USA Corporate Profits & Dow Jones ForecastBusiness Cycle InvestorSECTORS & STOCKS RECOMMENDATION - MAY 4-8, 2009 |
May 4, 2009 Special Situation Note for Premium Subscribers:
I have started to accumulate leveraged position in the USA financial sector again and in particular in: AIG and FAS.
The logic is that whatever bad Fed will announce this Thursday on the banks stress test is already priced-in thanks to the wide leaks. After the stress test results are announced on Thursday, the stock market may call the “worse is over” meaning there is no more systemic risk, no more Lehman Bros type of bankruptcies and we are on the way to economic recovery – all positive for stocks. Swine flu seems to be killing only a tiny proportion of those sick so I am assuming this issue will not be negative for stocks.
I like AIG because their huge loss last year was mainly due to Lehman collapse and one-off losses on credit defaults swaps (bailout by the US Government). They are now presumably mostly written off and there is not much more bad news to come on AIG.
In March 2009 Government converted to equity its earlier rescue loans to AIG and I am making assumption there will be no more shares issues announced by AIG in the next few weeks – the leaked info seems to confirm the assumption:
Other income streams at AIG look pretty stable going forward and once the systemic risk and further write-offs risk has been diminished I am thinking there is potentially a lot of upside for AIG.
May 8, 2009 Special Situation Note for Premium Subscribers:
The performance of the whole US Banking and Financial Sector over the last few days (May 4-8, 2009) was positive following the Banks Stress Test results. The stocks I focused on in my earlier email performed well too:
|
|
May 4 2009 |
May 8 2009 |
Gain |
Gain |
|
STOCK |
|
|
|
|
|
AIG |
1.42 |
2.01 |
0.59 |
+ 41.5% |
|
FAS |
8.34 |
12.54 |
4.20 |
+ 50.4% |
|
|
|
|
|
|
|
CALL OPTIONS |
|
|
|
|
|
.AILFU - AIG JUN 2 Call |
0.10 |
0.32 |
0.22 |
+ 220% |
|
.FASGK - FAS JUL 11 Call |
1.22 |
3.60 |
2.38 |
+ 195% |
See graph for the above stocks (change dates) at:
Surprising aspect of the Stress Test announcement was that the stocks of the most exposed banks performed best (e.g. BAC). Suggesting, what really mattered was that there should be some certainty in the sector for some time to come.
I have closed my positions on Friday 8th of May as there was some profit taking in the sector. Also Technology Sector was sold – probably to rebalance to financials.
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