Wednesday, May 25, 2011

AIG Plus/And Government Accountability

First of all, before anyone gets all jiggy about the idea of the Goverment selling some of OUR gold to pay off Treasury debt, I would first like to see evidence other than a book-entry on the Treasury financial statement that the gold even is there to be sold.  Until that happens, all else is a waste of brain cells.

Stay away from AIG stock.  If what I think happened did happen, this stock is eventually going to go back to zero and the company is going to hit the wall again.  Interestingly, I saw a news report a couple days ago that the insurance regulators had not even audited AIG's main insurance units prior to this stock sale.  THAT is reason enough alone to stay as far away from this as possible.  I wouldn't be surprised if many of you get calls from your favorite stock-pusher looking to sell you on why AIG is "cheap" here.

In a nutshell, this is what I believe went down:  Based on the way it's trading I suspect that the Govt forced the underwriters to take down a lot that stock as payback for all the money Geithner transferred to the Street over the last 2 1/2 years.  Big ipos like this never get hammered out of the gate unless they didn't fully placed.  And that might have entailed underwriting desks placing blocks of the stock with "good" accounts so they could break syndicate with the understanding that the buyer could flip it back at cost at the break.  We used to do that with really crappy junk bond deals.  What this means is that the underwriters are looking at any trading losses from choking down more stock than there was demand as part of the "cost" of earning the $385 million in underwriting fees (your tax money, that is).  Now the stock jockeys at the big underwriters are doing a "Boiler Room" and pressuring the stockbrokers unload this stock on the public.  In an ideal underwriting, the underwriters actually run a short in the new issue and use the bidding power to make the stock perform well at least for a day.  The fact that this stock is tanking tells me all I need to know about how this deal was orchestrated.

If you think I'm nuts, one of my colleagues who I ran this by remarked: "that explanation is probably as close to the truth about how this deal was executed as we'll ever get."  I don't even have to go through the financials after observing AIG's operations over the past 2 1/2 years to know that it will hit the wall again.

In terms of Government transparency and accountability, take a look at this 7 minute preview to a Frontline project in the making.  It looks like the Government/Defense Dept is spending billions of taxpayer money with absolutely no accountabilty or public knowledge.  If this doesn't scare the bee-jeezus out of you about what his going on in our country with regard to the Government-creep toward totalitarianism, then you are fated to be one of Warren Buffet's "serfs" (recall he said a few years ago that ths was going to become a country of "serfs"):

This video reflects Orwell's "Big Brother" vision perfectly. It is utterly horrifying to me.  This is what founding fathers like Thomas Jefferson were most worried about when they warned the citizens against letting the military complex take control of the system - looks like We're already there, dude.


  1. Government Accountability is an oxymoron

  2. Hi Dave, I know that you do like to comment on what your end of the rainbow (or should I say, gates of hell) price of gold is, but what timeframe are you estimating? Are you guessing 1, 5, 10, 20 years away? Thanks for your posts, always enjoy reading them.

  3. GATA urges Paul to probe Fed's gold swaps; he tells CNBC he will

    "I'd sort of like to see how much gold is actually there and whether we've made any agreements to loan out our gold or sell the gold, because there's a lot of questions about that. As a matter of fact, I'm going to have hearings on having a true audit of the gold, and they're very, very resistant to that. But if the gold is all there and there are no attachments to the gold, what's the big deal? Why shouldn't the people know that it's there?"

  4. re: gold target and timeframe. my calls for what will happen as this unfolds are always several years early. I thought we would be where we are now in 2005. i do think the process is accelerating.

    Let's just say I think gold could easily hit $10,000 within the next 3-5 years. The ultimate target will depend on what price it needs to revalued to in order for the China/China et al. to create gold/silver-backed currency.

    I like $30,000, but if the U.S. were monetize all of its obligations, on and off-balance sheet plus known entitlement commitments, the gold it supposedly owns - 8100 tonnes - would have to be reval'd up to around $40k.

    The upside is probably more of a moving target than the timeframe....

  5. Hey look the first signs of deflation...but its not something used everyday!lol...

    Starbucks Package Prices to Jump

    Starbucks Corp. is raising prices on bagged coffee sold at its U.S. cafes by an average of 17% in response to escalating coffee costs.

    The in-store increase goes into effect July 12 and comes after Starbucks in March imposed a


  7. Fed Gave Banks Crisis Gains on $80 Billion Secretive Loans as Low as 0.01%

    Something to make you hurl Dave

  8. John Embry

  9. So they can engineer yields but never gold?...all the glue holding everything together is a fugazy yield curve ?

    Gleacher On The Engineered Sub 3% 10 Year, QE6, And How The US Treasury Wins Again And Everyone Else Loses

    Who needed to buy $112 billion 5 years near new range break out low yield prints? And who would pay 1.7 bps through in order to do so? I think it is obvious that there is "official" demand in the form of central banks and official institutions, pensions, excess reserve banking entities recirculating monies and the like. I feel goosed. Seems like we are on QE6, they just didn't tell you that it started. And we have seen this before.

    Fundamentals? Economic activity is mixed at best too. Maybe this "crowding out" of rates by central banks and other official institutions is really about international banking.

    Maybe, the severity of the litany of unintended consequences of this low rate coordinated policy ( coordinated policy used to mean coordinated rate cuts or FX intervention but now coordinated means under the table excess reserve "asset" purchases) which is penalizing savers, reducing income based consumption, creating more leverage and robbing economic fundamentals from the future and the like, are more beneficial than the alternative of stakeholders perceptions how bad banking balance sheets are. Maybe, if you don't have sound financial institutions (or the perceptions of such) or sovereignties, both of which need a function of time, lower rates, higher net interest margin, to work their way out of insolvency, then all this is worth it. Maybe, solvency conditions of banks explain this seemingly confusing relentless easings of polcy. No sound banking system, nothing sound.

    Like how bad level 3 assets, total real estate exposures, second liens, phantom accounting and tier 1 ratios, regulator attack on bank revenue models. Maybe engineering this rate structure is worth it in the eyes of policy makers despite all of the adverse alternative consequences. Maybe, the policy community has a different philosophy. They always do and recall when Geithner at previous NY Fed under Greenspan regime and Congress incessant push for housing formation and other exposures. And the previous bouts with over leverage and government and private sector exposures. Maybe, $100 billion plus bidders powers to be find the low rate structure is worth the risk. Chalk it up to another win for the US Treasury and a loss for the dealer partner primary counterparts. Can't wait for the 7yr and sub 3% 10yr.

    jaw dropping in view of this...

    US default more likely than Indonesia

    (per CDS spreads) – the article notes that US CDS have widened substantially in the last couple weeks. The FT says “America’s dysfunctional politics are starting to infect the markets”. FT