Skip to main content

Hugh Hendry: AIG is "no longer with us"

BusinessWeek points us to Hugh Hendry's recent comments on AIG and the process by which supposedly "too big to fail" financial companies have become wards of the state:

"To the average U.S. taxpayer, the math may not sound right: After pumping in about $150 billion of federal money (with another $30 billion to come), American International Group posts a quarterly loss of almost $62 billion—the largest in history. And it will have access to $30 billion in new cash from Washington.

American International Group is being broken up in exchange for getting yet get another lifeline from the government. The former insurance giant posted a staggering $61.7 billion loss for the fourth quarter (about $22.95 per diluted share). Now, AIG is putting what are considered to be its most valuable insurance assets—American International Assurance (AIA) and its Asian operations—under direct government control. Once the businesses are sold, taxpayers will reap the benefits.

I was struck by what Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC this morning: “AIG is really no longer with us … I think the reality is (a lot of financial companies) left the business last year.”"

As BusinessWeek writer Diane Brady noted in the final excerpted paragraph (above), Hugh Hendry made some interesting comments about AIG and the financial sector in his CNBC guest host appearance today.

In his interview with CNBC, Hendry points out that AIG is on artificial life support from the government (read: taxpayer funds) and that many other financial companies are now in the same situation.

Now that AIG is asking for (and receiving) another lifeline of funds and more lenient government bailout terms, Hugh reminds us that "AIG is no longer with us".

""We live in a very strange, twilight period where we pretend that a lot of these financial companies are still with us. I think the reality is they left the business last year," Hendry added."

Hendry also notes that the stock market is viewing many of these trouble financial firms as essentially bankrupt, and that bank nationalization would provide for an "orderly liquidation" of debts from these insolvent institutions.

Interestingly enough, Hugh's thoughts on this issue seem to mirror those offered today by CNBC host Rick Santelli, who also favors a sort of controlled bankruptcy-style process for these firms.

At the same time, Hendry noted that the endless bailout actions and the frenzied search for solutions are a waste of time and effort. Check out his thoughts on the long transition cycles that take asset prices from overvaluation to undervaluation for more on this point.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li