Looks like our friends at AIG are trying to pull a fast one. After being given a second chance at life, thanks to a taxpayer bailout to the tune of $152 billion, AIG announced on Wednesday evening that 130 managers will receive “cash awards” including a $3 million “award” to one of them. I suppose they figured it may slip under the media radar by releasing the news just prior to the long Thanksgiving holiday. Well it didn’t get by me.
It wasn’t but a few weeks ago that the public was in outrage after catching wind of a lavish “retreat” AIG put on. To calm the masses, many of whom are demanding their heads on a platter, AIG announced they would not be paying bonuses to their executives this year. To pull this “cash award” stunt on the heels of such an announcement infuriates me. We could debate all day long as to whether or not using taxpayer money to bail out financial institutions is good for this country, but the fact that you and I just paid a high-level AIG manager a $3 million bonus (or whatever they want to call it) makes me sick. Okay, now that I got that off my chest, let’s talk about this market.
The majority of successful traders have a plan. They are methodical in their approach and adhere to strict risk-management guidelines. They maintain a high level of patience and wait for set-ups that are worthy of risking their hard-earned capital. Preserving that capital takes precedence over capital appreciation.
My approach is quite simple. Buy credible strength, sell credible weakness, buy panic and sell exuberance. We’re in the midst of a market environment where, to some extent, both technical and fundamental analysis merits less consideration then they have in the past (this will change as the market comes back to more reasonable activity). More than ever, during such periods, it’s extremely important to stick to a plan and when you’re wrong, get out and move on.
One idea I would like to share with you is regarding interest rates; specifically the long bond. The 30yr government bond can be traded through a number of different vehicles. One can utilize an exchange-traded fund, mutual fund or simply trade the futures contract. In my opinion, the long bond is currently in the “sell exuberance” stage. Using the Rydex Government Bond Fund (RYGBX) as a proxy, the issue is currently trading 14.3% above its trailing 50-day moving average. Given this lofty number, I was curious to see how often this type of price action occurred over the past 10 years. According to my research, this is the first.
From November 13th through November 28th, the long-bond ETF (TLT) has risen 13.3% while the S&P 500 has fallen 1.7%. There has been an excessive flight to safety that has not been reflected in equities. I would argue that those considering buying stocks at current levels might instead look at selling bonds. Or, one might consider selling both the bonds and the stocks, looking for a reversion to mean.
Disclosure: Author is currently short the bonds through the Rydex Inverse Bond Fund (RYJUX). This is not a solicitation to buy or sell any security, mutual fund or ETF.
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This article has 16 comments:
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Aly-khan Satchu
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19 Comments
My Website
Dec 01 03:53 AMI would urge you to look at Japan post bubble as the precursor to what will eventually play out. Moreover, the only real tool in the tool box for resuscitating the Banking sector is going to be via a steepish yield curve, a positive carry environment [and the carry will get a lot juicier when Fails are punished which I am sure is imminent] and ultimately via a Bernanke put. By that I mean Bernanke will have to underwrite the yield curve via outsize buying [as and when required].
I think the tectonic plates have shifted in this regard and very little can jolt this trend.
Aly-Khan Satchu
rich.co.ke
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jbde
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36 Comments
Dec 01 08:24 AMPerhaps you should be a congressman - they seem excellent at grandstanding petty things - even the use of corporate jets. CEO's time is valuable; and, flexibility and the use of a mobile working environment is just and proper.
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Tom Armistead
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210 Comments
My Website
Dec 01 10:24 AMEdward Liddy put on the sackcloth and ashes, the $1 salary thing, that should be enough.
Just because AIG has been bailed out that doesn't mean they should get a bunch of incompetent low paid bureaucrats to run the viable portions of the company into the ground.
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raytayzmd
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68 Comments
Dec 01 12:30 PM-
FuriousAtWallStreet
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1 Comment
Dec 01 02:39 PM-
Bradford Giaimo
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7 Comments
Dec 01 05:41 PMOn Dec 01 08:24 AM jbde wrote:
> Bashing companies for recognizing their top talent based on industry
> standards is ludicrous. Just because AIG is getting public funds
> does not mean they should not pay their personnel and reps as is
> custom. So you would rahter see them lose their top producres to
> competitors and insure that the public does not get its money back?????
>
>
> Perhaps you should be a congressman - they seem excellent at grandstanding
> petty things - even the use of corporate jets. CEO's time is valuable;
> and, flexibility and the use of a mobile working environment is just
> and proper.
