Agustin's Financial Commentary

Hello Blog. Long time no talk to!!!

2009-08-09T01:00:50-05:00

Greetings everyone!

Sorry its been so long since I have posted. I have been extremely busy -- here's the story in bullet points:

1. Money management is busy as hell and thats no joke. Since this time last year we have seen some serious returns. All major indexes have made major advances and never looked back. The steepest advances came last March-April and then again August. There was a borderline recklessness to buying assets - everyone was afraid to miss the turn and buying turned into a frenzy of sorts.

2. Technology is making some serious advances right now. Twitter, Apple and Google are killing it. These three firms are at the heart of the push. Twitter's microblogging has replaced blogging, Apple is killing the landline, and Google has made information a commodity while nearly taking down the newspaper industry singlehandedly.

Anyone investing in anything needs to watch this unfold. The trends and themes being pushed out on the internet right now is nothing short of amazing. Our lives are changing right before our very eyes.

3. The picture above is that of Steve Jobs. On one hand I hate the "closed system" notion of the Apple machine but on the other hand he is, without any doubt, perhaps the biggest innovator of our lifetime - a real fucking gamechanger. Want to match wits with him? You dont stand a chance. He's the darth vader of the internet. Cross him and you die. His products kick ass and no one comes close. Hell, people thought the Google Nexus One might compete with the iPhone...um nope.

What will beat Apple? Good question. They will probably beat themselves at some point...but thats another topic for another day.

4. I am working on something special that I call Project X. At this point only 5 people I know actually know about this...it looks good and has lots of upside potential. In due time, I will make an announcement on this blog so stay tuned. Hint: Think twitter and a solution to disaggregated communities.

Thats all I have for now. Good night...time to get my ass to sleep. I will have more later.

AG out.

The Good, the Bad, and the Ugly. (Part 1)

2009-04-12T00:00:20-05:00

I generally like to think of myself as an optimist. In fact, I think anyone in business for themselves have to be of the optimistic-type. The ups and downs of business, the stock market, and the gyrations of life, in general, demand it.

But I must admit, I am a bit concerned with the potential consequences of the recent economic policies that our leaders have engaged into over the past couple of months. In a homage to one of my favorite movies, I decided to hit this subject up using "The Good, the Bad, and the Ugly" as the framework of my outlook:

The Good

1. Equity prices will definitely improve. And believe me...we will have better trading days over the next six months or so. I think our bottom from two weeks ago may have been the "real bottom." And, yes, the sexy thing to do these days is to call market bottoms. But who has done it successfully the past few months? Not many.

Looking back, I wish I had put together a list of all the bottom callers that appeared on CNBC plus their call number. I personally thought the bottom was 8200 on the DOW. But, of course, within months of my call we decimated more than another 1000 points. Nevertheless, I see equity prices heading higher for a number of reasons to include increased commodity consumption and inflationary conditions that are brought about by an increase in the money supply and lower interest rates.

2. Consumer confidence will elevate to more normalized levels. Now this is key factor as it relates to consumption. Have you noticed how recently Americans stopped spending money which, consequently, has led to a meaningful increase in the savings rate? Well, I predict that will change by the 3rd quarter of this year. In fact, the change will occur right in time for the Christmas holiday season. We should see higher sales across retail which should also mean improved earnings for a number of retailers. But I suspect we will not see a rebound (or reversion) to recent year norms because most consumers are "tapped out" - no cash and very little credit left.

3. The "credit monster" will wake up. From my perch, I think of the credit monster and the policymakers who are trying to revive the system as a bunch crazy doctors working on Frankenstein. Monetarily, the markets are seeing the LIBOR and other key lending rates improve significantly. I for one thought that the volatile credit spreads from last year would be the cure to the overly-loose credit writing guidelines. Not so sure that will happen.

Of course the revival of the credit monster will be good news for firms needing to improve their working capital and individuals looking to buy more goods. But the downside is that our economy will fail to understand the dangerous perils that await participants (both firms and consumers) when using borrowed money to increase profits or when consumers begin to mistake "having more stuff as being wealthier" all when they still need to pay the bill.

