Recession, what stock can buy?

Again, the world has been facing economy turmoil since 1997. Some say it is the worst ever. Malaysia is not exempted from having negative impact of the world recession.

What is the effect of the stock market? Stock market is very sensitive with the economy progress, as economy plunged stock market around the world has also plunged especially New York Stock Exchange. In last October 2008, it has plunged as much as 900 points, followed by others stock market which plunged drastically.

There are some questions from investors?

Can we buy stock? And what stock can we buy?

To answer the first, the bellows questions will be the answer;

“Based on the past experience do you believe economy will recover? Do you believe with the economy circle?”

To answer the second;

“buy cyclical stock with the very strong fundamental. Cyclical stock is the stock which the price moves in tandem with the economy movement”

In Bursa Malaysia, stock related to construction, financial/banking and plantation are cyclical stocks.

During the economy downturn, the best strategy is selecting the stocks which has the combination of cyclical and income stocks characters. While you holding and waiting the stock price to go up you still can enjoy the dividend. Do not forget to set the sales price target.

Why Warrent Buffet became a richest person in the world?....because he always believe "there are opportunities in the crisis". 

- Sabri Jalil   

AIG GETS ANOTHER SUPPORT FROM US GOVERNMENT

AIG to Get $30B More in Federal Bailout Aid

By Brady Dennis
Washington Post Staff Writer Sunday, March 1, 2009; 8:48 PM
American International Group will gain access to $30 billion more in taxpayer money as part of another restructuring of its federal bailout, sources involved in the negotiations said yesterday. It marks the third time the company has sought additional assistance from the government since its massive rescue in September.

The reworked plan is aimed in part at helping the insurance giant avert a potential disaster as it announces the biggest corporate loss in history this morning -- more than $60 billion for the fourth quarter of 2008, according to sources. Credit-rating agencies very likely would have downgraded AIG in the face of such staggering losses, burying the company in a wave of new debt and possibly sending it into bankruptcy.

But the commitment of new funds from the Treasury's Troubled Assets Relief Program is meant to assure ratings agencies, which were consulted on the deal, that AIG could make good on its public and private debts.

"It buys time," said one source involved in the discussions, adding that AIG isn't expected to access the money immediately.

The additional federal money is simply one part of the restructuring approved by AIG's board of directors yesterday. As part of an effort to pay back its outstanding Federal Reserve loan, AIG will give the government equity stakes in two of the company's crown jewels, Asian-based American International Assurance Co., and American Life Insurance Co., which operates in more than 50 countries. Each subsidiary will be placed in a separate trust to remove them from AIG's books, and the government will have direct ownership. AIG will continue to operate the companies, however, and eventually could sell or take them public.

The revamped deal allows AIG to free itself from the 10 percent dividend it previously had to pay the government on its preferred shares, a move certain to save billions annually. The government also has agreed to purchase a sizable chunk, or securitize, AIG's domestic life insurance business for $7 billion $10 billion, sources said. It could then choose to sell that business or simply take in the steady income that business provides.

The reworked bailout package acknowledges that AIG's strategy of selling off two-thirds of its assets to pay back the government within two years was not working. In recent months, the market for those assets continued to plummet as the economy worsened, and already-hesitant buyers were facing their own credit problems.

"This expands the number of options," said one source involved in the restructuring. "Alternatives are a good thing." The new deal, however, will leave the federal government more deeply intertwined than ever with AIG, all but assuring that taxpayers will remain entangled with the company for years to come.

The government largely nationalized the company in September. It had taken an 80 percent ownership stake after the Federal Reserve extended an $85 billion emergency loan. At the time, the collapse of Lehman Brothers investment bank had left markets reeling, and AIG was teetering on the edge of bankruptcy in large part because of a troubled portfolio of exotic financial derivatives written by a subsidiary.

Officials at the Treasury Department and the Federal Reserve feared that AIG, once one of the world's most successful conglomerates, had grown so intertwined with the global economy that its failure could have disastrous consequences.

Two months later, with the company still reeling, the government changed and expanded the terms of the bailout. The government announced in November that it would buy $40 billion of AIG preferred stock, with the money coming from TARP funds. It spent more than $50 billion more to buy up troubled assets -- mostly toxic mortgage-related investments the company either held or insured for other firms -- that were wreaking havoc on the company's books. It eased the terms of the initial loan to $60 billion, dropped its interest rate from 14 percent to as low as 5 percent, and extended the payback time to five years rather than two.

And yet, none of that proved quite enough.

Note : This news reported by The Washington Post, 1 March 2009
Source : http://www.washingtonpost.com/wp-dyn/content/article/2009/03/01/AR2009030101218.html?hpid=topnews


TERM AGREED BY AID AND US GOVERNMENT
American International Group and the U.S. government agreed on a revised rescue package for the giant insurer on Sunday, 1 March 2009.

Here are the key terms of the deal, according to sources:
- A $30 billion equity commitment from the U.S. government that AIG can draw on as needed.

- American Life Insurance Co, American International Assurance (AIA) to be put in trusts. U.S. Federal Reserve will have preferred stock in these trusts, with AIG receiving common stock. Talks to sell both units will continue, with IPOs to be considered an option when markets improve.

- Up to 20 percent of AIG's property and casualty business may be sold to public, and the division will be given a new name and separate board. Over time the company could be sold off in its entirety.

- AIG will securitize up to $10 billion in U.S. life insurance policies to help pay down debt to the Fed.

- The dividend AIG pays the government on its $40 billion preferred stake will be made non-cumulative.

Sources : Reuters