pelican

AIG Needs Dissolving

I think AIG stock is worthless but I have to agree with blogbuster if I look at this from a taxpayer's point of view. AIG owes $80b and if it means taking a few years to get as much of that as possible back, then so be it. The GAO report said nothing that nearly everyone already knew: AIG may not be able to repay everything. But why immediately liquidate now? From an operational standpoint things are improving - as the report noted - and avoiding fire sales seems like a reasonable strategy. So why not wait?

A year ago the AIG bailout was greeted with derision almost to a person. One year later even the author of this article recognizes it probably averted a bigger financial meltdown. If AIG was liquidated with great speed now I guarantee the media would jump on it pointing out that by not methodically selling assets, the government could have saved taxpayers billions. This article got a log of headlines today because it makes it sound like AIG continues to be a sinkhole, which is not the case anymore. At this stage I don't think the government needs to "get tough" if that simply means limiting the potential repayment on those loans. The author says we should because it would "serve as an important reminder to Wall Street and giant banks around the world, that there's a price to be paid for becoming too big to fail -- and then failing." Well, I think its a little too late for that now. Besides, I think in many ways prices have already been paid. Regardless, as a taxpayer, I want as much money back from AIG as possible.

Disclosure: I bought put options because I think AIG will eventually be sold off completely with no value left to shareholders.

AIG Overpriced? Perhaps Not as Much as Barron's Thinks

"With $185 billion in debt, AIG is certainly not in great shape right now.
***Understatement of the summer?

"But its $35 billion stock market value doesn’t look like too much to pay when considering the longevity of the insurer, either."

***I'm sorry but what does this mean? Are you suggesting the AIG brand is what it once was? Are you saying AIG will be around for years to come? I'm not sure you can make this statement without backing it up with more financial analysis.

"In an aggressive market environment, rapidly spurred by Asian investment (despite the volatility), it’s almost fair to say that the current market capitalization of AIG reflects the prices its various remaining today will rise to in twelve months time."

***Almost fair to say? Again, based on what analysis? The company has not been getting good prices for its assets and saying they will over the next 12 months doesn't mean it will happen.

To be honest, I'm stunned that you haven't mentioned how the CEO recently stated the value of the assets now is less than what they owe the government. As noted in a Motley Fool article today, assets were reported = $58 billion (book value even though they've been getting less than book) and they owe $80 billion. So you don't just need some increase in assets values, you need a heckuva increase just to pay off the government. In the meantime, as the company sells assets, its earnings power decreases. So after the government is paid off - assuming for a moment they actually are paid in full - you've got the bondholders. Any crumbs left go to the shareholders, and I seriously doubt they will see anything. AIG is going through a forced liquidation which even the CEO admits will make it challenging to even end up with a company that is a former shell of itself. Nonetheless, you make it sound as if its a given that the stock will continue to rise, let alone the company even existing over the next decade.

There is something very wrong with this kind of article and I think its because it reminds me of others I've seen in recent years; the kind that touts companies on the brink (e.g. mortgage companies). In my view, there needs to be greater responsibility explaining the potential (and often enormous) risks.

Starbucks vs. McDonald's: Filtering Through the Coffee Wars

Starbucks is a quite popular overseas for high school and college students, such as Japan.

Regions Financial Rebukes Treasury Findings

"Assuming the economy continues to improve, I wonder if RF will have to raise the $2.5B in capital? "

The economy is improving??

Goldman Releases Earnings Early; Has World Gone Crazy?

prudentinvestor,
You wrote: Not surprising that all major banks report better than expected results this quarter.

Sounds like a Yogi Berra-ism. How can something be not surprising and better than expected (i.e. surprising)?

Equity Market Rally May Be Short-Lived

"In this vein, he noted that the peak to trough decline during the 1930s depressed [sic] lasted well over 3 years. Meanwhile, the dot com bust in the US at the beginning of this decade lasted 29-34 months."

Two comments. First, the market bottomed July 8, 1932, 35 months after the peak in 1929. So it didn't last "well over three years." Second, like the 1929 bust, the dot.com bust sported higher market multiples at the peak.compared to the 2007 peak.

I like the term Great Recession because it connotes the worst recession we've seen (in memory) but its not as bad as the Great Depression. I believe we bottom between the time it took to hit bottom in past (very bad) recessions and the Great Depression (i.e. approx. 18 to 36 months). We are 18 months into the current bear market.

Book Review: Mobs, Messiahs and Markets

bearfund,

Some of what you say is puzzling and this sentence I don't understand at all. "...prices spiked dramatically until 1982. Since then inflation has been "moderate", around 15% per year, and prices have been rising "only" around 8-10% per year."

Here is an inflation by decade chart.
inflationdata.com/infl...

