Insights from an AIG Bear

Over the past 24 hours, i have received half a dozen calls/messages asking me, What about AIG?  Before I start that, let me point to a few of my posts on AIG:

• Break up AIG!
• Break Up AIG!
• A New CEO at AIG
• More on AIG
• All my comments during the last four years at RealMoney.

Let me say that it took this long for the price to fall below where it was when I left the firm in 1992.  For many firms with significant slack assets, they could have resisted this fall in the stock price, but AIG could not.

Why not?  It is a complex firm. Complex firms have a hard time splitting / understanding the results of their various business units.  Management’s view of free cash flow is cloudy.

With AIG, the best thing that they can likely do is spin/sell off their US Life and P&C arms separately or together.  Those units have a relatively easy to determine value.  WIth the cash, AIG can focus on improiving the remaining units.  If they can’t do that, AIG is heading for the scrap heap.

Call me a bear here. I have no idea how good the current management team will be, but so many are mezmerized by the past of AIG.

Comments

[st. jude:]

Would like to know If David Merkel is shorting AIG stock. Also I would like to say that short sellers and hedge funds will destroy the United States. There only concern is making money for themselves and the rich people in this world. They lose their jobs, but walkaway with tens of millions of dollares. And then the real people who do the real jobs in the company walk away with nothing, because thats how the rich people want it.

2008 Sep 13 08:36 AM

[tginomorebush:]

Oddly, Take 5 comments are the same basis for members of the republican party!!

2008 Sep 13 08:47 AM

[serman:]

TAKE 5, I am not so sure about shorts: if there weren't short covering moves the market haven't been at these levels for sure. I have been traded in a emerging market where short sale is prohibited and this market is down 60% in one year.

2008 Sep 13 10:02 AM

[atlasapple:]

Take 5 forgets about CEOs of bankrupt companies who walk away with millions or congressman who retire to million dollar lobbying jobs.

At least the short seller isn't pledged to things like creating shareholder value or defending the constitution.

Take 5 cannot be so naive to think that independent hedge fund short sellers are more powerful then the trifecta of Government, Wall Street and Corporations. All three of those entities "know" the shorts are correct and are probably profiting right along with so-called short sellers.

Personally, I think naked short selling is a problem but even if they were eliminated, with ETFs you can still "short" without shares.

Like the author, I worked at one of the firms in current difficulty. Their business practices first led me to leave and then led me to enormous profits via SKF. I shorted because I felt their business model had LT problems and lo and behold it did.

I took a risk and could have been wrong, but I wasn't. I'm still a lot less rich then all the people who were wrong though.

If you want to punish short sellers then institute a five year salary look back provision for CEOs.

Enjoy the bailouts while blaming the observers.

2008 Sep 13 01:05 PM