Monday, September 15, 2008
AIG UNDER SCRUTINY
I've been calling for Dow 10,600 for months now -- and for the drop to be driven by the combined and intertwined problems of the housing and financial industries -- and I'm more certain than ever that we'll hit that, and for those very reasons.
Going forward, we can also expect two more legs down in the financial sector. There's going to be more than a few headaches in the days to come. Most eyes are on the fate of one Dow component in particular, AIG.
AIG is connected to nearly all of the players in the financial markets -- if it goes under or becomes insolvent, it will impact the financial system in a big, bad way.
The company's losses -- $18.5 billion in the last three quarters -- have been widely attributed to a decrease in the value of credit default swaps tied to subprime mortgages, which it sold to protect its debt investors.
Lehman was also a big player in the credit-default swap game, and you see where it ended up.
Bottom line: There's plenty of money to be made in the financials -- it's just not happening on the long side.