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Bradford Giaimo
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7 Comments
Dec 01 06:00 PMOn Dec 01 12:30 PM raytayzmd wrote:
> ...if the people getting the bonuses accomplished things that made
> the company money then, by all means, give them bonuses...your analysis
> of bonds might carry more weight if you published your track record
> on your website...as it is your website is just a meaningless billboard
> offering services...and I see as I'm typing this you're losing money
> on your RJYUX trade.
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Bradford Giaimo
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7 Comments
Dec 01 06:13 PMOn Dec 01 03:53 AM Aly-Khan Satchu wrote:
> I would take the other side of your Trade. I feel we live in simply
> unprecedented times and the reversion to the mean idea is a mistaken
> one in this context. We are asphyxiating asset prices via the withdrawal
> of credit. This is not a small one time thing but a major long term
> one.
>
> I would urge you to look at Japan post bubble as the precursor to
> what will eventually play out. Moreover, the only real tool in the
> tool box for resuscitating the Banking sector is going to be via
> a steepish yield curve, a positive carry environment [and the carry
> will get a lot juicier when Fails are punished which I am sure is
> imminent] and ultimately via a Bernanke put. By that I mean Bernanke
> will have to underwrite the yield curve via outsize buying [as and
> when required].
>
> I think the tectonic plates have shifted in this regard and very
> little can jolt this trend.
>
> Aly-Khan Satchu
> rich.co.ke/
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AIG IS A GREAT AMERICAN COMPANY...
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80 Comments
Dec 02 02:14 PM-
AIG IS A GREAT AMERICAN COMPANY...
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80 Comments
Dec 02 02:17 PM-
Bradford Giaimo
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7 Comments
Dec 02 08:37 PMOn Dec 02 02:17 PM AIG IS A GREAT AMERICAN COMPANY. wrote:
> By the way, what does "lavish retreat" mean, putting on a seminar
> attended by 2 AIG employees at a cost of $186 per independent broker?
> Way to cite Brian Ross, he certaintly had all of his facts straight
> when he aired that amatuer video of his. It is a joke that AIG has
> to apologize for every marketing event they sponsor. How are they
> supposed to retain business?
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Bradford Giaimo
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7 Comments
Dec 02 10:48 PMMo matter, as of the close Tuesday it makes sense to close the trade. With the outright short bond being a marginal loser and despite the fact that a short S&P 500/short long-bond trade was profitable, it's time to move on. Let's face it, like you correctly point out, since Mr. Bernanke let it be known yesterday that the Fed may buy treasuries in "subtantial quantities" to aid the U.S. economy, it's safe to say that there will be some nervous "shorts" going forward. For Monday/Tuesday the bonds (TLT) rallied 3.8% and the stocks (SPX) fell 5.3%.
On Dec 01 06:13 PM the author wrote:
> I appreciate your point of view. Its refreshing to hear an opposite
> point of view in a respectful way. Thank you. While it may look that
> way (selling the bonds at these unpreccedented levels) I am not looking
> to be a hero and pick tops or bottoms. right now this trade falls
> within my concepts and stratgies as I explained in the article. In
> accordance with that I will take it. If it dosent work I will get
> out, take the loss and look for another opportunity to sell until
> that view changes. However you have certainly given me food for thought.
> Good luck.
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AIG IS A GREAT AMERICAN COMPANY...
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80 Comments
Dec 03 09:10 AM-
Bradford Giaimo
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7 Comments
Dec 03 06:33 PMOn Dec 03 09:10 AM AIG IS A GREAT AMERICAN COMPANY. wrote:
> I apologize for the "joke" comment. It is just very upsetting to
> constantly hear the media and pundits bashing AIG for seminars that
> are a necessary part of AIG's or blaming them for giving out bonuses
> to prevent a mass exodus of talent. these companies will not be worth
> anything if the talent leaves. Insurance is built on relationships.
> If the media would stay out of this matter AIG would still be thriving.
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TL22
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1 Comment
Dec 04 08:30 PMThe short bond trade looks interesting here. Many have been early on this trade, I'd be a seller if we get a blow off top type move.
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Bradford Giaimo
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7 Comments
Dec 04 09:37 PMOn Dec 04 08:30 PM TL22 wrote:
> AIG has spit in the face of the taxpayer one too many times. The
> $450,000 excursion the executives took 1 week after the first $85
> billion was committed was wrong. This cash bonus thing was also wrong.
> Period. If there was ever a year that an exec. shouldn't get their
> bonus, this is it. And if that means they leave, so be it, good luck
> finding another job.
>
> The short bond trade looks interesting here. Many have been early
> on this trade, I'd be a seller if we get a blow off top type move.