Saturday, June 4, 2011

Basket Weaving 101

Looks like we picked a good week to finally get short with the market down 5 consecutive weeks for the first time in 7 years and the worst 1-day performance since August on continued abysmal economic and employment data. RIMM fell over 12% as analysts are now fighting over each other to lower their price targets and with earnings 2 weeks away, RIMM may still have a few dollars left to shave off. The others in our basket, CSCO, SHLD, and FSLR, all gave away quick pops to finish lower this week. CSCO actually fell below $16 yesterday, SHLD is back below $70, and FSLR lost all of its German anti-nuclear momentum in 2 sessions.



For the first time since its bailout, AIG was punished for issuing more shares. I neglected to mention this loser for our basket last week, but AIG has fallen from the mid $50s to under $28. An excellent article by Bloomberg's Jonathan Weil entitled, Government Prays a Bigger Sucker Is Out There, details AIG's future inability to use past losses to offset tax liabilities. This in essence (similar to homebuilders' clawbacks or banks reducing loan-loss provisions) has been the only thing making AIG appear solvent over the last 2 years. Take this away and the company will bleed money. Another Bloomberg article this week reveals:



“'There seems to be essentially no investor constituency for AIG,' said Paul Howard, director of research at Solstice Investment Research."







The government still owns a 77% stake in AIG and they had to dump these shares at $29. How much lower will the next round go as suckers stop lining up?


In case you blinked, GM is now well below its IPO price, Ford fell under $14, and LNKD is now more than 33% below its first-day high of $122. Groupon is rushing to market and looking to raise $750 million dollars, but of course, will raise much more than that with this offering. I'm sure I'm not the only one concerned about the fact that the last round of venture capital went mostly to paying off its previous rounds of VC. Paul Kedrosky was ahead of this curve 2 months ago, asserting Groupon will eventually be a great short (watch his comments here http://www.bloomberg.com/news/2011-03-18/kedrosky-sees-groupon-as-a-short-selling-opportunity-video.html).

http://www.bloomberg.com/news/2011-05-18/government-prays-a-bigger-sucker-is-out-there-commentary-by-jonathan-weil.html



http://www.bloomberg.com/news/2011-06-03/aig-hits-14-month-low-as-insurer-has-no-investor-constituency-.html





2 comments:

Tiger Coach said...

Greenspan's comments on CNBC Friday shed additional light on Fed Policy... First and foremost, there seemed to be little to no ownership of the financial meltdown on his part. While most the problems can be traced back to the repeal of Glass-Stegal...

He also commented on several interesting areas including:

Big banks who have failed reputations...

His agreement with dramatic government spending cuts...

And more importantly the necessity of reigning in spending... while not allowing the government to default...

RIMM is probably like the new IOMEGA... destined for the teens...

Is pcln and nflx too high as well?

AX said...

Greenspan's legacy is shot, he's just hoping Bernanke can make him look good at this point with a bubble to end all. RImm has enough cash and tech to put a floor on things eventually, but maybe nokia should be an example of how bad things can get...