The Banana Peel

by Larry Levin

There was a lot of new information that had to be ignored today, and the market almost got away with it as it tried to rally for the first 5-hours after a gap lower open. But in the end the avalanche of bad news proved too much to ignore. Like a cartoon character walking past a banana peel, it slipped as it stepped on it causing the character and market to come crashing down. Of course, hope springs eternal so it may all vanish by the open.

Stop me if you've heard this one before: After the bell closed a behemoth financial firm disclosed its earnings, which were - wait for it - wait for it - APPALLING. But that's only part of the story, right? How did the multi-million dollar salaried smarter-than-thou analysts do with their estimates? Their, umm, GUESSTIMATE, was on par with their guess of Freddie Mac's earnings, which is to say they missed it by an embarrassingly large margin. Most analysts expected an approximate 58-cent gain per share, but AIG posted an approximate 61-cent loss per share. Apparently these clowns can be as wrong as the weather man and nobody seems to care.

American International Group (AIG), the world's largest insurer, crashed a single-session record 18% today after it posted a horrific loss of more than $5 billion from further write-downs and impairments on mortgage-related exposures. Question: Weren't we told over and over by the so-called experts that this was behind us now? Oh, I digress. My bad. Today's boot stomping of AIG was so bad (how bad was it?) that it resulted in a worse loss than the beating it took during the crash of 1929. AIG slipped on that same banana peel, but right at the open.

But AIG has found that dang banana peel three quarters in a row now. In the fourth quarter of 2007, AIG reported more than $11 billion of unrealized market losses on this super senior portfolio. In the first quarter of 2008, the insurer took another write-down of more than $9 billion on the portfolio. Adding to those horrible losses was today's $5-billion loss which comes to a tidy sum of $25-billion loss in just 9-months. Wow! What is truly amazing is that this is a company who's primary purpose is to evaluate and insure against debt risk, yet didn't even have a clue as how to do it. I'm guessing AIG's big-shots attended a few too many cocktail parties with the crooks who packaged up this junk.

AIG could not have reported more horrific results, Bijan Moazami, an analyst at Friedman, Billings , Ramsey, wrote in a Thursday note to clients. We have long believed, and we continue to believe that AIG's sum-of-the-parts valuation is worth substantially more than the current stock price suggests, he added. That said, no financial-services company, or any company for that matter, can continue to bleed such losses continuously.

Mr. Moazami must have forgotten how to use his eyes and math skills until today. As one looks at the AIG chart, it has been going straight down for a year, yet he tagged AIG with an outperform rating. To wit one must ask - OUTPERFORM WHEN - when pigs fly? The stock has dropped over 70% and only today did he reduce the stock to market perform. What a joke! It's yet another example, in a sickeningly long line of examples, of how Wall Street analysts will never tell you a company sucks until long after the horse has left the barn! What good are these clowns anyway?

Once again, an analyst proves himself to be as useful as laminated pizza!

Here's a laundry list of today's other news:

1) Pending home sales were up 5.3%, which is good news. The key word, however, is pending. Will these folks get financing? Furthermore, most of these pending sales are for foreclosure homes, which doesn't do anything for the massive overhang of new construction inventory sitting vacant.

2) Oil closed up $1.44 per barrel.

3) Weekly unemployment claims were up again. Now standing at 455,000, it is the worst level in six-years.

4) Disappointing retail sales figures slammed Wal-Mart and Target among other companies. Apparently the clearance sales, tax holidays, back-to-school specials and the government's Income Redistribution Plan (aka. stimulus checks) didn't work.

5) Finally, Citigroup must buy back $7-BILLION of garbage investments it fleeced from its own customers. It will also shell out a $100-million fine. Essentially Citigroup is giving these people their money back because Citigroup LIED AND SCAMMED THEIR OWN CUSTOMERS TO MAKE A BUCK.

6) Merrill Lynch, UBS, and Bank of America will be next to say, Ya got me, and pay up billions each for the same auction-rate security scam.

Real Time Trading Signals*for

Trade Date: 8/7/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA buy @ 8:30am at 1275.50 = -1.75 (1 lot)

2) Engf sell @ 9:25am at 1280.50 = +1.50 & b/e

3) OTF buy @ 12:50pm at 1279.25 = -1.50 (1 lot)

4) Algorithm trades (4)...combined total...+2.25


E-Mini Russell Trades*
(before fees and commissions):

1) Buy @ 7:08am at 114.230 = +22.0 x 3-lot

2) Sell @ 8:28am at 115.085 = -2.5 x 3-lot

3) Buy @ 8:50am at 115.105 = +2.5 & -2.0*2

4) Buy @ 12:11pm at 116.005 = +4.5 x 3-lot

5) Buy @ 1:16pm at 116.085 = -3.5 x 3-lot

...combined total...+60.00 = $1,875.00


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