Book Review: Getting Off Track by John B. Taylor

No disrespect to Mr. Taylor but am I the only one who finds it a little annoying that these books come out even before the crisis has ended? The halftime analysis is fine but I think these kinds of books, given more time, can be even more insightful and comprehensive. For example, there is potential for additional government blunders to cover which may further exacerbate the current crisis and Mr. Taylor could identify and analyze those for us as well. I suppose books about the causes of the Great Depression or the Vietnam War came out during the middle of those crises, but I typically you get better perspective once the event is over.

Don't Be Fooled by the Dead Cat Bounce

I'd like to see how many bear market rallies of 20%+ occurred during the bear markets of 73-74 and 81-82, not just during the Great Depression. Their are similarities with the Great Depression but there are many differences, so I don't think using it as the yardstick is necessarily appropriate. That said, if the Great Depression represents the worse case scenario, where the market tanked due to the economy (worse than today) and rich valuations (higher than those at 2007's peak), then the current market should bottom before the 35 months it took during the Depression. If it takes 26 months, for example, it would mean the market will bottom at year-end. By the way, the author makes it seems as if there is a lot more bullishness out there now that the market has rallied but I'm not seeing that, at least not on this website.

Historical Data Disproves 'Trough P/E Multiple on Trough Earnings' Myth

Actually, I like the author's point. Sure, no two recessions are alike. Even the 1973-4 recession differed from the 1981-2 recession; yet, their trough multiples were pretty close! The media has latched onto this idea of using a trough multiple on trough earnings and so there is this expectation among many that we will see another 50% on the downside. So I guess companies like PG, JNJ, or PEP, which currently trade around 11-12x forward earnings will drop to mid to high single digit multiples. Seems unlikely in my view. The current recession is bad, no question. But it's not all bad compared to 1973-4, which most agree is a closer parallel than 1981-2. Interest rates and inflation are lower, for example. This time around I would also add that earnings projections for the market are being depressed by writeoffs in the financial industry. I won't say we are at the bottom because the 1973-4 bear market lasted around 20 months I believe and we are into our 17th month. Nonetheless, I expect a bottom this year (actually July is my forecast). Incidentally, during the Great Depression stocks took 35 months to bottom. The economy was in much worse shape though and stock p/es were richer back then (average p/e was 32 at its peak).

This 'Band-Aid' Approach Is Getting Old

I agree with the adage, the cleanest cut heals the quickest. I think the article is saying that. But I would like to hear more concrete solutions. The poster above (constructe) wrote: "We need a legal remedy that can purge these from our books and prevent the same thing from happening again." I think this makes sense. Everyone knows something needs to be done and like the author said, the band-aid approach is wearing thin. It does nothing to increase consumer, business or investor confidence and as long as the huge amount of uncertainy remains, progress will only be incremental. I don't have all the answers but it is clear we need aggressive solutions because band-aids won't stop the hemorraging. Otherwise get used to the feeling of being "behind the curve" for a considerable period.

2009 Depression Will Be Nothing Like 1929

"It is obvious, we are in a full blown depression.."

Well, for someone who is bashing doom and gloomers, this is a pretty bold statement. And if you don't mean like the Great Depression...well, what do you mean? I'll stick with deep recession for now.

Watch This Sector During the Upcoming Bear Market Rally

"Going back to 1881, the four times that the P/E ratio of the S&P 500 rose above 20, it eventually turned around and didn’t stop falling until it hit single digits. The average of those four trough valuations was 6.4."

I'm not sure four is a big enough sample size. I may flip a coin four times and it may come up heads each time. Also, I'm not sure what the time frames are here. The P/E fell from above 20 in the past to single digits but does that mean the market was lower? If earnings grew 10% annually, then you could have had a 20 p/e market become a less than 10 p/e/ market in eight years with no change in price. Just food for thought.

12 Attractive Companies That Also Pay a Dividend

Two things. First, PFE cut its dividend in half and that needs to be reflected in your table. Second, I'm not sure CAT's dividend is safe. They have lots of debt and earnings projections are coming down quickly. Their payout ratio may reach 100%.

Dr. Doom Responds on Wells Fargo

Boy, this reeks of professional jealousy. I don't see Roubini's comments as being disingenous at all. And I don't think individual banks are "a topic he now admits he knows nothing about." That's not what he said. He gives his opinion and later says he may or may not be right. So what? I think everyone understands that. Sir, you have made some terrible calls over the past year even though your atttitude has often been "I'm right and those who disagree wtih me are wrong". I recall clearly, for example, your table pounding declaration that the financials bottomed last July. And so now it's come to this. Since your own predictions have been way off the mark, I suppose you feel compelled to attack someone who has been failry spot on. Given your track record, it makes me wonder what you should stick to talking about.