Dow: 13,254 (-0.39%) S&P 500: 1,429 (-0.61%)
The MarketSnacks team knows to quit when you’re on top (so did George Constanza). GoDaddy.com was on top when they realized airing bikini girl commercials during the Super Bowl was the brilliant recipe for their domain hosting business (even though today they got hacked by @AnonymousOwn3r and thousands of GoDaddy sites were down, the coding fortress that is MarketSnacks headquarters was unaffected) – quit when you’re ahead. Like George, investors know when to “cash in” before it’s too late – today they sold stocks before the upcoming Federal Reserve policy meeting and the German Constitutional Court’s ruling on the Eurozone bailout system’s legality. Although both outcomes are expected to be good (i.e. new stimulus from the Fed and a stamp of approval from the Germans), investors engaged in “profit taking,” or selling their stocks to realize profits (the Dow and S&P are at 4-5 year highs) before the 2 big decisions. The Dow lost 52 points and is now down 13 of the last 15 Mondays.
Treasury sells $18 billion in bailed-out AIG stock, making profit
History lesson: 4 years ago, the US Treasury Dep’t bailed out the huge insurance firm AIG (AIG) because the company was so interwoven with other financial institutions that its own collapse could have brought down a s**tload of peers (aka “too big to fail”). Today the Treasury announced it will unload $18 billion of AIG stock to cut its (formerly 92%) ownership in the firm by over half, its 5th and largest AIG sale since the bailout. The $182 billion rescue in September of ’08, the nation’s largest bailout ever, basically nationalized the insurance giant by making a majority of shares government controlled. Now as a minority shareholder (~20% of shares outstanding), the government has significantly cut its risk (and the risk of taxpayers) to the insurance firm.
AIG shares dipped 2% on the news as the firm buys much of the stock back from the government. While some complain that the Treasury doesn’t have a similarly structured plan for other firms it bailed out (like the auto industry’s GM or the $68 billion in Ally bank), others consider it an accomplishment by the government and a signal of how far the stock market has rebounded as the Treasury makes a profit with this sale. The risk to taxpayers was that AIG was a financially risky company on the verge of bankruptcy – but the Treasury bought shares after the stock tanked at the beginning of the financial crisis and is now able to sell them at the higher price. Of the $245 billion the Treasury pumped into 700 banks, it’s gotten back $264 billion (not too shabby).
- US International trade balance for August: consensus is that we imported (Middle Eastern oil, Costa Rican bananas, European au pairs, etc) $40 billion more than we exported (Jersey Shore season 4 DVDs)
- JP Morgan estimates 2% US GDP growth for 2012. Their calculation: GDP = G + I + C + (E-I) + iPhone5. Yeah, the smartphone is such a game changer for the GDP that JPM estimates Apple’s new toy could add up to .5% growth to America’s economic output (a iPhone 5 debut is expected this week)
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