Saturday, August 29, 2009

"What do ya got? You got nothing!"

Barron's has their own spin on Goldman's huddles:

of the players forming a circle around the quarterback, their bodies leaning forward, their heads bent toward him and their butts pointing at the rest of the world. In investing, thanks to an inspired notion of that pacesetting paragon, Goldman Sachs, a huddle consists of the play-caller (i.e., one of its analysts) barking out stock tips to an assembled group of big-buck clients, their bodies leaning forward, their heads bent toward him and their butts pointed at Goldie's lesser clients, who are excluded from the exercise.

This variation of sacred pigskin procedure was disclosed last week by The Wall Street Journal. Not surprisingly, it provoked a rumble of serious displeasure, not least among those lesser clients, whose numbers run into the thousands. But please don't jump to a hasty conclusion.

Far from being unfair in limiting the opportunity to trade on the tips to an exclusive group of 50 or so deserving clients (what makes them deserving, of course, is that they generate the fattest commissions), a spokesman for the firm explained, the purpose was to prevent its less generously endowed clients from suffering information overload. That sort of thoughtfulness, we don't have to tell you -- but since we're a journalist we will, anyway -- is rare as hen's teeth in any business. Is it any wonder that Goldman's the leader of the pack?

In one sense, of course, "trading tips" to buy or sell can be self-fulfilling prophecies, since the response to them all by itself is likely to cause a blip or a dip in a stock. The impact, to be sure, may be exceedingly brief (no longer than it takes you to read this sentence, assuming you're not a speed reader). But, by definition, trading tips are tailor-made for hit and run devotees, whose idea of a long-term investment is something you hold for one whole session.

We don't want to seem to be picking on Goldman. For one thing, the pickings are temptingly easy and, more to the point, the competition does just about everything Goldman does, including the problematic stuff, but Goldie does it better.

Slipping info to privileged customers, moreover, is standard Street practice that dates back in the annals of the stock market to those distant days when the famed Buttonwood tree was a wee sapling. And Goldman's huddle approach has this to be said for it: It's nowhere near as furtive as the usual sotto voce phone calls from broker to favored investors (if that sounds like damning with faint praise, we suppose that's because it is).

What makes the huddle worthy of note is that it's another sign that things are hurtling back to normalcy in the citadel of capitalism, or at least what passed for normalcy in the buggy markets during the height of the dot-com frenzy and, more recently, in the 2007 run-up to the crash heard around the world.

How does Wall Street work though, when the stock is moving contrary to their wants? Then the information huddle is blasted to the world. Now I won't really go into details on the short side, but we know that AIG has 24 million shares sold short, and according to the story floating around on the street, there is only 27 million shares of "independent" AIG shares to trade. That number isn't right either, but that's the story they're reading.

We've heard Bob Pisani tell the world that AIG was effectively worthless. So has every tout on CNBC. So did Charlie Gasparino in a rant on Thursday. And so did Janet Tavakoli of Structured Finance.

How long has she been touting disaster since the march lows? How about every other week! She has the bears playbook!

When the stock was $2 or $3, AIG was just a call option on the company surviving. Why has Wall Street gone so sour on AIG? AIG is still in that ballpark--It just had a 20-1 reverse split. So why all the commotion? Because the Wall Street boys club is short this name, and they are short much more than the 24 million shares they say they are!

And they are crying to everybody that will listen, and who will run the story!

So Barron's, which bashed Harmon's last week with a fluff piece, comes out and tries again with AIG. Doesn't anybody find the irony of that at least a bit disingenuous?

We'll spare you a long litany filled with chapter and verse on the resurrection of unbridled speculation. But we'd remiss if we didn't single out, AIG the goliath of insurers felled by its own excesses when the credit markets froze up. Its stock, which was going for pennies early this year, had a reverse split of 1-for-20 in July and so far this fading month has rocketed nearly 300%....What's lacking in this uplifting story is any solid basis for the explosive rise in the stock.

Says who? Barron's? How do they know? If the markets are healing themselves, who is to say what AIG's portfolio will be worth. The price of the stock, when it was $2 or $3, didn't reflect the value of a call option on AIG, because you had hundreds of millions of shares short, and a few hundred million more shorted illegally, that drove the price of the stock down further. The position that the Government has in AIG is moot. It's on paper, but it ain't trading.

So the shorts, priced down AIG, with naked shorts and more shorts, to reflect the reality of Uncle Sam's 80% piece, but since the piece didn't trade, and it isn't coming to market, why does that assumption work? It doesn't work, when others want that piece of paper. Especially when you can trade it and make the juice on it each day! And now that AIG did a reverse split, all those bets have to be unwound, because they can't hold their position into the increasing ramp of AIG, because the higher it goes, the more underwater is their position. And their bet is excaberated by every Tom, Dick and Harry who laid out shorts illegally, who can't make the margin call.

Didn't these folks learn from Volkswagen?

And it doesn't matter if you have these shills touting it down, with as many reasons that they can up, whether they are elegantly or not.

You can't stay solvent long enough for your bet to work! That bet will only work, after it has already made those betting on AIG's insolvency, insolvent first!

And the beauty of this, and the wonderful irony of it all, is that the "dreaded" Barron's story on AIG is now out. As Charlie Gasparino says "What do ya got?" "What do I got?" "Ya got nothing!"

Barron's, with their little piece on Goldman's huddle, versus the piece below, shows how far they have already fallen in investigative reporting. They have nothing on Goldman's "huddle" in their piece. "What do ya got? Ya got nothing!"

And now, Barron's who decries the Goldman Sachs "huddle" participates in Wall Street's latest "huddle" by dissing and decrying AIG, and yet, they aren't even sharp enough to realize it!

But that's all they can come up with on AIG? It's as bad as their call on Goldman's "huddle."

"What do ya got? Ya got nothing!"


Anonymous said...

I don't understand why someone would short a stock that is trading so low? The risk of it popping a few points is very real and it can wipe some people out.

Since these people are complaining about AIG it only means it'll go higher. How should one play this?? There is a preferred, AIG-A, that looks interesting with a mandatory conversion within 16months.

Unknown said...

when exactlly in 16 months. and what those this mean for AIG-A

Palmoni said...

Converts into .2 shares of AIG +$6 annual dividend, that is cumulative, that will be paid in stock