Financial Markets: 3 Predictions | Dare Mighty Things

September 15, 2008

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I may be wrong, BUT…

(Update 4/1/2009 – Wow, was I wrong or what! I’ve learned a lot.)

1. This is the End of the Financial Crisis–

This is the end, not the beginning, not the middle. AIG will likely get a $85B-$90B bridge loan from the Fed backed by company assets in exchange for a majority stake in the company. The Dow will continue its rise in the morning with the news of AIGs stabilization. Based on March market capitalization, AIG It is five times bigger than Lehman. AIG is the 13th largest company in the world according to the Fortune 500 versus 37 for Lehman. It is an insurance and annuities company mainly and not a broker. It affects Main St. Americans much more than Lehman did. It can’t, and won’t be liquidated.

2. Oil Is At a Bottom–

Oil is at its bottom. Remember $88.90 per barrel, the bottom today before it started rising at 2:30pm. It is the lowest we will see a barrel of oil sell for in the next fifteen years until sustainable energy technology (“ET” as Friedman calls it, “ST” as Sachs calls it) creates green power at a price/KWH that is lower than fossil fuels can and transportation fully converts to electric ( reducing global demand for oil significantly and possibly reducing the price under today’s price). Oil will trend upwards, more slowly, toward $150/barrel by the end of the decade.

3. The Dow and S&P Have Reached Their Bottom–

The DJIA has reached it’s bottom. Remember 10,742.70, the bottom today at market open. It’s the lowest you’ll see the DJIA go in your lifetime. The underlying profits and productivity of American businesses are simply too strong to justify the S&P 500 the same level it was at in December 1998, nearly ten years ago when the U.S. GDP was 58% lower than it is today (8.7T vs. 13.8T).

This graph shows the S&P 500 at the same place it was in December 1998. Today’s bottom was 1174.


I may be wrong here, BUT… I sure hope I’m not.

The Influence of Hank Greenberg on the Fed

As an aside, Hank Greenberg, a WWII hero and the former CEO of AIG for 37 years, has had quite a bit of influence on the Fed policy vis-a-vis AIG it seems. I heard him on Bloomberg radio today sounding like Mikheil Saakashvili on CNN five weeks ago when Russia was “invading” Tskhinvali. Greenberg wrote earlier today in the Financial Times:

“AIG is not an ordinary company. It has opened markets all over the world and, for more than three decades, stood at the vanguard of the liberalisation of the global trade in services. Its stock is owned directly or indirectly by millions of Americans. And it has contributed significantly to US gross domestic product directly and indirectly over the four decades of its existence. But all that is not why it should be saved. AIG has a trillion dollars in assets. It can (and always has) serviced its debt. With the right leadership, it will continue to do so. Action is needed now: AIG needs immediate help, because the threat to our financial system is real. For that reason, if private capital cannot rescue AIG, a temporary federal bridge loan – not a federal bail-out – is in order.”