Controlled bankruptcy for AIG

These are historic times for financial markets. AIG had been one of the few (about 12) companies with AAA rated debt (probably downgraded one notch in the last few months) & a Dow stock. Their bonds are now a touch above default & their Dow history should only last for another day or 2. The gov assessed that letting them fail would do brutal damage to the world economies, so they stepped in to save them.

Gov involvement in financial markets has EXPLODED this year. The FED is actively providing credit to investment banks, etc. when they think it's in the national interest. Their lending is backed by collateral they would not have dreamed of accepting just a year ago. A band aid approach to monumental problems is about all that can be done, but it is unclear how long run implications will play out. Need evidence of active FED involvement with the financials:

•Treasury Plans Special Auctions of Debt to Help Fed Manage Balance Sheet

Below is a tiny glimpse based on the first news release of how this will play out:

• MetLife says Lehman, AIG investments total $800M- AP

Dow is down 253, decliners over advancers 7-1 & NAZ declined 61. The closely watched S&P 500 is back below the important 1200 line in the sand:

S&P 500

... 1,181.00

...-32.59

...-2.7%

S&P 500 FINANCIALS INDEX is down 15 to 253, nearing the 252 low reached a couple of days ago & not far from 232 low on July 15. Not too bad a performance considering how the ugly the news has been!

Let's not forget about oil. After dropping 10 in 2 days (an eye popping decline), it's back on the rebound amidst all the confusion in financial markets. The Alerian MLP index after pulling back to lows last seen over 3 years ago is down 4 today to 288.

CLV08.NYM

Crude Oil Oct 08

__ 93.66

__ 2.51 (2.75%)

I'm a big fan of the long run. Below is S&P 500 since the 70s:

S&P 500




10 years ago it went through 1K, today's it's less than 20% higher. That's one rough decade.

By way of contrast, the MLP index is about double the value 10 years ago (not to mention getting through the awful 2000 era decline in much better shape):

Alerian MLP index





At times like these it's easy to think that Chicken Little got it right, The Sky is Falling. The long run track records reminded us that there have been big bumps along the way (i.e. 2000 era was an enormous one), but the economy & stock markets persevered, and, eventually, went up. This is the time for dull homework to plan for purchases at attractive, depressed prices.