Conserving AIG - Fast Money Recap (9/16/08)

Recap of CNBC's Fast Money, Tuesday September 16.

Conserving - American International Group (AIG)

Dylan Ratigan opened the discussion with late-breaking news out of Bloomberg that a conservatorship is under consideration for American International Group. Ratigan explained that the model of a conservatorship would mean very limited equity value and government responsibility for the orderly management of liabilities and exposures at AIG. "I would be surprised if this happens, but if it does, the equity will be wiped out," said Karen Finerman. Jeff Macke blamed the credit agencies for the mess in financials. "It's lousy if you work there or own the stock, but it's a better solution for the people out there watching,” added Guy Adami. Pete Najarian said he took a shot on AIG, but he says the stock could very easily go to zero, considering the breaking news. Macke said buying AIG today was a wild "putting all your money on red or black" bet, so you get what you deserve. Adami pointed out that former AIG CEO Hank Greenberg had the opportunity for many years to figure out what the firm was trading. Ratigan asked if there are any other major banks that have such a big exposure to AIG that it could cause them to fail. Najarian said the AIG shareholders shouldn't be shocked if they were following the preferred yields.

Brokers - Ameritrade (AMTD), Morgan Stanley (MS), Goldman Sachs (GS)

Macke highlighted Ameritrade, which has avoided any major problems, and is at a 52-week high. Ratigan brought up Morgan Stanley, which reported earnings after hours that beat Wall street estimates. They announced quarterly results earlier than expected and reported a profit that declined slightly but blew past analysts' earnings expectations as the No. 2 investment bank attempted to show that it's withstanding the financial turmoil that has dramatically changed the face of Wall Street over the past few days. Finerman said it's possible that the market is blowing the AIG situation out of proportion when you consider the numbers out of Morgan. Macke said look at Goldman Sachs, which rallied from $116 to $130. Goldman reported quarterly profit that plunged 70 percent as the worst market slump in decades led to weaker-than-expected revenues, knocking the stock to its lowest level in nearly three years. Still, it was more than analysts predicted, and the investment bank beat expectations. "The volatility on the equity side is a reflection that you have no idea what is going on under the sheets," he added. Ratigan explained that the cost of borrowing money exploded higher today. "If it holds up, it will result in a meaningful "jacking up" of mortgage payments,which will only make the housing problem worse," he said. Adami feels it's just a short-term phenomenon. Finerman agreed with Adami that it's just a short-term issue. Macke said it's a crisis of confidence.

Banks - Wachovia (WB), Fannie Mae (FNM), Freddie Mac (FRE)

Najarian told viewers that he owns some put spreads on Wachovia because the yields and options are telling him that the risk in this stock is high. CNBC's on-air contributors, Charlie Gasparino and Steve Liesman, joined the traders to discuss AIG. Gasparino said the government is weighing some sort of bailout for AIG like a conservatorship. Liesman said the idea of conservatorship doesn't make a whole lot of sense. He said the government had the authority with Fannie Mae and Freddie Mac, but has no legal grounds to put AIG under conservatorship. "The big problem here is, the amount of assets in AIG's holding company is less than the amount of money that AIG needs," Liesman added. Gasparino mentioned he has heard the same thing. Liesman also said if the government does come in and bail AIG out, it will be sold politically as a bailout of the "policy holders" and not of the shareholders. Gasparino pointed out that a Democrat David Patterson came out and begged the Fed to bail out AIG.

Boring Stocks - Wal-Mart (WMT), Procter & Gamble (PG), Johnson & Johnson (JNJ), McDonald's (MCD), Hewlett-Packard (HPQ), U.S. Bancorp (USB)

Macke advised viewers to stay away from trading the financials and instead look at boring stocks like Wal-Mart, Procter & Gamble, Johnson & Johnson and McDonald's. Gp with the names that put you to sleep. Najarian told viewers to consider Hewlett-Packard. Adami mentioned that U.S. Bancorp hit a 52-week high today. Finerman said during crisis periods, she likes to fall back on Philip Morris.

AIG Again - American International Group (AIG), Lehman Brothers (LEH)

Michael Lewitt, president of Harch Capital Management joined the traders to discuss AIG. Lewitt said AIG does business with just about every financial institution in the world. "If AIG is unable to meet its obligations, every other institution it does business with will have some kind of problem," he said. He believes AIG is on a scale that is much larger than Lehman Brothers and much more worrisome. "We are going to have some serious, permanent, systemic damage that is going to take a very long time to unwind," he added.

SanDisk Gets Bid - SanDisk (SNDK)

Ratigan mentioned breaking news that SanDisk rejected a takeover bid from Samsung Electronics valued at $5.85 billion, or $26 a share, which the world's top maker of memory chips made late Tuesday. Finerman said the price is kind of a shock. Macke pointed out that SanDisk was down 52% going into this deal. He thinks the company will fight the offer. Analysts said if the acquisition were to happen, it could shift the balance of power in the flash memory industry away from Toshiba.

Emerging Market Pressures – National-Oilwell Varco (NOV), ConocoPhillips (COP), EOG Resources (EOG)

Joe Terranova and Tim Seymour joined the traders to discuss the impacts of forced selling pressure in emerging markets and commodities from hedge funds. Terranova advised viewers to look at equity names in the energy space because the futures are too volatile. Seymour said emerging markets are experiencing blowouts from redemptions in the hedge fund world. Terranova said he likes National-Oilwell Varco, ConocoPhillips and EOG Resources here.

Private Equity - Fortress (FIG) and Blackstone (BX), Devon Energy (DVN), Baker Hughes (BHI), Schlumberger (SLB)

Seymour told viewers to consider the private equity firms like Fortress and Blackstone. He believes private equity players will spend money to buy distressed assets in emerging markets. Finerman disclosed she bought Devon Energy today. Adami said there are real stories in Baker Hughes and Schlumberger and it feels like the hedge funds have blown-out of these names.

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