Saul Sterman

TARP: Alternative Acronyms Edition

Interesting CRAP! :)

@gha
Your's is funny as well.
Just one problem with all of this; most investors are in the mood for a good cry, not laugh. I'm annoyed that this entire leg down we weren't allowed to short. GS and the old boys club had already purchased their short positions and are sitting pretty.

Perhaps "Shorts Highly Intelligent Team" (SHIT) would better describe Paulson and the old boys club from GS.

AIG: Closing My Long Position

@VivaVegas

Your lucky that I had a quiet day! Last reply...
I don't know where you are getting your info from. I read the same MarketWatch article that you did. The government owns 79.9% of AIG. Any further dilution doesn't come from the government's 79.9% stake but from your stake (20.1%).
Apparently AIG can issue preferred without a shareholder vote but not common. The commitment is to issue the common and replace the preferred.

That's all the article is saying.
BTW, If shareholders vote against, then AIG files for bankruptcy! Shareholders have no choice.

AIG: Closing My Long Position

@VivaVegas

I take it that after reading the MarketWatch article it is clear that the Government holds an 80% equity stake in AIG.

I see how the format can be a bit confusing, but the reason it is being done this way is because of company bylaws. A shareholder vote is probably still needed before common can be issued.

AIG: Closing My Long Position

@TomArmistead

Appreciate your comment.

The way I look at this is simply that there is a reasonable chance for a 'national' bailout of sorts, whether it is $700B or $500B is not a major factor.

This will create enough of a safety net that will create a 'bottom' value for CDO, CDS and other instruments. In other words, if the value falls enough, the government will buy.

Having said this, think how much potential upside there is for AIG. Compare this with let's say ABK as mentioned in the article. Because of the 80% equity stake, AIG has limited upside whereas ABK that does NOT have an 80% dilution can hit the $12 target that VivaVegas is looking for. ABK is depressed because of a possible Moody's downgrade. Once the 'national' bailout is completed, both should appreciate. The reason for a possible downgrade disintegrates into thin air as well. The big difference is, whereas AIG shareholders transferred 80% equity to others, ABK shareholders did not.

In other words, should the $700B plan go through, ABK will benefit far more than AIG. Should the plan fail, AIG's rescue is at risk as mentioned in the article. ABK on the other hand can dilute by 20% and stay in business. As it stands now, ABK is pricing in a 20% dilution and no bailout. In other words, no downside and only upside. I think the chance of some sort of 'national' bailout is pretty good...but waiting to see what the market says. Just like with AIG, I didn't get in at $2 and change but waited a bit. Likewise with ABK. If it jumps and I miss it, no sweat...there is always another. Just be patient.

AIG: Closing My Long Position

@VivaVegas

I've been in business for well over two decades and I know how to read an 8K. It is not by coincidence that I posted the S&P understanding of the 8K above.
Sorry my friend, but your understanding of what is transpiring is incorrect. Don't feel bad, others are confused as well. If your understanding was remotely true, AIG would be trading much higher and the S&P target price wouldn't be $5.50.
Think of it this way, there isn't a single analyst out there that has a $12 target price.

AIG: Closing My Long Position

@malapraxis1

See stocks.about.com/gi/dy...

"In return for providing this essential support, American taxpayers will receive a substantial majority ownership interest in AIG."

The equity stake is not contingent on whether the loan is paid back or not. The stake is for giving the loan in the first place. This is precisely what the twelve largest shareholders are attempting to avoid.

Trust this clears things up a bit. Also see SEC filing here:
stocks.about.com/gi/dy...

"The summary of terms also provides for a 79.9% equity interest in AIG."

Saul Sterman

AIG: Closing My Long Position

@VivaVegas

From Standard & Poor's research:
"09/23/08 02:46 pm ET ... S&P REITERATES HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERANTIONAL GROUP (AIG 5.08***): The shares have more than doubled from their September 17 close of $2.05 but are down over 90% year to date. We tie the recent strength to enthusiasm that AIG's credit default swap assets may suffer less of an impairment if the Treasury's bailout plan is passed. But we note AIG's 6/30/08 tangible equity of some $26 a share. Adjusting for the 79.9% stake in AIG the Fed is expected to receive under terms of its loan, tangible equity would equal about $5.23 a share. Our target price of $5.50, raised today by $0.50, assumes the shares trade at about 1X adjusted tangible equity. /C.Seifert "

In plain English, the 'Fed' as you call it, takes an equity stake. The article is correct.

Saul Sterman

Why I Bought AIG Last Week

Respectfully disagree with author.
See
www.crossprofit.com/ar...

It's not that simple at all.
Disclosure: no current position.

The U.S. Economy: Finding the Balance Between Production and Consumption

"your next door neighbor loosing their job" typo correction, 'losing' not 'loosing'.
Saul

Would Genentech Be Better Off Left Alone by Roche?

