by Jack Lee
AIG, the nations largest insurer suffered tremendous economic setbacks thanks to sub-prime mortgages and that forced their stock down close to a dollar on the 18th of Sept., since then the feds have offered a bailout and the stock has climbed above $5 a share over the last 4 days.
The question on the minds of many investors is it too late to jump on the AIG bandwagon? If you look at the chart above you can see a lot of room for retracement, so the implied technical upside is there if you really think this company can recover and resume a more normal course of business. Many savvy people in the market seem to think AIG can payback the government loan and recover stable footing.
I’m going to avoid the question IF government had any business bailing them out in the first place and look at the financial impact on this company instead. AIG said the Fed loan will give it “the time necessary to conduct asset sales on an orderly basis. Policyholders of AIG companies around the world can rest assured that AIG’s commitments will continue to be honored.” On the other hand the feds, headed up by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson, said the bankruptcy of an institution of this size would have an effect on pension plans, on insurance, on mutual funds,” Dodd said. “They felt they had no other choice but to try this.”
Moody’s Chief economist Ryan Sweet said in a note to clients Tuesday night, called early market reaction “strongly positive.” U.S. Treasury bond prices were down sharply, pushing yields higher in late trading, he said. This positive feeling is not uncommon among stock gurus who are buying AIG stock. The question looms… is this really a blue chip bargain or is it a company that will eventually fail despite the government’s 82 billion dollar loan guarantee? We know what the stock market sentiment is, look at the share price! What’s your feeling?
UPDATE: As of 1 hour before market close AIG was up 40%! The market was down 235 points on the DOW.
Fed Statement, “The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under Section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.”