Modified Uptick Rule
- Thread starter libertad
- Start date
No - I hope you are joking.
The AIG subprime news was clearly out July/Aug. of 2007.
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By Alistair Barr, MarketWatch
Last Update: 7:24 PM ET **Aug 1, 2007**
SAN FRANCISCO (Menafn - MarketWatch) -- Concern about American International Group's exposure to subprime mortgages is overdone, analysts said on Wednesday.
>>AIG shares dropped **more than 8% in July **as investors worried the giant insurer could be hit by losses from declines in the value of subprime mortgages.<<
Several analysts published research on Wednesday estimating AIG's exposure and two said that if the company did experience losses, it would be manageable.
"Subprime fears (are) unnecessarily weighing on AIG shares," Goldman Sachs analyst Thomas Cholnoky wrote in a note to clients.
"AIG's shares have fallen significantly in past days. Why we don't exactly know, but investors are telling us that it has something to do with the potential for AIG to suffer significant losses from subprime mortgages," Paul Newsome, an analyst at A.G. Edwards, wrote in another note. "Even in a worst-case scenario, we think AIG's subprime mortgage losses would be manageable."
Newsome said AIG could have $35.7 billion of subprime exposure, an estimate he described as conservative. In a worst-case scenario, 10% of that may go bad, leaving the insurer with losses of $3.6 billion, or $2.3 billion after taxes, he explained.
That would be roughly 13.5% of what Newsome expects AIG to generate in operating earnings in 2007.
AIG shares fell during morning trading on Wednesday, but rallied late. The stock closed at $64.57, up 0.6%.
AIG spokesman Chris Winans said on Wednesday that 3.6% of the insurer's total cash invested assets of $814.4 billion is in subprime residential mortgage-backed securities, as of the end of the first quarter. The majority - 86% of those securities are rated AAA and 11% are AA.
Another 0.5% of those assets are in Collateralized Debt Obligations that have a varying degree of exposure to subprime mortgages, he added.
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In hindsight, the analysts were clearly wrong.
But your point that this news was not out and not moving the price of financial stocks like AIG lower is absolutely misguided.
Several months later in November of '07 AIG missed earnings by .27/sh
After that, AIG never posted positive EPS quarters.
And since you are a "REAL" trader, you know that that EPS matters and you clearly know that the uptick rule cannot help unprofitable companies that repeatedly put out negative EPS #s.
And since you are a "REAL" trader, you know that an unhealthy financial sector equals a weak general market.
Recognizing this creates short selling opportunity (or at least the wisdom to liquidate a long position).
Recognizing this creates the opportunity to pair the weak AIG (and other stocks in similar circumstances) against stronger stocks. Like boring old WMT - the only Dow stock that was up year on year in '08.
Just a little something, something a REAL trader would do.
FYI
AIG:
Nov/07 EPS miss of .27/sh > Stock Px. $57.90/sh
2/08/08 EPS -1.25 >Stock Px. $50.68/sh
5/08/08 EPS -1.41 >Stock Px. $44.15/sh
8/06/08 EPS - .51 >Stock Px. $29.09/sh
11/10/08 EPS -.3.42 >Stock Px. $2.28/sh
Negative EPS trumps "uptick rule" bullshit.
Always.
What planet did you just fall in from? Or, as appropriate to your name, what hole did you just crawl out of?
Anything that restricts short selling dampens volatility across the board. In everything related to equities.
When the uptick rule was in effect, there were fewer shorts to cause covering rallies, and short selling was not nearly as profitable as it has been since the rule was removed.
What is the logic behind the regulator's efforts to dampen the market's volatility? Volatility creates opportunity for the traders as well as for the investors. There is very simple remedy for those who are afraid of volatility: they should stay away from the volatile markets and invest into something less volatile like bonds.
I'm assuming you're basing this on the reems of research you've done and not on your anecdotal experience? No?
The extensive research performed before the repeal of the rule showed that:
1.) the uptick rule did not effect volatility for liquid stocks.
2.) the short volume even in the most heavily shorted stock was too low to drive price (this is backed by reams of academic research as well).
3.) the uptick rule decreased liquidity and increased volatility for medium to low liquidity stocks.
Since its only effects are negative, they tossed it. The fact that all stocks were less volatile before we found out that banks made a lot of bad loans to people who are never going to pay them back is incidental. Correlation is not causation.