"After shorting subprime, Eisman says short AIG" (AIG)

We heartily concur.* The stock has just had a remarkable run-up, although it's down 78 cents at $38.91 today.
From MarketWatch:

Equity holders could lose $23 billion, FrontPoint's Eisman estimates

After making millions of dollars betting against subprime mortgages, Steve Eisman of hedge-fund firm FrontPoint Partners is advising investors to short shares of American International Group Inc., according to a recent presentation.

AIG (AIG 38.95, -0.74, -1.86%) owes roughly $111 billion, even after proceeds from sales of "crown jewels" like Alico and AIA, Eisman wrote in the presentation, a copy of which was obtained by MarketWatch Thursday.

That doesn't include any debt AIG may have to assume from its ILFC aircraft-leasing unit and its AGF consumer-finance business, which have more than $13 billion of debt coming due, he said.

AIG's remaining businesses, which include property- and casualty-insurer Chartis and its domestic life and retirement unit, may be worth about $88 billion, Eisman estimated, while noting there's a lot of uncertainty about this valuation.

That leaves a loss of $23 billion, or $36 a share, for common stock holders of AIG, Eisman calculated.

"AIG has no common shareholder equity remaining on its balance sheet," the hedge-fund manager wrote in the presentation. "It would likely be insolvent if not for government support, in our opinion."

In a better-case scenario, AIG's remaining businesses could be worth $116 billion, Eisman estimated. That would leave equity holders with a gain of roughly $7 billion, or $7 a share, he said, while pointing out that this isn't likely....MORE

*See also:

"At AIG, What Is Left to Sell?" (AIG)

"AIG Gets The Dreaded "Going Concern"

"Greenberg sells AIG stock to UBS for $278 million"

How's That "Short AIG Working Out?" "Back-month bears bet on an extended slide for the insurance issue" (AIG)

As the hearings go on, Secretary Geithner uses the Sergeant Schultz defense and the stock is trading down 20 cents at $24.20.

In our September 1, 2009 post "American Intl Group: Downgraded to Underperform at Sanford Bernstein; $10 target (AIG)" I said:

In early pre-market trade the stock is down $2.23 (4.92%) at $45.33. If SB is correct that leaves some downside, eh?...

We followed up with:

Sep 9
Credit Suisse Analysts on AIG: ‘Little to No Value for Common Equity’
Sep 22
AIG Shares: Still Not Worth Anything.
Nov 30
American International Group: AIG Reserves Deficient - Sanford Bernstein (AIG)
Dec 1
AIG Tangible Common Equity -$162.06 a Share, Analyst Says (AIG)
Dec 4
"Trading Idea: Sell AIG" (AIG)

The stock is trading at $30.51, up 62 cents....

Whether you got the idea in September or December or anywhere in between, you've got a down stock in a (generally) up market.
From Schaeffer's Research (Jan 26):

American International Group (AIG: sentiment, chart, options) – better known as just "AIG" – has been the focus of some fervent put trading today, as investors prepare for a congressional hearing on the insurer's payments of taxpayer funds to large banks. Among those on the roster to testify tomorrow are former U.S. Treasury Secretary Henry Paulson and former chairman of the New York Fed Stephen Friedman.

So far today, the bailed-out behemoth has seen almost 18,000 puts cross the tape – nearly doubling its average single-session volume of fewer than 9,300 puts. Most popular has been the in-the-money February 28 put, which has seen about 3,350 contracts exchanged. However, most of the puts have traded closer to the bid price, indicating they were likely sold, and implied volatility has ebbed 1.9%. In other words, it seems some February 28 put traders may be cashing in on AIG's recent retreat by liquidating their positions.

Meanwhile, the at-the-money March 25 put has seen close to 3,200 contracts change hands – most of which have traded at the ask price, suggesting they were likely bought. What's more, the March 25 strike currently harbors fewer than 450 open put contracts, implying that a healthy portion of today's activity should translate into new positions after the closing bell....MORE

I am continually amazed that Efficient Market Hypothesis is still taught in major business schools.
Especially on the short side, the lag time between financial or economic realities and the market's reaction to same can take months.

The best recent example was back in 2007. The sub-prime mess was being fairly widely discussed in the spring of that year yet the major averages went on to set their highs in early October.

Global macro can be rewarding on so many levels.