Who's To Blame For AIG's Failure?

Here's an interesting synopsis about why AIG failed so quickly.

When Lehman Brothers still existed, the bank had around $150 billion in debt. And the Securities and Exchange Commission let hedge funds and other investment vehicles take $365 billion of insurance out on that debt through the use of credit default swaps. It was like buying life insurance on someone you knew was going to die soon.

Now the sellers of these swaps are on the hook for $365 billion. And guess who sold most of the Lehman swaps? AIG.

When the history of this debacle is finally written, AIG will be at the center of the story. AIG sold insurance on hundreds of billions of dollars of assets, with almost no collateral. It, along with Fannie and Freddie, was the primary reason so much credit was created and the primary reason so much credit has been destroyed.

So where was AIG's risk management? Isn't that insurance companies do, manage risk?

Super Rare Ferrari For Sale

One of the world’s fastest modified sportscars is on sale at Trader – an 800bhp Ferrari F50 supercar.

The incredibly rare Ferrari F50 was made in the mid 1990s and came standard with a 520bhp 4.7-litre engine.

But this Ferrari F50 has been boosted to produce a whopping 800bhp – making it one of the fastest cars in the world.

The convertible F50’s trademark V12 engine has had two turbochargers with adjustable boost pressures bolted on, and is fitted with an upgraded exhaust, electrics and inter-coolers to stop it from melting.

And this engine work has meant the drop-top Ferrari – widely considered to be the finest driver’s Ferrari ever built – can accelerate from 0-60mph in just 3 seconds.

This makes it nearly a second faster than the standard F50 and half a second faster than the Ferrari Enzo.

And the car’s 800bhp makes it more powerful than Paris Hilton's Mercedes-Benz SLR McLaren and Porsche Carrera GT, and puts it on a par with the 806bhp Koenigsegg CCX.

The Ferrari F50 was built to celebrate the company’s 50th anniversary, and just 349 models were built between 1995 and 1997. Apparently the company just announced that in order to maintain the ferrari brand's exclusivity, it will produce one less car this year! Or maybe they're just using that as an excuse to cover up the drop in sales due to a recession!

If you're wealthy enough, you can pick up this sweet Ferrari for a whopping $800,000. But if you're like rest of us poor people, you'll have to make do with cheap Ferrari Clothing!

The Gold/Oil Ratio

I subscribe to a lot of investment newsletters. One of them had a reader who asked an interesting question:

You have previously shown us charts indicating that gold was cheap compared to oil. With gold now moving inversely to oil, will you make the comparison again for us?

The key to the gold/oil ratio is the number 10. An ounce of gold ought to cost more than 10 barrels of oil. When gold is less than 10 barrels of oil, something is badly wrong. Either oil is too expensive or gold is too cheap... or both.

When oil was at $140 and gold was below $800, the ratio was absurdly low – 5.7. Extremes like this are rare and they never last. Today the gold/oil ratio, at $900/$90, is back to around 10. We expect it will continue to trend higher. It typically peaks above 20. Assuming oil remains around $90, that gives you a $1,800 target for gold.

Not sure how accurate this is, but its pretty interesting nonetheless. And if you've read the latest Forbes magazine, there's an article predicting $500 oil by 2015! Would that mean gold would hit $10,000/oz?

Regardless of what happens, I'm sure golad I bought gold coins at $500/oz.

Shortage of American Gold Buffalo Coins

The market dropped a stunning 777 points today, the worst drop in years. Not surprisingly, gold held it's ground today.In fact, it even popped $20 this morning as the market plummeted. The same way oil is reverting to a thought process of old, gold seems to be regaining its role as a “flight to safety.” It's currently selling for just over $900/oz.

But gold is still down 10% from it's highs this year of $1030/oz. Funnily enough,as the market for gold ramps up, the U.S. government has suspended sales of its most popular 24-karat gold coin.

The 24-karat American Buffalo is in such high demand that the US Mint has simply run out. The U.S. Mint sang the same tune for the 1-ounce American Eagle coins back in August. After running out of Eagles, the Mint suspended sales and later reopened the market to only “designated dealers.”

As of last week, the Mint had sold over 164,000 American Buffalo coins in 2008, up 54% from the same time last year.

Isn't it odd that there is a shortage of physical gold and yet the prices are lower than they were several months ago? Am I the only one wondering about this supply-demand anomaly? Or maybe it's a new economy, just like the stock market in 1999 when revenue and profits didn't matter, but esoteric new criteria like "number of eyeballs" were developed.

If you want to buy gold coins and are having a tough time finding them, check out this store which aggregates my favorite set of gold coin collectibles.