Under normal circumstances I'd say that AIG's "fair price" is whatever the buyers are willing to pay. In this case though I believe all the shorts who are buying shares to cover do not think the price is "fair" at all. :eek:
people still bid up GM liquidation company although even on SEC web site in bold letters investors are warned the company worth nothing so fair price is different from that stupid herd is willing to pay or shorts forced to cover at that particular moment
For all you guys ready to jump in and short AIG, take a look at TASR and HANS from a few years ago or Volkswagen from late last year. Fundamentals mean nothing during a short squeeze and the squeeze can be more brutal than you could imagine.
What you say seems quite reasonable, on the surface anyway, nevertheless I would be concerned about the reliability of the cycle information you have used to predict serious deflation headed this way if the data used for those predictions predates the mid 1970's. Much changed after the U.S. went off the gold standard and its currency became totally fiat. It is a little hard for me to imagine deflation when the Fed has no limit to the amount of money they can create out of thin air. While it is true that some asset classes have deflated as of late, and some may continue to do so for a while, in the "globalized" sectors of the economy inflation is quite noticeable. I guess you are predicting that we will see deflation even in those areas were there is a global market, e.g., food, energy, etc. Or are you?
I am of the Austrian school as well in that "inflation" is increased money supply and "deflation" is decreased money supply. There has been a coordinated effort of the gov't and the media to shift the blame of rising prices over to the private sector and away from the Federal Reserve. We just completed the biggest credit bubble in the history of the world. Current asset prices are extremely dependent on available credit. The debt bubble has burst and the demand (the over-indebted consumer) will not be the same for decades to come. The Fed can "print" all the money they want but if the banks can't lend (leverage deposits) then there is no "inflation." The gov't will try to implement price controls but all that will do is create shortages and fire up a black market. The more the gov't tries to do the worst the "deflation" will get and the longer this depression will drag on.
Fed can print longer than banks can withhold lending. All this deflationary talk reflects your media-biased beliefs. There can be no real market cycles AKA deflation/inflation until the Fed is abolished and economies follow their natural course. Knowing that, and knowing that it's the Fed's sworn position that it will do anything to prevent deflation, you can't count on a real and prolonged deflation taking place, at least not in the US.
Banks are going to [eventually] be forced to write down these bad loans. This process will overcome the money printing. The "deflation" (in commodities) will also be offset by gov't price fixes. Gov't price fixes create shortages and black markets. Price fixes split societies as generally 1/2 the people are conformists/loyalists and 1/2 are for free markets. Price fixes will further split the country and add fuel to the fire of revolution. If the gov'ts policies to try and contract volatility fail then we are heading for something much worse than deflation. A real New Deal. I cannot even begin to speculate on what that means. Markets know better than gov'ts so time will tell. IOW we need another 9/11 to scare us out of a few more freedoms so the gov't can get a better grip on the markets. The cycles do not lie. If we try to stop them then the pain will be much much greater.