Most people mistakenly interpret "increased consumption" for "greater wealth"...unfortunately, most goods that are consumed are not really owned but in effect borrowed at a high interest rate. Thus, negative net-worth.

The Bad

1. Mark-to-market modifications are simply an extension of the goverment's denials. Giving banks the ability to mark assets to "reasonable" values by making this a quasi-subjective matter is a recipe for disaster. This is not the right way to do it. I submit you the following question: shouldn't the value of an asset that frequently trades hands over an active market be valued at the amount you would get from it on the street right now. I think so.

The notion that you can value these assets on the basis of pre-bust "real estate bubble" valuations will not work. The bubble has bursted. Values in high-priced condos, homes along the coasts, and subprime properties will not return to what they once were. People need to accept that for what it is.

Interestingly, this reminds me of the tech bubble. For evidence I submit to you the NASDAQ's bubble pop from earlier this decade. Notice how the market never returns to apex of the bubble.

The chart above confirms the destiny of speculators in a boom-bust cycle. Almost ten years later, we never returned to the valuations that were once enjoyed during the late 90s. I still remember when dot-coms were being picked up "hand over fist" with corresponding pricing models that were based on eyeballs, page views, and a host of other garbage metrics. Mania prevailed but the ensuing correction washed out the speculators and "smart money." I am sorry but GroceryWorks.com, Garden.com, and Pets.com were terrible business models.

With that said, I predict that US real estate will replicate the same NASDAQ demise of early this decade. Investors kept believing that it would "come back." And the notion that the growth of personal real estate holdings became the source of "savings" or wealth creation is not a sustainable method of financial prudence. Further, the increased scrutiny of real estate securitization and how it relates to the banking collapse will also hurt the future prospects of this sector. It cannot come back; it will not come back.

The graph below is a "classic boom-bust" scenario. It shows a bubble acceleration from 2003 to 2006 and begins its downward pop in 2007 which ultimately led to the bust in 2008.

After reaching an all time high in the mid $90s range, it now trades in the $20s. You need almost 250% to get back over the all-time high. Sorry, but thats not happening anytime soon on an ETF.

In fact, to further illustrate my point I will construct a housing P/E chart in the next several days. I promise that the results will be eye-opening.

To be continued. Part 2 later....

Madoff, Warning Signs, and Split Strike Conversions.

2008-12-15T18:38:38-06:00

Recent News Emphasizes Importance of Due-Diligence

Over the past few days, you have obviously been reading of the Madoff case. It is stunning to hear of the impact and how far-reaching this situation has become. From all indications, Madoff was a "stand up guy" that everyone implicitly trusted. His assets under management and roster of investors would never give anyone the slightest clue that he might be up to no good. But to everyone's surprise, he was in fact no good - in fact he's a fraud.

Its this kind of situation that usually gets investors to reconsider the importance of due-diligence. Not only should investors have a sound understanding of a money management firm's business model but also make sure that all the firms operating activities make sense. Always keep your eyes open for "warning signs."

With that said, I want to take this time to discuss three "warning signs" that can sometime pop up when dealing with a hedge fund money manager:

1. Madoff's feeder funds marketed a "Split Strike Conversion" strategy.

Lesson: Make sure you understand the basic premise of the trader's strategy. Understand that I am not saying that complex models are bad...but rather, if it is complex, make sure that you can generally explain the money-making tools. Are they a long-only shop? Do they trade S&P futures? Or is some type of statistical arbitrage system?

Bottom line: If you hear the words "black box" and/or "proprietary" too much then ask more questions. (By the way, nothing drives me crazier than hearing managers using the word "black box" to describe their techniques. Its overly-generic and way overused these days.)

2. Madoff not only managed client assets but initiated trades in client accounts, executed the trades, custodied those assets, constructed his own client statements and administered the paperwork. There were no other parties involved - this is a clear red-flag!

Lesson: Unless you are dealing with a Goldman or UBS size firm, then for the most part, it is a good idea to separate your trading manager from the custodial services. Ensuring a strict segregation between these two functions can go a long way towards deterring any wrongdoing.

3. At the end of every quarter, Madoff's 13F filing showed very little in the way of equity holdings. And when questioned as to why, their response" "...we go into cash at the end of every quarter..."

