Word On The Street
Dylan Ratigan hosted CNBC’s “Fast Money” Tuesday night. He began the show with a discussion of late breaking news out of Bloomberg that a conservatorship is under consideration for American International Group (AIG). Ratigan explained that the model of a conservatorship would mean very limited equity value and government responsibility for the orderly management of liabilities and exposures at AIG. “I would be surprised if this happens, but if it does the equity will be wiped out,” said Karen Finerman. Jeff Macke blamed the credit agencies for the mess in financials. “It’s lousy if you work their or own the stock, but it’s a better solution for the people out there watching the “Fast Money” show, added Guy Adami. Pete Najarian said he took a shot in AIG, but he thinks the stock could very easily go to zero considering the breaking news. Macke said buying AIG today was a wild “putting all your money on red or black” bet, so you get what you deserve. Adami pointed out that former AIG CEO Hank Greenberg had the opportunity for many years to figure out what the firm was trading. Ratigan asked the traders if there are any other major banks that have such a big exposure to AIG that could it could cause them to fail. Najarian said the AIG shareholders shouldn’t be shocked if they were following the preferred yields. Macke highlighted Ameritrade (AMTD) which as avoided any major problems and is at a 52-week high.
Brokerage Chat
Ratigan brought up Morgan Stanley (MS) which reported earnings after-hours that beat Wall Street estimates. Finerman said it’s possible that the market is blowing the AIG situation out of proportion when you consider the numbers out of Morgan. Macke said look at Goldman Sachs (GS) which rallied from $116 to $130. “The volatility on the equity side is a reflection of you have no idea what is going on under the sheets,” he added.
Expensive Money
Ratigan explained that the cost of borrowing money exploded higher today. “If it holds up it will result in a meaningful “jacking-up” of mortgage payments which will only make the housing problem worse,” he said. Adami thinks it’s just a short-term phenomenon. Finerman agreed with Adami that it’s just a short-term issue. Macke said it’s a crisis of confidence.
Options Trade
Najarian told viewers that he owns some put spreads on Wachovia (WB) because the yields and options are telling him that the risk in this stock is high.
More AIG
CNBC’s on-air contributors, Charlie Gasparino and Steve Liesman joined the traders to discuss AIG. Gasparino said the government is weighing some sort of bailout for AIG like a conservatorship. Liesman said the idea of conservatorship doesn’t make a whole lot of sense. He said the government had the authority with Fannie Mae (FNM) and Freddie Mac (FRE), but has no legal grounds to put AIG under conservatorship. “The big problem here is the amount of assets in AIG’s holding company is less than the amount of money that AIG needs,” Liesman added. Gasparino mentioned he has heard the same thing. Liesman also said if the government does come in and bail AIG out, it will be sold politically as a bailout of the “policy holders” and not of the shareholders. Gasparino pointed out that a Democrat David Patterson came out and begged the Fed to bail out AIG. Macke advised viewers to stay away from trading the financials and instead look at boring stocks like Wal-Mart (WMT), Procter & Gamble (PG), Johnson & Johnson (JNJ) and McDonald’s (MCD). Najarian told viewers to consider Hewlett-Packard (HPQ). Adami mentioned that U.S. Bancrop (USB) hit a 52-week high today. Finerman said during crisis periods she likes to fall back on Philip Morris (PM).
AIG Exposure
Michael Lewitt, president of Harch Capital Management joined the traders to discuss AIG. Lewitt said AIG does business with just about every financial institution in the world. “If AIG is unable to meet its obligations, every other institution it does business with will have some kind of problem,” he said. He thinks AIG is on a scale that is much larger than Lehman Brothers (LEH) and much more worrisome. “We are going to have some serious, permanent, systemic damage that is going to take a very long time to unwind,” he added.
SanDisk Buyout
Ratigan mentioned breaking news that SanDisk (SNDK) received a $26 per share cash takeover offer from Asian company Samsung. Finerman said the price is kind of a shock. Macke pointed out that SanDisk was down 52% going into this deal. He thinks the company will fight the offer.
Hedge Fund Selling
Joe Terranova and Tim Seymour joined the traders to discuss the impacts of forced selling pressure in emerging markets and commodities from hedge funds. Terranova advised viewers to look at equity names in the energy space because the futures are too volatile. Seymour said emerging markets are experiencing blowouts from redemptions in the hedge fund world. Terranova said he likes National-Oilwell Varco (NOV), ConocoPhillips (COP) and EOG Resources (EOG) here. Seymour told views to consider the private equity firms like Fortress (FIG) and Blackstone (BX). He thinks private equity players will spend money to buy distressed asset in emerging markets. Finerman disclosed she bought Devon Energy (DVN) today. Adami said there are real stories in Baker Hughes (BHI) and Schlumberger (SLB) and it feels like the hedge funds have blown-out of these names. Chat and share ideas with the best small cap traders LIVE each day free at Stocknetworkonline.com