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AIG Follies By: Charles Payne

|Includes:American International Group Inc (AIG), GS

The drilling of Tim Geithner has been explosive, but is the same kind of runaround that always leads to frustration, and in the end, sometimes more questions than answers. The former head of the New York Fed came out of the gate with the goal of baffling them when necessary, being combative at certain points, and echoing the notion the (current) Administration saved the day. The market was under pressure early on, but once again after Congressman Darrell Issa finished without landing a knockout punch, stocks settled down with the NASDAQ trying to regain early upside momentum. It was well known that AIG was negotiating with holders of CDS payments around $0.40 on the dollar. The idea that failure to do so would have resulted in another downgrade of AIG is a moot point since the first downgrade opened the floodgates. As for counterparties driving hard bargains, Societe Generale and BNP accepted $1.0 billion on $3.5 billion owed them by Ambac.

I'll keep listening and will opine more in the morning report, but it has been much hogwash thus far. It has been more riveting than you would assume based on the guy sitting over Geithner's shoulder who fell asleep from the start…like my son at a Broadway play. (At some point they may have to hire people to sit in the gallery that look excited and engaged.) Okay, Hank Paulson is up next. In the meantime, the market is hanging tough. Once again, many great earnings reports have been completely ignored but that's actually good news.

Economic Data

Mortgage Applications

Mortgage applications lulled last week following three weeks of increases. 30-year mortgage rates had made a nice move back to the 5.0% range, causing some resurgence in refinancing demand in recent weeks. 30-year rates increased slightly last week to 5.02% from 5.00%. Purchase applications appear to have moderated since mid-December, indicating a lull in home purchases as well. The relatively low purchase rate may correlate with this morning's new home sales report, which is being affected by a number of factors including the home tax credit and seasonality.

New Home Sales/Petroleum Data

New home sales decreased by 7.6% month to month in December, which was a disappointing number that sent the market into negative territory this morning. There were 342,000 annualized sales during the month versus the 370,000 consensus estimate. Average prices went up to $290,600 from $270,000 the previous month, which could be a result of a higher proportion of sales in the West and the Northeast. Like much of the housing data these days, there were a number of factors that could have potentially thrown the data off, making it somewhat unreliable, which could explain why housing stocks are mixed today despite the big miss versus consensus.

The consensus, and ourselves as well, were looking for sales to rebound following the reinstatement of the nationwide homebuyer tax credit. However, that effect did not seem to occur, which could partially be a result of consumers simply not yet being aware that the tax credit had been extended. Furthermore, there are seasonality issues with the data these days. On a non-adjusted basis, sales only decreased by 3,000 month to month which could simply be attributable to the fact that December is seasonally a slow month. On a non-adjusted basis, sales increased by 1,000 in the Northeast, were flat in the West, and decreased by 2,000 a piece in the South and the Midwest.

The Department of Energy reported that oil inventories showed a draw of 3.9 million barrels versus the consensus estimate of a 1.5 million barrel build. The data would suggest higher demand for oil, but the energy sector is mostly lower today nevertheless. Traders likely decided that the news would have to be extraordinarily bullish to invest in oil, as there are a number of other factors affecting commodities prices now, including the potential slowdown in China from monetary policy changes and the rising dollar versus other currencies as a result of weak performance in Europe among other regions.

Who Cares?
By: Brian Sozzi, Research Analyst

I am having a great day today. More often than not I have great days, but today I had a company smash consensus earnings estimates (came nearly in line with my estimate) and got to watch a free play on television. Well, the drama unfolding on television, the public flogging of Henry Paulson and Tim Geithner, is not exactly free because the decisions made by these two put us, and future generations, on the hook for billions of dollars in debt servicing payments.

However, this latest round of riveting testimony is useless in my opinion as it does not conjure up definitive ways to resolve the problems at hand. Those problems include rising deficits and the subsequent overreliance on China to fund our economy, potential inflation from an easy Fed monetary policy, and tactics by the Obama Administration that reek of ant-growth measures.

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Will We Like "Them" Apples?
By: Carlos Guillen, Research Analyst

The day of reckoning has come, as Apple (NASDAQ:AAPL) has introduced its iPad, its version of the so called "tablet" computer. Up until this point, there has been quite a bit of hype and speculation about the looks and abilities of this new electronic gadget. The expectations are very high, and Apple needs to knock this apple out of the park. I believe that Apple will knock it out of the park in terms of performance and "wow factors" when it comes to the tablet. However, the success of this tablet will be a factor of two things; price and battery life. This tablet will very likely have the processing power of a laptop, with a different form factor. It is speculated that this tablet will sport an Intel 2.26GHz Core 2 Duo processor with about two gigabytes of RAM. Comparable laptops run in the six to seven hundred dollar range, so this will likely set a minimum price for the tablet. If the tablet is closer to the $1,000 mark, consumers may not receive the tablet with open arms and seriously have to consider if the extra price is worth the investment.

Power will also be a major issue. Processors on netbooks, mostly Atoms, use very little power, and Kindles last quite a long time since their black and white screens consume little energy. So far tablets appear more like laptops with a different form factor, basically with no keyboard and with touch screens. To provide very vivid graphics, the tablet will consume considerable energy in comparison to Kindles. I don't think that users are going to feel comfortable having to tug a power supply along with their tablets. Will see what happens soon enough.

Afternoon Musings
By: David Silver, Research Analyst

Toyota's Not Rolling

Toyota (NYSE:TM), a long the leader in quality, has halted the sale and production of some if it's biggest selling cars in the United States and threatens to spread the decision to Europe. The Camry, Corolla, Rav4, and Tundra are among the affected models and represent 57% of Toyota's U.S. sales. It has the potential to be a huge detriment to not only the fourth quarter (its fiscal year ends March 31), but also its image. We expect the sales halt and recall lasting about a week; however, we do not expect it to have a long-term effect. Sales in January and February will be affected (and there is a risk of it spreading to Europe) but the company has rectified similar recalls in the past in a short amount of time with limited cost to itself and vehicle owners.

More AIG fun

Sitting here listening to the soap opera that has become the testimony this morning, I find myself wondering where all the Congressman are for all those open seats? If these Congressman that seem so interested for about five minutes would be there and be listening to their colleagues, they would probably have been able to get additional solid information out of Secretary Geithner. Every question seemed to be almost exactly the same, with only a few deviations. I have to say that Danny Davis, Representative from Illinois (includes Cook County and downtown Chicago), had probably the best question, or at least the most insightful.

He asked Treasury Secretary Tim Geithner if he would change anything, if he knew what he knows now. This, in my opinion, was a great question. Mr. Geithner skirted the question, but it really shows that instead of wasting time seeing where people involved in the government worked (many were from Goldman Sachs), maybe it was a good idea to try to learn something to avoid having a similar problem in the future. By the way, wouldn't it be a good thing for members of what is thought to be the smartest bank to be involved in helping to solve the worst financial crisis this country has ever faced? I would think so, but then again, I haven't been elected to Congress, yet…

Disclosure: None
Stocks: AIG, GS