AIG Feels The Heat

Hi all!

Just a few notes. I don't have a lot of time tonight.

Today was an interesting day. We had a pretty wicked reversal. We were up 160 points or so at one point during the session before closing in the red on all of the major indices.

The most interesting news of the day was Obama's tough talk around AIG and their ridiculous bonus payouts.

"March 16 (Bloomberg) -- American International Group Inc., barraged by criticism on how it’s using $173 billion of taxpayer money, faces demands from President Barack Obama to rescind or repay $165 million in bonuses.

AIG also may get a subpoena from Andrew Cuomo, New York State’s attorney general, who wants a list of everyone who received the bonuses. The payments were part of a $1 billion plan by AIG to reward employees for staying with the crippled New York-based company, once the world’s biggest insurer.

AIG has faced pressure to disclose more on its operations since the U.S. took a stake of almost 80 percent last year. Yesterday, AIG named at least 20 banks that received money to avoid losses after buying credit-default swaps from the insurer. The derivatives almost bankrupted AIG, and the bonuses Obama cited went to employees who created or sold them.

“It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million,” said Obama at the White House speech today. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Quick Take:

Has Obama finally had enough of Wall St's greed? I all know I have! The arrogance of these pigs is beyond belief. How dare you bonus yourselves after being bailed out to the tune of $165 billion. IMO Wall St's continued greed is whats going to end up taking them down in the long run.

Obama seemed flat out pissed today. Kudos to him for standing up to these fraudsters. I love AIG's explanation for the bonuses: We need to pay these bonuses in order to keep our talent.

Who in the hell wants to keep this type of "talent" around? They drove the company into the ground for Christs sake! Whats so insane is the derivatives traders that created the mess were supposed to get a piece of this bonus pool. These leeches should be working for $1 a week after almost taking down the financial system. Better yet, throw them all in jail. Bonuses? HA! You're kidding right?

Is the rally toast?

I am starting to ask myself this question. We have seen about a 16% rally on the S&P. This type of move is usually where you see bear market rallies begin to fade. This 750 area on the S&P seems to be setting up as a possible resistance area for the bulls.

I may add a few shorts tomorrow. I was hoping we would get up to 800 before jumping in. I am not sure we are going to get there after the news today. The news is beginning to really put pressure on this rally. Am Ex announced that credit card delinquencies rose in February. Alcoa cut their dividend after hours.

As I type, Reuters just announced this bomb after hours:

"NEW YORK (Reuters) - U.S. credit card defaults rose in February to their highest level in at least 20 years, with losses particularly severe at American Express Co (AXP.N) and Citigroup (C.N) amid a deepening recession.

AmEx, the largest U.S. charge card operator by sales volume, said its net charge-off rate -- debts companies believe they will never be able to collect -- rose to 8.70 percent in February from 8.30 percent in January.

The credit card company's shares wiped out early gains and ended down 3.3 percent as loan losses exceeded expectations. Moshe Orenbuch, an analyst at Credit Suisse, said American Express credit card losses were 10 basis points larger than forecast.

In addition, Citigroup Inc (C.N) -- one of the largest issuers of MasterCard cards -- disappointed analysts as its default rate soared to 9.33 percent in February, from 6.95 percent a month earlier, according to a report based on trusts representing a portion of securitized credit card debt."

Bottom Line

I think you may see some profit taking tomorrow. 16% is a nice gain, and I don't think the bulls are convinced this bear market is over.

There are also some rumors floating around that a huge company is going BK next week but I haven't been able to confirm anything.

One thing to take note of today. Commercial Real Estate really diverged from the financials all day today. This is the first time I have seen any significant divergence between the two. SRS soared almost 15%. Many of the commercial REIT's dropped 10% or more. It may be time to short some IYR. Some are pointing to HRE in Germany as a potential "Lehman" like CRE time bomb.

I am not ready to call this bounce dead, but I believe we are getting close. If Obama starts to hammering Wall St things could really get interesting.

Stay Tuned!