Lesson: I can see this happening every now and then, but to have your hedge fund go into cash at the end of every quarter doesn't sound very efficient. If your hedge fund has to file a 13F always spend time reviewing it once it is filed.

What is the Split Strike Conversion strategy?

In the past few days, I have also had a number of clients ask me to explain to them the "Split Strike Conversion" strategy that Madoff marketed to his investors.

Split Strike Conversion defined:

Typically, the strategy consists of the simultaneous ownership of 30-35 S&P 100 stocks, the sale of out-of-the-money calls on the index and the purchase of out-of-the-money puts on the index. The sale of the calls is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the calls. The puts, funded in large part by the sale of the calls, limit the portfolio’s downside. The strategy creates a boundary on a stock or basket of stocks, limiting its upside while at the same time protecting against a sharp price decline.

Long story short: Put a collar around a basket of S&P 100 stocks.

A fair number of institutional managers long questioned how Madoff could pull off such consistent risk-adjusted returns. I guess when it seems too good to be true then it probably is.

That Was Then and This Is Now. Beware of the Treasury Bond Bubble!

2008-12-13T01:13:20-06:00

Irrational market in Treasuries push yield to all-time lows

At this point you probably asking yourself, "what does he mean by the title of the post?"

Just recently I wrote of how the S&P dividend yield was higher than that of the 10-year Treasury bond. At the time of writing that article it was at 3.57%.

Today the yield for the 10-year Treasury bonds sits at 2.57%.

I have one word: BUBBLE!

Lets reference a recent Bloomberg snapshot of the current yields in the Treasury market:

U.S. Treasuries

                       COUPON   MATURITY    CURRENT PRICE/YIELD   PRICE/YIELD CHANGE
3-MONTH          0.000       03/12/2009   0.01 / .01           0 / .000
6-MONTH          0.000   06/11/2009   0.2 / .20                                   0.02 / .020
12-MONTH        0.000   11/19/2009   0.45 / .46   0 / -.000
2-YEAR            1.250    11/30/2010   100-30+ / .76         0-01 / -.018
3-YEAR      1.125    12/15/2011   100-08½ / 1.03                    0-07 / -.074
5-YEAR          2.000      11/30/2013   102-10+ / 1.51   0-05 / -.033
10-YEAR        3.750      11/15/2018   110-08½ / 2.57                         0-09 / -.031
30-YEAR   4.500   05/15/2038   128-05½ / 3.04   0-12+ / -.017

Investors seeking safety from losses in equity markets charged the Treasury zero percent interest when the government sold $30 billion of four-week bills on Dec. 9th. That was the same day that three-month bill rates turned negative for the first time since the US began selling debt in 1929.

With that said, I am very bearish on the near-term outlook of treasuries. This relentless frenzy to buy treasuries reminds me very much of the tech bubble in 2000.

In fact, I am hearing that many large hedge funds are beginning to short Treasury Bonds with the notion that they are way overbought. And in this case, I agree.

My advice to new buyers of government paper: Beware!

S&P 500 Yield > 10-Year Treasury Note Yield

2008-11-19T10:22:38-06:00

Yields signaling the bottom for stocks? I think so.

Wow! This is amazing!

S&P 500 dividend yield = 3.57%
10-Year US Treasury Note yield = 3.54%

If that isn't signaling the near of a bottom then I am not sure what does. One must ask themselves, "where is the real risk?"

I can either:

[A] Buy overpriced 10-year Treasuries that are barely a bit higher than average inflation numbers

[B] Purchase equities at dislocated prices that are now giving way to the S&P 500 trading at 17 times next years earnings and yielding a dividend greater than the 10-year.

The argument to this conclusion would be that dividends will be slashed by most firms in the index thus lowering the dividend yield. And this is true. However, the flip side to this argument is that the 10-year treasury, along with most other govies, are overbought. And I think they are. In fact, at one point last week T-bills had a negative implict yield - in other words, bond investors were paying the government to hold their funds.

With all of that said, I pick option "B" as listed above. With the S&P stocks trading at such low multiples, the selling will soon stop and the heavy buying will commence. Hang tight people.

