds), which only benefits you broker via exorbitant fees. Roll your IRA to a discounter like Schwab or Vanguard if possible. Believe me, I know brokers, and while I'm sure your's means no harm, (s)he is caught up in an awful ibank model that is unwinding very fast. Best of luck.

2008 Sep 12 04:05 PM

[DHJ:]

Hi Baby, this is a very high-risk environment and there is no telling what might happen next or how market participants might view what happens. Have you thought about what you would do if the market full-on crashed? It has happened before and it could happen again.

I have heard many traders of 20 or 30 years say that this is the hardest market they have ever traded and the most volatile. My personal feeling and advice is that this is no market for retail investors. Why not wait till the smoke has cleared and re invest if you have to? If your broker is not protecting your hard earned capital - something that can be quite challenging given this environment - then you need to be in cash.

I say this because however far down your account is at the moment it can go down further - trust me on this. If you feel that the market is going to rebound from here you could tell your broker that if your account goes down another 8-10% (or whatever you are comfortable with) you want out, but that if it starts to rebound then to hold on and not sell.

The most important thing to remember is that investing is risky and I would say investing at the moment is higher risk than usual. It is very important that you define your risk by deciding how much more you are willing to risk or loose in order to make some gains from here. My 2 cents.

Hope this helps

2008 Sep 12 05:43 PM

[Ishortyou:]

those CDO's are really a headache, specially if you dont know what they have and they were triple A rated, once you crack them open and find out they are junk.

2008 Sep 12 05:51 PM

[Tom Armistead:]

Trader Mark,

You are exactly right - this whole operation is fine-tuned, the options, the short-selling, the CDS, the biased news articles, the distorted analysis.

What drives it is the Credit Default Swaps - there is no requirement of an insurable interest on this form of insurance, so the short and distort folks buy cedit default swaps and then torch the company - financial arson. We need to enforce the laws we have and write some new ones.

I watched this play out over a course of months on ABK and MBI, both of which are still in business and their share prices recovering. AIG I think is strong enough to take the pounding - WM I am less sure of.

2008 Sep 12 06:40 PM

[User 227036:]

Banks are all about trust - it is the one sector where it is so easy to start rumors and cause a run on the bank.

You're misunderstanding what people are supposed to trust here. It's not that a reputation or share price should remain at a certain level. People trust a bank not to do something so stupid that, were they to come asking, said bank would have their money.

These shorted banks, victims of baseless rumors, are in a prime position to make a fortune. All they have to do is buy back some shares. If they just want to be punitive to the shorts, they can just pay a huge dividend. They have a lot of options available to them to fight these shorts.

I wonder why these banks are letting these shorts let their shares become worthless? Oh, right, because these banks don't have any money. Makes them pretty worthless as banks, doesn't it?

2008 Sep 12 08:29 PM

[PCScipio:]

If the banks didn't play bookkeeping games and had come clean quickly WRT their writedowns this mess wouldn't be dragging on and there'd be no crisis of confidence. All these little piggies deserve what they get, which should include jail time for some. Of course, we average taxpayers will be the ones who get really screwed by the bailouts of members of the plutocracy.

2008 Sep 13 12:14 AM

[neeb??:]

so. blame everything on short selling. even if there is in fact criminal doings on the banks side. If there are no shenanigans in the banks or what have you maybe you won't see these ------ things going on?

2008 Sep 13 10:23 AM

[leh:]

I agree this market is enough to make you want to walk away and find another trading vehicle less subject to the manic hedgies and their agendas. Personally I'm looking at FOREX--volume that dwarfs any equities market and makes it less susceptible to manipulation, excellent liquidity and spreads, technically more stable, etc. Opinions?

2008 Sep 13 10:44 AM

[Emerald:]

Baby, it depends on what your current allocation is for your investments. If all stocks and stock mutual funds, you are not diversified. My guess, absent worst case, is that stocks can go down another 10% and it will take 3-4 years to rebuild values in generally diversified mutual funds. Make sure you have at least 30-40% in cash and no more than 50% in stocks overall. If you can sleep with this allocation, you will be ok. If you can't, then go to 75% cash (a Treasury only money market fund). If you have bond funds, you may be ok depending on what kind. Stay away from high yield. Things are difficult out there, but the world is not ending.

2008 Sep 13 11:30 AM

[E Nuff Sed:]

Lot of bad advice, here. For people who are already in these stocks, it is too late to bail out. It is more likely you will get whipsawed. Once the current short selling subsides (a big IF - I admit) there is likely to be a huge short squeeze.

For my money, I willing to watch my position go to zero than get out in this market. I might even take a Pepcid and add to my position.

Disclosure: Long on AIG.

2008 Sep 13 12:32 PM

[kmca1989:]

Merrill is in a very different boat from BSC, WaMu, LEH, etc. Unlike those other trading houses, Merrill actually has an extremely well established wealth management core to their business - they are the world leaders in wealth management, hands down, and the business is growing rapidly as more babyboomers retire and need their money managed.

the naked short selling is the culprit for the 30% dive this week - i'm waiting for LEH to be decided before i add more to my position, but i am taking advantage of these prices in the teens - and an 8% yield!

management (John Thain) is a Goldman grad, and the future is bright for Merrill.

2008 Sep 13 01:05 PM

[tanista:]

Merril is going down along with MS. Why does Merril owe a $12 Billion penalty for defrauding with ARS (Auction Rate Securities)? Why is Merril's Writedown and General distress $83.5Billion. Because they have worthless piles of paper and derivatives.

