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Wall Street Breakfast: Must-Know News

I'm truly sorry to question your religious views, JGDe, but there were "rain, wind, hurricanes, earthquakes and so on" long before humans inhabited the planet. Maybe God was angry with the dinosaurs and that's why He destroyed them ....................


On Oct 24 05:38 PM JGDe wrote:

> God gave all of us a beautiful Earth, its up to the people to take
> care of it or not. That's why there are rain. wind. hurricanes, earthquakes
> and so on
> to let people know how God feels.

Wall Street Breakfast: Must-Know News

Sorry, Seeking Alpha moderators, I hit the wrong button and reported yolosetodo for abuse instead of responding to his extremely logical and valuable recommendations.

Yolosetodo, the fundamental problem since time immemorial (or at least for the past century) has been the arrogance of the American capitalist elite in continually claiming that theirs is the most beneficial form of capitalism in existence. It is as if Europe, with its free education, universal health care, superior infrastructure and superior products (Germany sells exports more than America despite having only one-third of the U.S. work force) didn't exist. The same applies to the U.S. financial system which is a giant Ponzi-scheme that depends solely on selling the nation's mounting debt to other gullible nations. The U.S. manufacturing base has shrunk 60 % since the end of WWII, and GM/Ford are both bankrupt.

The problem is that Americans have gotten so used to flag-waving, anthem-singing and cheerleading that they actually believe their own B.S.. The sooner America learns from Europe the better.

Latest On Hedge Funds, Banks And Bailouts [Housing Tracker]

zebra zebra: Did you miss the AIG boat, and are now simply trying to talk the stock down so as to buy it cheaper? Your conclusion totally contradicts the message in the article you cited. If Ackman, a notorious short-seller, suddenly loads up with AIG stock (as he did successfully with Wachovia) , what does this tell you? Cerainly not that you should 'sell' AIG. Maybe you didn't understand the article, so I'll repeat it below:

“Bill Ackman, who heads the Pershing Square hedge fund [and has been short financials for a long time] has switched gears, snapping up significant stakes in Wachovia and American International Group Inc.(AIG)—his first investments in financial institutions in five years. Mr. Ackman said he began acquiring a 180 million-share, or 9%, stake in Wachovia last Monday, after the North Carolina bank agreed to be acquired by Citigroup Inc. Since then, he’s had the good fortune to see his stake rise significantly after Wells Fargo & Co. trumped Citi’s (C) bid late last week.” (Crain’s NY Business, Oct. 6)

Sounds like a case of sour grapes to me.


On Oct 07 05:16 PM zebra zebra wrote:

> SELL!! AIG is DONE!!

AIG Could Easily Cover Loan with Asset Sales - CS Analyst

Unfortunately, yes!

Is AIG a Buy Following the Government Bailout?

Gdspreacher, if I weren't recommending it I wouldn't have bought it myself. I believe CEO Liddy will be true to his word to repay the government loan with lightening speed. I've supplied Business Week, Forbes and other links in other sections of this Blog dealing with AIG. Liddy has a better view of the situation than any of us and believes AIG will become a much nimbler but profitable concern after he finishes restructuring.

Credit Suisse believes AIG can sell $ 85 billion of assets immediately and still have $ 30 billion left over, which represents a remaining net worth of around $ 11/share.

Since this company has been saved from bankruptcy by the U.S.Government, so how low can it go??? Those people holding out for an opportunity to purchase at the old low of $ 1.25 can dream on ......... I loaded up at $ 2.20 and definitely see $ 40 in about 2 years' time, though I'll probably chicken out and liquidate my holdings beforehand ;-).

P.S., I wouldn't be surprised if the price exceeds $ 5 once the $ 700 billion financial bailout is approved by Congress.

AIG: Details of Its Punishing Bailout

By the way, before some people become over-exuberant at my posts, what some don't seem to have done is to have actually read the terms and conditions of the loan provided above, in which it clearly states that the Treasury is getting 79.9 % Preferred Stock, convertible into ordinary shares, in return for the loan. There is no mention of the Treasury's ceding or returning those shares once the loan is repaid. AIG will eventually belong 80 % to the Treasury and 20 % to the rest of us, so dilution should be taken into account.

However, after dilution our 20 % equity stake will have a net worth of $ 11/share based on the Credit Suisse estimate above.

So essentially this is a good long-term value play. (If the Treasury had been obliged to return its 80 % stake it would have represented the deal of the century at a current price of $ 3/share and a net worth above $ 50/share!!!).

AIG: Details of Its Punishing Bailout

2 more positive news items:

Ex-CEO Greenberg sold 40 million shares at an average price of $ 3.77, so the fact that the price is holding above $ 3 despite a massive physical offload mens it seems to have found a floor.