Mission Accomplished! Market Stages Late Day Rebound

2008-11-18T20:30:32-06:00

If you read my blog yesterday, you would have seen that I said we would have a rebound today. As I pointed out in my post, Tuesdays have behaved rather well for long-only investors. Unfortunately it appears to be short-lived as Wednesday has played out to be the worst trading day of the week. We shall see how it plays out.

With all of that said, I think we buck that trend tomorrow. I see us setting a base to move higher as we reach the "holiday effect" part of the year. I am a believer in the "holiday effect" - investors usually bid up prices because the holiday season brings a renewed sense of optimism.

Other notes from today's trading session:

1) Rumor 1 - TD Bank and PNC Financial may be getting ready to announce a secondary equity offering. Current holders of these name should beware. EPS dilution may be on the horizon. The official announcement of a secondary offering will almost be certainly followed by a decrease of 7-10% in the equity price.

2) Rumor 2 - Famed hedge fund manager-turned-Sears CEO Edward Lampert is is said to be exiting large positions due to the poor performance in his hedge fund. Only 24 months ago, "Fast Eddie" was proclaimed as the next Warren Buffet. Don't get me wrong...I still think Eddie is a superstar but building a legacy that closely resembles that of the "Oracle from Omaha" may be a bit much. Besides, have you been to a Sears lately? Its like being in a cemetery.

3) Signs that we are close to the bottom can come in many different sizes and shapes.

a. Unusual "market commentators" make reference to the poor economic condition:

[ESPN] ANN ARBOR, Mich. -- Rich Rodriguez loves to win -- and he hates to lose as much as anyone. Michagan's coach, though, tries to keep as much perspective as he can. Rodriguez has his wife and kids around him after practices, at the team hotel and on bus trips to the stadium. His office door is always wide open, allowing visitors to say hello.
Heading into his first Michigan-Ohio State game -- where the Wolverines are expected to extend their dubious record with a ninth loss -- he tried to deliver a message to fans who have lost touch.
"It's amazing some of the things that people would say [on a message board] or yell at you of a personal nature," Rodriguez said Monday. "You almost want to tell them, 'Get a life.'
"There's a whole lot bigger problems. Look at the economy."

b. New investment instruments begin to hit the market and the sheep begin to chase the "new" thing that serves as the alternative to equities:

[EMII.COM]Russian investment firm Alfa Capital will start a fund for its high net worth clientele investing solely in diamonds, Wealth Bulletin reports.
The proposed fund is part of an expanded line of products for Alfa's wealthy clients, including investment vehicles dedicated to art collectibles, vintage wine and fashion.
The firm is expected to launch the diamond fund in the spring of 2009. The fund, which will have minimum investment of €1 million, will invest in securities of Russian and foreign diamond mining companies. The estimated yield of the fund would be 15-17%.

Thats about it for tonight. As I mentioned in previous posts, I will try to do a better job posting my thoughts on the blog. Good night and good luck from Dallas! And always remember: The bulls will prevail.

Is Tuesday the best day of the week to trade?

2008-11-17T20:26:39-06:00

Over on TheStreet.com, blogger Scott Rothbort, founder and president of LakeView Asset Management came up with following insight with respect to daily trading moves:

"...I was also asked for the daily trading moves for the SPX this year. With today in the books, here it goes:

Mondays: -11.46%

Tuesdays: 12.86%

Wednesdays: -35.58%

Thursdays: 4.24%

Fridays: -11.37%..."

Let's hope his data is right - should bode well for today's selloff.

Speaking of short-term market returns, I think tomorrow will be an up-day for us on the market. My reasons:

1) 90% of stocks are under their 10 day moving average. The selloff in the large cap space is way overdone at this point. Too much negativity bringing down too many very good names. Case in point: Pfizer. I will grant you that PFE is not the great company it used to be. Expiring patents and a deteriorating pipeline lead a host of their problems. But how can you disregard their consistent free cash flow numbers. And how can anyone turn their back on a stock whose dividend yield sits north of 7 percent? It's begging to be bought...

2) Based on recent redemptions numbers, many so-called "smart money, long term investors" are throwing in the towel. In fact, these deep selling spirals we are seeing are not "individual investors" but rather the "smart money" selling into further weakness. October and November will be seen as the time that hedge funds sold massive positions to raise cash because they are either closing shop or managers/traders have become "gun shy." These selloffs aren't due to the "Main Street E-Trade" investor hitting the sell button to trade out of their 100 shares of Apple. It's coming from the hedge fund manager thats trying to avoid losing his yacht.

