Monday, February 23, 2009

AIG: Worse than Worthless/Ford & the UAW/Buy of 50 AEB at 4.8/sold CAT BOND/JPM Dividend Cut

The DJIA is now at a level-7114.78 that is below the mini-crash close for  October 27, 1997.  The precise closing number on October 27th was at 7161.17 which itself was the result of a mini-crash on that day. October 27, 1997 mini-crash - Wikipedia We are now having a rolling series of crashes. We are actually back to May 1997 for a closing low on the DJIA, which was 7085 on May 7, 1997.

As bad as it has been since October 2007, today did not look to me like a bottom in the market. My current forecast is for the DJIA to fall to 6400, but my forecasts are irrelevant to me since I am neither a buyer or seller of common stocks. It may be sometime before my model even allows me to buy a common stock with cash flow from dividends and interest, let alone make a serious investment in this asset category.  

My only thought at the end of today is the recurring one that I have frequently had recently, a gnawing feeling that everything the government has done to date has only slowed down the inevitable. What is happening now is not a reaction to anything the government is doing or not doing , as certain partisans who are no longer in power are apt to claim, but to the events that transpired before 2008 that set this train wreck in motion. Idealogues on A Mission: Revisionism Already Well Under Way to Explain the Origins of the Mortgage Crisis

There is a reason those who fail to learn from history are doomed to repeat it. Those who refuse to learn anything in history class in the years and decades to come will be joined by the tens of millions who lived through the pertinent history and deliberately learned nothing from it.  Their ideology distorts everything in real time and prevents the assimilation of new information inconsistent with their worldview. 

Their minds operate as a close loop system, seeking only confirmation for existing views, and ignoring or dismissing all facts inconsistent with their ideology as unreliable by definition (i.e., the facts must be unreliable because they are inconsistent with the ideology in the form of cliches ). There is a name for such people.    

If there ever was a company that deserves to go to zero, it is American International Group. 

Reports surfaced late in the trading session that AIG was going back to the government trough asking for more money,  which is just amazing since the government's funding  had already swelled to 150 billion by November of last year. DealBook Blog - NYTimes.com  David Faber reported that the company is prepared to report a loss of close to 60 billion due to writedowns.  

Such a loss would likely cause additional debt downgrades which would require more collateral to support AIG's improvident contracts, continuing the vicious cycle started last year after the company lost its AAA rating.   

I am just curious why the investigation of its London based Financial Products unit is off to such a slow start.  I would expect brazen incompetence by the SEC as their norm, but I was hoping for more vigorous efforts by the Brits. NYTimes.com

Possibly Mary will restore some teeth to the SEC that was lost during the lost under Chris Cox  NYTimes.com The market swooned after Faber's report was released. You would think 150 billion could have kept just about any company afloat. 

The deal between Ford and the UAW on permitting Ford to pay half of its obligations for retiree health care in stock was a ray of sunshine for the future of the U.S. auto companies.  NYTimes.com

I continued selling some of my short term corporate bonds, disposing of a Caterpillar note today at near par value.  I may continue some selling of bonds at or near par value.  I bought in an IRA 50 of AEB, the floating rate preferred stock issue by Aegon, at $4.80. I am aggregating a large  sum from the sale of these short bonds and bond ETFs which I intend gradually to re-deploy in bonds and preferred stocks with higher yields. At most I will invest about $800 more in Aegon and/or ING preferred stocks. I view them as high risk in the current environment.

This is a link to the prospectus: http://www.sec.gov 

AEB has been discussed in several posts and my last buy prior to today was at $5.5:
  
The credit default insurance spread for GE debt widened to 630 basis points, or $630,000 to insure 10 million for 5 years. 

J P Morgan became the latest big bank to slash its common stock dividend, reducing the dividend to a mere 5 cents from 38 cents.   

It will be impossible for me to view any bank as a competently managed business in the future, nor will I look at them again as a reliable source of dividend income. I do not own JPM common stock but I do have a position in PYV, a TC containing a JPM junior bond maturing in 2014.  

The Dow is now about 50% below its high in October 2007 with no end in sight to the carnage. When it does end, the recovery period will most likely be a long.  I did go ahead and fund my IRA in the full amount for this year.  I understand that it may appear that I do not work but that is a faulty assumption.    I just do not work very hard anymore. I will soon do another Roth conversion, my second so far in 2009. I will go ahead and invest my 2009 contribution since I am a player who has not yet lost faith, though it is becoming more like Kierkegaard's Leap of Faith.   Søren Kierkegaard - Wikipedia, the free encyclopedia

DISCLAIMER:
  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 





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