Can Investors Breath?

Well I did some tepid buying (selling some puts) at the open like I thought you had to. Unfortunately I wish I would have been much more aggressive.

AIG got bailed out. I never really thought they wouldn't. There is just no way that AIG could have filed for chp 11. I was looking at possibly buying the equity at the open tomorrow morning but after looking at it I don't think there is much value, especially with forced selling of their assets in a poor market. The 85 billion loan comes in at L ibor + 850. That would be more than a 9 billion dollar interest payment which is what they made in income all of 2007.

So if all that was not enough, news hit that one of the largest money market funds in the U.S. broke the buck.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aycQDd9pEdCA&refer=home

Reserve Primary Fund became the first money-market fund in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

The fund, whose assets plunged more than 60 percent to $23 billion in the past two days, said the Lehman losses forced the net value of its assets below $1 a share, known as breaking the buck. Reserve Primary, the oldest money fund in the nation, fell to 97 cents a share and redemptions were suspended for as long as seven days.

A 3% haircut is a pretty big haircut for something you assume is ultra safe. I have been out of money market funds since February. I own a treasury fund which looking at the U.S. government continuing to leverage up its own balance sheet, is becoming a less comfortable spot to be.

So you have this negative news on a collision course with AIG. I really have no idea whether you should be buying or selling tomorrow. I really have no idea what the market is going to do tomorrow. The AIG rally may have happened today. X the growing assumption of an AIG bailout, the market may have been down 200 points with the no Fed rate cut. Under that scenario you had a 350 point rally. Looking at world markets, they seem to be yawning. Yes most of them are up but nothing like the Bear Stearns bailout or the GSE bailout. Also nothing like you would have expected considering the massive liquidation over the last couple of day. In fact the Hang Seng and China are actually down. Most of the Australian banks stocks are going down also. Also the YEN isn't weakening as much as I would have expected as risk appetite increases.

Looking at futures, the reaction also looks ho hum. Dow futures are up about 40 points and S&P up about 6 and have been falling all evening. Grant it, usually futures this time of night don't matter that much but considering the massive news of an AIG bailout and considering they have been slowly declining all evening, I do think it is notable. If the market opens up really strong, I think you sell. Otherwise you probably watch.

I am looking forward to the next holiday. I need one. When is that? Columbus day on October 13th I think. Can't wait.