3) VIX closed at 69.10, its highest level in 14 trading days. The VIX has historically been a superb indicator of sentiment. The higher it is, then the more likely people are "giving up" which means that its time to BUY!

4) We are getting awfully close to re-testing the 7900-8000 level on the DJIA before rallying towards the upper 8000s. It would appear that in this market, traders are paying more attention to technicals than they are to fundamentals. Another case in point: last Thursday's price action. The market had an 800 point swing on no real news. In this kind of market, irrational thinking trumps rational models. I recommend investors either "buy" or "sit on their hands." This is no time to throw in the towel!

5) Almost every negative piece of news is in the market now. No surprises await us. At this point, we have just about seen it all. Here's a quick list:

Lehman and Bear are out of business.

The Russian markets are closed and have lost about 60% of their value.

The Presidential election has come and gone.

Hedge funds are blowing up left and right.

Mayors of US Cities are asking for bailout funds.

GM is on the brink.

The commercial paper market was frozen (and is thawing right now).

Money markets almost broke the $1 threshold.

Interest rates are closing in on zero.

Warren Buffet is making his trademark "bold" bets.

AIG nearly went out of business.

Goldman Sachs called Citibank to see if Citi would buy them out.

And Citi said, "...thanks but no thanks..."

Is there anything else that will surprise us? I submit to you: No.

Thanks for reading, good luck trading, and stay invested because we all know that the bulls always win in the end.

Random Thoughts

2008-11-02T21:01:19-06:00

I apologize for not posting as much recently. The market has been tough and I have been plugged into my trading. With that said, I wanted to take a minute and discuss a few items.

1. I think market gets close to hitting 11000 on the Dow before year end. Much lower gas prices will have a significant increase in consumer spending and traveling.

2. I was amazed to hear the Goldman contacted Citi about merging firms. I didn't think GS would move to be swallowed up by another firm but WOW! I think since the market has settled down slightly then I would expect that they should be okay.

3. Speaking of Goldman, Warren sure got some good terms on his deal with the GS. The hefty 10% dividend and warrants certainly raised the cost of capital for GS - actually hurts the firm from a valuation standpoint.

4. Thank goodness that the election is near. I am so tired of seeing the commercials and getting hit by Robocalls during the day. Good news for investors: I think we may see a nice rally later this week.

5. I will increase my posting frequency over the next month. Be sure to check out my twitter account as well. (Twitter is a micro-blogging service that is starting to gain lots of traction - I highly recommend it)

6. I will leave you with a quote from the great Jason Calacanis :

Great entrepreneurs build value and market-share in down markets. They go to work seven days a week and the breakout when other folks check out.

Good evening.

Short Sellers, Mark-to-Market, and Mark Cuban’s Nonsense

2008-09-30T22:52:58-05:00

It’s been a while since I have last posted. The markets have indeed kept me busy. I will try to get back to a normal posting schedule.

I did want to spend a couple of minutes discussing a few topics that I have been thinking about lately.

1) IT’S A BAD IDEA TO BAN SHORT SELLERS
While I admit that as a long-only manager, shorts can be very painful to my holdings. But I still think they play a very critical role in our trading. Very good short sellers will expose bad business models and force them to improve themselves or go out of business. They play an important part in our market ecosystem and to ban them can artificially inflate valuations. Beware when they come back…it could get ugly.

2) MARK-TO-MARKET IS EXACTLY WHAT WE NEED
Recently I have heard politicians discuss the possibility of modifying the mark-to-market accounting rules. Rather, they say we should potentially value these securities as if they were to be “held to maturity.” Therein lies the problem.

Investment banks and prop desks trade the securities. They are not in the business to holding them to maturity. Showing these assets as being “held to maturity” will only further inflate asset values and create an even larger bubble burst.