On Sep 13 01:05 PM kmca1989 wrote:

> Merrill is in a very different boat from BSC, WaMu, LEH, etc. Unlike
> those other trading houses, Merrill actually has an extremely well
> established wealth management core to their business - they are the
> world leaders in wealth management, hands down, and the business
> is growing rapidly as more babyboomers retire and need their money
> managed.
>
> the naked short selling is the culprit for the 30% dive this week
> - i'm waiting for LEH to be decided before i add more to my position,
> but i am taking advantage of these prices in the teens - and an 8%
> yield!
>
> management (John Thain) is a Goldman grad, and the future is bright
> for Merrill.

2008 Sep 13 02:19 PM

[tanista:]

Why did Merril sell the shares of registered securities in certificate form without getting approval? They illegally Naked Short Sold the Shares. They are in a heap of trouble.

The Naked Short Sellers now are eating off of each other . They are doing what they have done to the rest of the securities for years esp. the OTCBB.

The cost to raise money through placements gets higher and higher as the share price plunges. Now they are getting payback.

2008 Sep 13 02:23 PM

[tanista:]

No, It is Not too late to bail out of MER, MS, GS

They are going down too or wouldn't be in the LEH emergency mtg. this weekend.

One by One, these CROOKS will FAIL.

MER is 17 that's much better than ZERO!

same with MS and GS GET OUT!

2008 Sep 13 02:26 PM

[tanista:]

This Financial Demise is the result of the Crooks working together for so many years.
The FRB, SEC(COX) failing to protect investors and prevent the artificially inflated prices in the first place and allowing the ridiculous Executive Stock Options, along with the derivatives and Naked Short Selling practices that these firms are in fact largely responsible for, the DTCC for failing to prevent x-clearing and balancing transaction, the brokers, the MM's, the Media, esp. CNBC, & Barrons, Cramer.,Paulson , Bernahke, Rating Agencies esp Buffet (Moody's - huge ownership), Pimco - Gross (Fitch Ratings). Huge Conflict of Interest but they have all colluded together. They are going down.

AIG will fair better than MER, MS, GC. It doesn't have money to be pulled out.

Google Jekyl Island and understand the Crooked FRB and that it in fact is Not a Government Institution.

2008 Sep 13 02:34 PM

[Jake2:]

Two-gun Trader Mark back on the scene. Where's your horse, Mark?

2008 Sep 13 03:14 PM

[userb:]

tanista3scep is so full of himself...

GET A LIFE!!!

2008 Sep 13 04:03 PM

[michael fro...:]

why do you think traders with 20-30 years experience say this is a much harder market....the rules have changed, no more waiting for 2nd and 3rd party's to put in an individuals bid at ridiculously high fees, there is not much left for surprises since everything spreads like wild fire with the help of the internet that the insiders trading propaganda have lost their edge....rumors are the last hope for insider trading. (hope it works and hope they don't get caught). and we all know you need to check "hope" at the door.

2008 Sep 14 12:27 AM

[msgtb:]

Most of the investment banks and many banks made terrible business decisions in the name of GREED! Some have committed crimes. Many need to go to jail. Put the people who created this disaster in jail for the sake of the nation.

2008 Sep 14 01:35 AM

[a believer:]

'...once you crack them open and find out they are junk.' Yes, with most of the investing public wronmgly sold on 'buy and hold,' the CROOKS became bold enough to repackage hazardous waste as dark chocolate truffles! Of course most of them probably believed their toxic waste was valuable, at the time. Didn't we all scoff at those quaint ads by Countrywide pushing the no-money-down mortgages to people with bad credit? And now it's all coming back to the big banks.

Remeber the articles several years ago about the $ trillions in highly leveraged derivatives suddenly unwinding? We are seeing a part of it, and no-one knows where it will end. This is BIG, because with these cascading failures, the American public will have lost trust in these big banks. I doubt that even LEH can value most of the toxic waste they were/are still holding, that is probably why Barclays and BAC had to walk away today. Could it be that they lost track of a way to even value it?

"Somehow the banks will survive."
-from: A Prophetic Vision for the 20th Century, by Rick Joyner, 1999.

2008 Sep 15 12:08 AM

[a believer:]

Sorry, a typo. The book is:

A Prophetic Vision for the 21st Century.

(I recommend it - a great read by the way)

2008 Sep 15 12:12 AM

[Jason Rines...:]

That was the bingo point of the entire conversation. Well said! User 227


On Sep 12 08:29 PM User 227036 wrote:

> Banks are all about trust - it is the one sector where it is so easy
> to start rumors and cause a run on the bank.
>
> You're misunderstanding what people are supposed to trust here. It's
> not that a reputation or share price should remain at a certain level.
> People trust a bank not to do something so stupid that, were they
> to come asking, said bank would have their money.
>
> These shorted banks, victims of baseless rumors, are in a prime position
> to make a fortune. All they have to do is buy back some shares. If
> they just want to be punitive to the shorts, they can just pay a
> huge dividend. They have a lot of options available to them to fight
> these shorts.
>
> I wonder why these banks are letting these shorts let their shares
> become worthless? Oh, right, because these banks don't have any money.
> Makes them pretty worthless as banks, doesn't it?

2008 Sep 16 12:37 AM