Friday, May 9, 2008

Maybe They're Right?

I remember reading an article from a bullish analyst after the last set of lies/disappointments/writeoffs from AIG. The stock had dropped from about $60 to $45 first on the possibility of huge writeoffs and losses, then on the actual reporting of the same. He said at the time that AIG was the "buy of the decade." After losing another $8 billion and recognizing the need to raise an additional $12.5 billion, the stock hovered around $40 today. Given the company's complete refusal to tell the truth and obviously much greater exposure to MBS, shouldn't this company be hammered more? Maybe that analyst was right. If these type of armageddon-greater than some countries' GDP-type losses don't sink the ship, maybe nothing can.

Citi came out online with their restructuring plan, stressing the need to dump a mere $500 billion in non-core assets, roughly 22% of the company. As Robert Redford said to Cliff Robertson in 3 Days of the Condor, "You people are kind to yourselves." These MBS and CDO debacles were referred to as "hobby assets" by Citi, you know, like just $70 billion or so we could afford to lose causing us to slash our dividend and lose more than 50% of our stock price! Nice hobby, idiots.

The last 2 days have been a reminder that the recent rally has a complete disconnect to economic reality. Gold has risen, oil is through the roof, and the dollar is up to its old tricks of losing value against every currency basket. "Main Street has just entered the act. The peak of the pain is not visible yet," said Asha Bangalore, an economist with Northern Trust in Chicago. I ditto this sentiment. April retail numbers were a sham with an entire extra weekend of reporting. Furthermore, I think we can infer an inverse correlation with the success of Walmart and Costco and that of specialty retail. People are simply looking for bargains and can't afford to pay for anything else.

Credit card issuers are backlashing against potential legislation that might curtail some of their gray-area practices. They say stricter policies will raise rates for good-credit consumers, the bulk of their business. But the bulk of the profits come from sticking it to higher-risk debtors. They don't make any money on people like me who use their CCs as debit cards, essentially using the money as a free monthly loan. They make money from accruing monthly balances at high rates, penalizing with late-fees, and raising rates on accounts already running a tab. "The banks are trying to protect a franchise that is based on deception," said Ed Mierzwinski, consumer program director with U.S. Public Interest Research Group. "They saw an opportunity to make bad money on top of good, and they seized it."

Just to refute the notion that I am strictly short this market, I cashed my True Religion ticket today for the 2nd time when good earnings led to an almost 20% pop this morning. I have owned Jan 09' 10s since August, sold today for about a 40% profit. I'm thrilled to dump a retail holding and persist in my view that XLY will continue to plunge. I was sold on TRLG due to their successful expansion and the short-term theory that people who can afford $300 jeans won't be crimped by gas and food prices. Don't want to test that any further.....

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