The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Insight on whether AIG and Citi exits are putting the credit crisis behind us, with Barry Ritholtz, FusionIQ.

Sept. 30 2010 | 1:00 DT ET

Every day, I spend anywhere from 90 minutes to 2 hours on public transportation (round trip). A few times a year, that can double when the trains are disrupted by fires, tornadoes, etc.

I usually drag a mess of printed flotsam and detritus — a newspaper or 3 back and forth (NYT, WSJ, FT), as well as printouts of various research PDFs, and articles, blog posts, along with the occasional book or magazine.

It gets to be a messy, I’m sure its wasteful, and in general, its a pain in the arse.

I’m thinking of getting an iPad. I played around with the first gen pads — I could see using it for newspapers, PDFs, ebooks, and other reading. They are heavier than I expected, with no multi-tasking — i.e., reading a PDF AND listeningto music simultaneously.

My inclination is to wait for iPad Gen 2 before shelling out $599. I expect that one will be faster, with more storage and the new Retina displays.

Any insights as to what is coming down the pipeline from Apple (or their competitors)? Am I silly waiting for Gen II. I am guessing they will be out in Q1 2011 . . .

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Tonite I will be on Fast Money on CNBC at 5:10pm discussing the AIG & Citi bailouts, why AIG isn’t really repaying the government back anything.

I also will see if we can squeeze in our advice to Goldman Sachs on their new ad campaign.

I’ll post the video when it goes live.

Should be fun!

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UPDATE: Video here

Today’s AIG announcement has generated some surprisingly naive headlines. The company may have announced U.S. bailout exit plan, but that does not make it so. (Citi’s numbers don’t look any better).

Let’s take a closer look at the numbers and separate the facts from fiction:

Total Bailout: $182.3 billion dollars

Amount Still Owed:  $132.1 billion (as of June 30, 2010)

Shares Outstanding: ~700 million

Current price:  $39.10 (+$1.65)

Market Capitalization:  ~$27 billion dollars

Today’s transaction was the converting of Preferred  Stock that had a nominal value of $49.1billion — but this was privately held stock that did not trade. Its true value is actually unknown.

For valuation purposes, let’s imagine a hypothetical company that has myriad valuable parts worth about $30 billion dollars.  But the company also owes over $130 billion dollars to creditors. We would describe that firm as insolvent, and heading towards bankruptcy.

Yet that is not how people think of AIG. The wisdom of crowds seems to think that the government is going to keep a firm bid under the stock price. This same crowd also thinks share dilution is positive, and ran the stock up almost $5 dollars 5% on the news of another 12% dilution.

Management is selling off pieces of the company to repay the government. How they are going to find another $132 billion in value has not been remotely explained.

Converting Preferred to Common stock does reduce the massive AIG obligations any more than converting a 20 into 2 tens makes you any wealthier . . .

This is little more than a shell game

For those of you who are not in the heart of the NY media beast, this may be a little bit “Inside Baseball,” but Bloomberg Radio’s Tom Keene is about to launch a new TV show, starting Monday at Noon.

The show will be one part Bloomberg Surveillance, one part Charlie Rose. Faster moving than the radio show, but with the ability to show charts, graphics, etc, taking full advantage of all the power in the Bloomberg terminal.

The formal launch is October 4th.

Its been a challenging few years for Goldman Sachs. The financial collapse, the bailouts, the SEC case. That damned Matt Taibbi refuses to go away (what the hell is a Vampire Squid, anyway?).

Their latest plan: A PR campaign designed to show the softer side of Goldman, letting the public know what they really do (is that Buffett’s fingerprints we see on this idea?).

As soon as Dealbook reported the plan, we just knew had to help Goldie with such a noble undertaking. So we asked readers to contribute ideas, and soon 100s of suggestions came pouring forth for the new GS ad campaign. These included ad slogans and tag lines, lots of variations of existing campaigns, quotes from movies (especially the Godfather). Oh, and the word Fuck. Lots and lots of uses of the word fuck.

We culled down the entries to a Top 10 list
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Top 10 Ideas for Goldman Sachs New Ad Campaign

10. Under Buffett’s protection since 2008

9. Putting the zero in zero-sum game.

8. Government Bailout: $29 billion
SEC Settlement: $550 million
Doing God’s work? Priceless.

7. Helping you forget about Bernie Madoff one CDO at a time

6. Goldman Sachs: America’s Counterparty

5. Let us do for you what we did for Greece.

4. Like we give a fuck what you think about us . . .

3. Goldman Sachs: There are some things money can’t buy. For everything else, there’s JPMorgan.

2. The Rothschilds were Pussies

And the number 1 advertising slogan for the new Goldman Sachs ad campaign:

1. We put the douche in fiduciary

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Runners up and Honorable Mentions here

In nominal terms and assuming no big change today, Sept will be the 2nd best on record for the S&P 500, a great run of almost 10%. Let’s look at the gain in another context. As is done with economic data to take out the influence of inflation, a REAL calculation is done to deflate the NOMINAL reading in order to take out the noise of higher prices vs volume. Using the CRB index as a market inflation gauge for Sept, the S&P 500 in REAL terms only rose modestly as the CRB index is up 8.7% month to date. This highlights the allure of inflation and higher asset prices from a policy perspective as it creates an image of prosperity but with a much more unstable underpinning.

Sept Chicago PMI was much better than expected at 60.4 vs the forecast of 55.5 and up from 56.7 in Aug and 62.3 in July. The internals however were mixed. New Orders rose 6.4 pts to 61.4 but just puts it back in line with the 6 month avg of 61.3. Production, which follow new orders, rose almost 7 pts. On the softer side, Backlogs fell 7 pts to 49.1, below 50 for the 1st time since Nov ’09 and the Employment component fell by 2.1 pts to 53.4, the lowest since May. Prices Paid fell 2.2 pts to the lowest since Nov ’09 which is unusual considering the rise in commodity prices. Inventories rose 3 pts but remain lean at 49.5, about in line with the 6 month avg. Bottom line, the solid headline reading today is encouraging but is in contrast to the weaker than expected NY, Philly, Richmond, Dallas and Milwaukee Fed surveys seen this month and is why tomorrow’s ISM is so key as it will reconcile all the regional surveys.

Moody’s downgraded Spain from its top rating but is only now in line with Fitch and still a notch above S&P. From the maturing 225b euros owed to the ECB, 29.4b euros were rolled into 6 day bills today and 104b into 3 mo bills yesterday. The less than expected take from the ECB has 3 mo Euribor up at the highest level since Aug 18th ’10 and 3 mo euro LIBOR rose to the highest since Aug ’09. With details and clarity out on the cost to Ireland for rescuing their banks, particularly Anglo Irish, PIG debt are rallying although the amount that may be needed was above expectations. The Irish government will also take more control over Allied Irish and that stock is down 30% today. Bank of Ireland doesn’t need more capital. Portugal also gave details on their budget and CDS is narrower in response. The Yen and Nikkei have almost given back its entire post intervention move and we have to believe the BoJ will be back in soon.

In response to the House passing what they call the Currency Reform for Fair Trade Act by a wide margin, a Chinese Foreign Minister spokeswoman said “We firmly oppose the US Congress approving such bills…We urge the US congressmen to be clearly aware of the importance of China-US trade and economic relations, resist protectionism so as to refrain from any damage to the interests of both peoples and people around the world.” As China is our biggest banker, this is a bad fight for our officials to be picking not even mentioning that it will do nothing to create new US based jobs and will raise the cost of everything we import from them.

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