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Alex Cook is a graduate of the University of North Carolina, where he studied economics. In college he founded Tar Heel Business, a print and internet publication focused on business and economics. Alex now writes for frontieroutlook.com, where you can read about macroeconomic trends and... More
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  • What in the world happened to AIG today? 2 comments
    Mar 9, 2010 11:57 PM | about stocks: AIG

    AIG traded fairly flat today until around 1 PM eastern time, when it took off like a missile. As far as I can tell, no real news was announced at that time. What happened?

    I posted back on February 23 that AIG was starting to look better as a high-risk high-reward opportunity. According to Bloomberg, some of AIG’s business units were starting to regain profitability, and according to other sources, AIG was being successful in selling assets to pay off the government emergency loans.

    Today’s activity was unusual in that there was a tremendous spike in the price, but it was not related to news. AIG announced yesterday that they were planning on selling more international assets–but what happened at 1 PM? There are a few possibilities, which are not mutually exclusive and may all have happened:

    • AIG’s price or chart hit some kind of magical technical indicator at a large quantitative hedge fund, which triggered a spree of automatic buying.
    • AIG started rallying, for whatever reason, and the rally was then amplified by massive short covering. According to the most recent numbers on Yahoo Finance, AIG has a 26% short interest, so a short squeeze is possible.
    • Some kind large capital-raising deal is in the works, and word about the deal got leaked.

    As with my February 23rd article, I remain cautiously optimistic about AIG, but I must emphasize that this is still high-risk. Today’s price action was exciting for people who were already long, but it does not necessarily signal any new fundamental information. If you are willing to take the risk, AIG could have a good reward, but today alone should not be a reason to buy.

    UPDATE: Maybe this was the reason. AIG is selling more assets in a new deal.

    -Alex Cook



    Disclosure: None
    Stocks: AIG
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  • ChrisDates
    , contributor
    Comments (10) | Send Message
     
    I wonder the same thing here. I still don't get it, has anybody valued the company? From what I understand, according to Bloomberg, the parts of the company that they are selling are considered the "crown jewels". AIG borrowed 180 billion dollars from the treasury and the US is it's biggest share holder. What is the remaining asset / debt situation? I think that's a huge unknown, my feeling is the company is worth nothing and the RE derivatives it may still own are worth minus zero. A short squeeze is certainly a partial answer. Can anyone explain the apparent value of this company? I imagine this question can not be answered....good luck everyone, we will need it !!
    ** I am currently short the stock and losing my shirt **
    11 Mar 2010, 12:33 AM Reply Like
  • Alex Cook
    , contributor
    Comments (72) | Send Message
     
    Author’s reply » 1. I'd cover your shorts ASAP. Way too much volatility at this point to be on the short side.

     

    2. Bloomberg put a piece out a while back about how some of AIG's units are starting to show profitability. I got a link to that article and analysis here: www.frontieroutlook.co...

     

    3. As far as fair valuation of the company, I'm still trying to piece together the puzzle myself. It's a very opaque situation given the nature of these derivatives. I'm actually starting to get cautiously optimistic, for the reason that AIG's main credit counterparty at the moment seems to be the federal government of the United States. It is not in the government's interest to have a crisis in AIG that could be used as a political football; ergo, the government will allow AIG generous credit terms; ergo, AIG is probably not going to fail.

     

    If it doesn't fail, then it might not suddenly become a "good" company, but a "less bad" one that doesn't merit Armageddon valuations.
    11 Mar 2010, 01:43 AM Reply Like
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