3) RECENT MARK CUBAN BLOG POST = GARBAGE
I have always been a fan of Cubes. He thinks outside the box and is a superb entrepreneur. I am a huge Maverick fan and I really believe he’s one of the best owners in sports, but check out this senseless post from his blog :

Tax the Hell Out of Wall Street; Give it to Main Street
Sep 30th 2008 9:02AM

Tax every single share of stock that is bought and sold 10 cents per transaction. One dime. If you buy a share of stock, your brokerage pays a 10c tax. If you sell a share, your brokerage pays a 10c tax. 1 share, 100 million shares. Its 10 cents per share.

Of course the tax will be paid for by those of us who are buying and selling stocks. So what. Here is the reality. If you are a true investor. Someone who wants to own a share of stock in a company you believe in, then its an amount that is not going to impact your investment decision making process.

If you are a professional trader or an institutional trader that trades continuously, then it may impact your decision making process, but only to the point of reducing your returns by a minimal amount. Its not going to change your inclination to trade. If you make 9.9pct instead of 10pct, you aren’t going to stop trading.

Whats the economic impact ?

If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day, thats $ 200 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 52 Billion dollars a year.

Thats real money.

Wow…where do I start. To make it easier, let me bullet point my thoughts:

1. So he wants to tax each share. Does does he not realize that if we begin to tax traded shares then we will see volume dry up? Low volume would create serious volatility in the market. Most traders know that light volume days mean more volatility thus lower liquidity for assets and a very inefficient market. Honestly, do we really want more volatility right now? I vote no.

2. I am sorry Cubes but your math is overly-simplistic. By taxing traded shares, then you would see much lower volume. Your tax revenue projections would, at best, be maybe 25% of your guesstimate.

3. There are so many arguments I could make on this post. I think the two above are enough for now…..however how about I propose the following:

TAX THE HELL OUT OF SPORTS OWNERS, GIVE IT TO MAIN STREET
1. Put a 15% tax on sporting event tickets and concessions. Not only would Main Street collect money on tax receipts, but it will force the consumer to save for retirement and not waste $200 for a family of 5 to see a football game.

Isn’t part of the credit crisis the fact that the consumer is “tapped out.” This should help cure part of the that problem.

2. Make the owners finance their own sports venues rather than pushing it on “Main Street.” They sell us on the idea of “perceived” economic benefits from having a sports venue. That’s the oldest trick in the book.

(I actually don’t believe we should “tax the hell out of sports owners”…rather, I want to point out how silly it is for a billionaire to tell others how to run their business when they themselves have been subsidized with taxpayer money.)

Go Mavs!

AIG Downgraded, Faces Cash Crunch.

2008-09-16T00:55:59-05:00

UPDATE: AIG Ratings Cut by S&P and Moody's. Firms moves to raise capital otherwise they may be forced to file for bankruptcy later this week.

AIG is suffering a severe cash crunch as rating agencies cut the firm's credit ratings, forcing the firm to raise $14.5 billion to cover its obligations.

From the Wall Street Journal: With AIG now tottering, a crisis that began with falling home prices and went on to engulf Wall Street has reached one of the world's largest insurance companies, threatening to intensify the financial storm and greatly complicate the government's efforts to contain it. The company, whose stock fell 61% yesterday, is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system.

AIG has been scrambling to raise as much as $75 billion to weather the crisis, and people close to the situation said that if the insurer doesn't secure fresh funding by Wednesday, it may have no choice but to opt for a bankruptcy-court filing.

The Fed is currently trying to have Goldman Sachs and JP Morgan Chase extend a $70 billion credit facility to help prop up AIG according to people familiar with the situation. This comes on the heels of AIG's stock sliding more than 60% on Monday.

WSJ: AIG Faces Cash Crisis As Stock Dives 61%

Tomorrow will be a big day for the market. Not only is AIG under the gun but traders fear that a domino effect could take place.

AIG was seeking help from the Fed but one problem that arises is that the Fed is really only to supposed to assist banks and not insurers therefore there are limitations as to what kind of help can be offered. At this point, Goldman and JP Morgan may have to come to the rescue.

From Bloomberg, with respect to the actual downgrades...

AIG Ratings Cut

S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating by two levels to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three notches to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.

AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3. Moody's said in a statement that its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures.'' Moody's placed AIG's long-term and Prime-1 short- term ratings on review for possible downgrades.