Wednesday, March 18, 2009

Hedge Funds Receive Bailout Cash/General Mills/Lottery Tickets & NADX

I was impressed with an article written by Serena Ng contained in today's WSJ.   To understand what is happening today with AIG, it is important to characterize what the wizards in the Financial Product unit were actually doing for the hundreds of millions received by them.  They were gambling and now the taxpayers of the U.S. are paying off their losing bets while they keep their compensation.  For those unfamiliar with this saga and how it started and gained steam, I would recommend the following articles:
For years those who caused this mess made hundreds of millions of dollars without assuming any risk themselves.  They undoubtedly believe that they are entitled to every dime paid to them.  

Today's article in the WSJ focuses on how taxpayer money is now being used to in essence pay off hedge funds who bet against the U.S. housing market.   The origin of the entire series of events discussed in the article is a AAA credit rating slapped on the trash insured by the Masters of Disaster at AIG's Financial Products unit.  Now, the crap is rated junk of course.  This article is further support for my rankings of the top twelve causes of the Not-So-Great-Depression. Buy 50 AINV at $2.35 in IRA/Revisions to top Twelve Causes of the Not So Great Depression

This article is also worth a read, particularly since it highlights the problems of the taxpayers ever receiving their money back from AIG. Yahoo! Finance

Liddy, the CEO at AIG now who did not receive a bonus, noted in testimony today that the bonuses paid to the wizards were done pursuant to employment contracts entered into before the government took over.Yahoo! Finance
The agreements were struck in the 1st quarter of 2008.

General Mills had a negative earnings report.  Earnings for the last quarter were 79 cents excluding items compared to 87 cents in the year ago quarter.  This was well below the consensus forecast.  Yahoo! Finance  WSJ.comGeneral Mills did raise its guidance by a few cents for its fiscal year ending in May.  General Mills Reports Fiscal 2009 Third-Quarter Results: Financial News - Yahoo! Finance
This report will be a setback for consumer staples as a class.  The positions recently taken in consumer staple stocks are viewed mostly as a long term hold, except a few trades may be undertaken in an effort to manage risk. Bungee Jumping Aegon and ING Preferred Stocks/ BlackJack and Stock Investing: Lessons Learned & Applied
The ones that I recently bought do have attractive valuations for a long term investor and good dividends at the prices purchased. Dividends Make Heinz More Appetizing (HNZ, CPB, PBI)  |  March 17, 2009  | By Glenn Curtis - Investopedia Advisor
Consumer inflation rose .4% in February.Yahoo! Finance

Most of the American General Finance bonds, even the ones that mature in a few months, are being priced at about 15 cents on the dollar.  This is an AIG subsidiary engaged in consumer finance.  The current pricing  of its bonds is consistent with a fairly imminent bankruptcy in my opinion.   Bill Gross recommended bonds from AIG subsidiaries in a recent Forbes interview.  He was also recommending AIG bonds during the recent Barron's roundtable.

A five year interactive chart of the VIX is the best one to use in conjunction with my discussions of its recent history. CBOE VOLATILITY INDEX Index Chart - Yahoo! Finance

National Dentex is enjoying a good rally today, up about 67% in early trading this morning.   NADX: Summary for National Dentex Corporation - Yahoo! Finance
Mr. Right Brain, responsible for the last purchase of NADX at $1.27, is lobbying for control over the keyboard at the trading desk so that more lottery tickets could be purchased, arguing that these kind of movements are a lot of fun to watch.   There are a large number of these kind of situations to choose.  Losses on some of them are certain.  The only question is whether the gains on the winners will more than offset the losers in the entire class of lottery ticket purchases.     

1 comment:

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