AIG

I'm looking at the market action today. Dow, up 130. RIO +10%, FCX, +13%, DRYS, +28%, CLF, +12%, SFL, +10%. This is not sustainable, in my opinion. Also, the bank stocks are mixed or down. I don't see how we can have a sustainable recovery without fixing the banks. They are core of credit, and therefore the lifeblood of our economy.

In other unbelievable news, China is preparing to announce more stimulus. Since the world bought the last charade, hook, line, and sinker, why not? Although now there are calls for China to double or triple the last number (that's all it is). With expectations that high, they can only use this one once or twice more. Also, wealthy Chinese are looking to get their money out of the country. How? They're buying homes in Southern California, of course! You don't think they're investing in their own economy now, do you? Pffffff! Of course not. They know what's going on over there. Steel inventory at the port of Shanghai has risen 44% so far this year. This is what happens when you build dozens of empty buildings and suddenly stop.

At the end of 2008, AIG still had $302 billion in credit default swaps outstanding. Every time they are downgraded by the ratings agencies, they will have to pay out more. And don't forget, they have a huge exposure to commercial real estate, which is dripping like a dead squirrel out of a reeeeaaally tall tree. Ouch! Bounce! Plonk! Thud! They're gonna need another $150,000,000,000 at least. Maybe that'll last them until the next hurricane or earthquake and then they'll need another $30 bil.

I'm still thinking about bonds. Treasuries seem to be retreating slowly. However, I need to be careful, because if they can't show any strength soon, it could turn into a rout. Another thing I'm considering is shorting the Yen. Even if there's a bounce or a floor from the fiscal stimulus in the U.S. and China, will that help Japan? Can Chinese afford expensive Japanese products? I don't think so. And we're not going to increase consumer spending any time soon. Japan's stuck in the middle. In addition, they have enormous demographic problems because they don't have children.

I was just wondering what effect the TALF would have... It shouldn't have that much on the 30-yr. We shall see. I need to watch this one closely.