Roche has to buy DNA now as it loses its exclusive marketing rights in 2015. As time goes on the price seems to go up.

See: DNA - Genentech Inc: Roche Buyout Valued at $113 to $118
www.crossprofit.com/ar...
by Steven Davidoff (New York Times) / CrossProfit

What Price Might Roche Pay for DNA?

Jake2,
The author is pointing out that the options market is saying;
1) the deal will close sometime after 09/20/2008
2) probably in October, latest November 2008
3) price will be above $98.00

For more on DNA, see
www.crossprofit.com/ar...

Saul Sterman
CrossProfit

Houston to Obama: Smell the Oil

forwoodenboats,
Short reply re:source now, the rest later.
Source:
1) en.wikipedia.org/wiki/...
2) www.answers.com/topic/...
3) financial-dictionary.t...
4) www.britannica.com/EBc...

"a tax levied on profits in excess of a stipulated standard of “normal” income. There are two principles governing the determination of excess profits. One, known as the war-profits principle, is designed to recapture wartime increases in income over normal peacetime profits of the taxpayer. The other, identified as the high-profits principle, is based on income in excess of some statutory rate of return on invested capital."

Houston to Obama: Smell the Oil

As allured to in this article, by defining incorrectly (or leaving it in vague terms), the term "windfall profit taxes" are being misused by politicians in order to create their own war chest or perhaps worse.
See: online.wsj.com/article...

The American public needs to be educated about this and understand the difference between 'excise tax', 'excess profit tax', ('windfall tax' - non U.S. term - which is the Government giving back!) and 'windfall profit tax'. The term 'windfall profit tax' has been misused many times.
The Carter (1980) "windfall profit tax" as it was called was NOT a windfall profit tax at all! It was an excise tax. Today people are confusing this with 'excess profit tax'. In other words, Senator Obama is using the term incorrectly when talking about a 'windfall profits tax' when he really means to say an 'excess profits tax'. The latter is reserved for wartime etc.

Houston to Obama: Smell the Oil

forwoodenboats,

Thank you for clarifying your first comment with the last. There seems to be a disconnect between the meaning of capitalism and state run communism.

Monopolies are the mantra of communism. Free competition is the norm for capitalism. A windfall profits tax is not a dirty word in capitalism IF and WHEN used correctly and for the purpose that capitalism intended it for.

Whenever competition is stifled, this occurring for any number of reasons, inevitably the first symptom is obscene profit margins. Not all abnormal net margins dictate an underlying monopolistic structure, as most are not. However, it needs to be scrutinized.

There are several ways to 'break up' a monopoly so that we DON'T become a communist style economy. One of them is applying a windfall profits tax to the monopoly and assisting the future competition either directly with the proceeds or through indirect methods.

Throughout the entire article, including the quote in your second comment, the analysis is linked to COMPETITION, as in - no monopoly.

You would be correct had you said that this is NOT what you have been hearing from Senator Obama. My opening paragraph spells this out. The fact that I am being polite and not calling Senator Obama all sorts of names does not detract from the essence of the article where I clearly explain what a 'kosher' application of the windfall tax would be TO PROTECT CAPITALISM.

Also, note that I have intentionally not gone into the argument whether or not windfall tax methods actually work as compared to a break-up when necessary.

The bottom line is that just like XOM, CVX and COP are not even close to being monopolies, RIG when looked at on a global basis is far from one as well. There is no reason to intervene regardless of method as they do NOT pose a threat to CAPITALISM.

As an aside, there is no concept of 'windfall taxes' in a communist or totalitarian regime. The monopoly is owned by the state or party. Think about it.

Saul

Houston to Obama: Smell the Oil

forwodenboats,

Can someone please take the time and explain to forwodenboats my article. Apparently my writing skills are inadequate.

1) No one is picking 'a company'. The Dem/Republican argument was stated fair and balanced, Dem's being: monopoly intervention etc.
2) High net margins are a symptom calling for further diagnosis.
3) Article concludes that though it may smell like a monopoly, RIG is not a true monopoly, more in line with the drug industry...new technology etc.
4) RIG needs to establish itself before we "wake up to a new crude reality" as in 'supply side' state owned competitors that will change RIG's landscape (or is that oceanscape!).

Perhaps if someone could summarize the article in a few sentences using your own words, perhaps forwoodenboats and others will understand why I say we need to keep a watchful eye on RIG, but by no means kill it!

It appears to me that some readers are accustomed to reading articles that present a single side of an argument and are lost when both sides are presented in an abbreviated fashion. To complicate matters, I tend not to delve into secondary outcomes and stick to the primary basis of the logic on each side. Not to say that I can't do it, but who wants to read a ten page article? I don't!

Thanks,
Saul