Second, "AIG may get $115 billion by selling all its units, Credit Suisse Group AG analyst Thomas Gallagher said in a Sept. 23 note. The company may need to sell more than half its businesses to repay the debt, he said.":

www.bloomberg.com/apps...

This means that the Credit Suise analyst thinks there's a $ 30 billion cushion even at fire-sale prices.

Am very happy to hear contrary views (Cramer thinks AIG is worth zero!), though I believe my own opinion in this turbulent period is in fact the one that's 'contrary' ;-)

AIG: Details of Its Punishing Bailout

And here is a generally psitive article in today's Business Week, suggesting that new CEO Liddy will sell off assets at top speed to reduce the interest payment, thereby reducing the Draconian effects of the Loan. Furtermore, numerous investors are waiting on the sidelines (including the German giant Allianz with $ 1.5 trillion in assets) to obtain a chunk of AIG, which means that either its assets will come positively into play or that suitors will obtain an equity stake similar to Buffet's in GS.. Either way, AIG is solvent even today, and the upside potential is enormous:

www.businessweek.com/m...

AIG: Details of Its Punishing Bailout

It seems nobody noticed one crucial and positive fact in the Loan Agreement, which is that AIG's extremely valuable and lucrative foreign subsidiaries are off-limits to the Treasury. These alone are worth well over $ 85 billion "under normal circumstances", which means that barring global financial Armageddon and the re-establishment of "normal circumstances" in 2 years' time the 20 % remaining sharehoder stake will be worth far more than the $ 1 it is worth today and, based on forward projections after repayment of the loan the 20 % stake should be worth minimum $ 10, and with unlimited upside potential in ensuing years when it could reach anywhere between $ 10 and $ 100. So at these prices AIG represents a cheap Call option with no expiry date!

Disclosure and strategy:

I bought a sizable stake in the $ 2.20 - 2.25 area (sold half my position at $ 4.90) and will re-purchase on any further pullback that will solidify the long term technical base. I will keep selling half the position at $ 5.00 (= below the double top) and keep the remaining half as a long term investment.

Since I expect this extremely volatile stock to keep bouncing between $ 2 and $ 5 for the foreseeable future I expect to gain several $ 100 % gains while waiting for the stock to eventually break out.

The Hedge Fund of America, LP

As for the article above, it represents more of the same. If every irresponsible and technically bankrupt corporation were allowed to fail the pain would be so massive and long lasting that it would give rise to fundamental solutions that would change the way the U.S. Government and U.S. corporations are allowed to do business. How GM is allowed to continue operating with a $ 200 billion debt beats me ............

The Hedge Fund of America, LP

Farmer448, that was brilliant and I laughed my A$$ off. The problem is that Cheney's Blind Trust (mainly consisting of Halliburton) tripled in value after he fabricated reasons to invade Iraq, so rest assured his Blind Trust probably shorted financials a year ago to benefit from yet another mess created by his Administration (He is, after all, the de facto Prez.).

No, the Texas Mafia has no interest in reforming the system, whether economically or politically, because "The Lord helps him who helps himself". I wouldn't hold your breath aiting for anyone in this Administration to (Heaven forbid) actually do something POSITIVE....

Is AIG a Buy Following the Government Bailout?

I don't have a 'sell signal'. It could consolidate at around the $ 2 - 5 level for months or years, or could shoot up to $ 40 in 5 years' time if the new CEO's forecasts prove to be correct.

My personal target is $ 40 in 5 years' time, but this is just an arbitrary figure depending on developments and I may eventually chicken out for a 100 % profit at $ 5! I'm just happy that I today I bought huge amounts at $ 2.20 - 2.25, because I just don't see bankruptcy as even a remote option any longer.

Is AIG a Buy Following the Government Bailout?

I believe most are missing the point: The U.S. Government is not in the job of owning corporations unless it suddenly decides to discard its Capitalist ideology, so it will sell its 80 % ownership at the first sign of profitability. Whether this happens on Obama's or McCain's watch is irrelevant, and whether the warrants are deep in the money or at break-even is also irrelevant because both candidates will be eager to demonstrate a success as early as possible in their presidencies and restore global faith in the U.S..

Also, AIG is "too big to fail", which means that in the worst case the U.S. Government will throw good money after bad: There's no way it will write off its initial $ 80 billion, but will increase the loan if AIG needs more time to recover.

I bought a substantial stake (by my standards) last night at $ 2.20, because I don't consider it speculative but strategically misunderstood by investors: AIG cannot and will not be allowed to fail, which offers considerable upside. My 5-year target is minimum $ 20, which is a good risk:reward for a stock which is backed to the hilt by U.S. Government funds, giving it a sovereign guarantee that is AAA.