Sunday Evening Post

This post was acutally penned on Friday afternoon as we are hanging out in the "last bastion of capitalism" this weekend, the Warrenton/Roundtop Festival. This is a place where anyone can open up a "shop" for two weeks for as little or as much as you want to spend. (Booths actually range between $200 and $3,000). If the public likes your goods, then you can survive. If your stuff is crap, then you fail and move on to other endeavors. There are no bailouts or handouts here.

Attached below are some brief Scribd thoughts on the S&P, DXY and Sugar.

Bottom Line: I am getting more bearish the S&P with each passing day. We are now carrying a 50% of Max Short position in the S&P futures as we have added to shorts at 1150. We will move to a 75% of Max Short at 1170. At that point, it will be white-knuckle time--a break of 1175 would cause us to reduce shorts.

We fortunately exited DXY length at 81.40 a few weeks ago. (Thus, illustrating the importance of "stop-loss" strategies). Support lies between 77.69 and 77.28 (last print 78.09). Given this support zone just below, we are re-initiating length in the DXY at 78.09, dedicating 20% of a max. long position in that Greenback.

Market Update 3 Oct 10

To quote the old Dennis Miller line....

"I don't mean to go off on a rant here, but...."

AIG Works out Plans to Pay Back Government

We all know this is bullshit. They are actually not it any position to fully pay back the government anywhere near what it's owed. However, the MSM basically "ran" with that headline and theme.

This entire financial maneuver with AIG seems politically motivated as it makes ZERO financial sense to make these arrangements at this time. A "political move" is the only reason this is going down now. With mid-term elections nearing, the existing power structure MUST show some "wins" and promoting the idea that we have been "Paid Back" from AIG would seem to be a victory to be cheered.

Unfortunately, there has been little pushback from the "progressive mainstream" business bloggers on this area. Instead, they have just focused on the past, about how badly we handled the whole ordeal, about how we won't be paid back ever, and how deregulation caused the collapse of mankind, etc, etc, etc. It's probably time for all of us to start focusing on the here and now.

The fact is Uncle Sam provided a huge lifeline and backstop ($182bn) to this firm. That's done. That's over. Rightly or wrongly (I believe wrongly), the Government "crossed the rubicon" when they decided to bail out several major players by "saving" AIG. At this point, AIG seems to be a decently run insurance company that still has some nice assets and is currently throwing off excess free cash flow. Why not just leave them alone for a few more years? Why not just let those assets generate dividends for the major shareholder (us) until stronger bids materialize for the firm's assets? When bids arrive that properly discount the free cash flow of the various business lines, then AIG should sell them and "pay back" the loans.

Until then, why mess around with it?

We've monetized TRILLIONS of dollars of MBS in the last year, helping out the likes of Bill Gross and David Tepper. I'm sure the Fed can rollover the AIG loan for a few more years. The QE programs now in place make AIG look like chump change in comparison.