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May 26, 2011

Great action in AIG shares yesterday, the first trading day after the initial step in the re-IPO of the US Treasury’s ownership in AIG; 225 million shares traded. Woa! How is that possible? Prior to the 300 million shares placed in Tuesday’s offering, the float (in non-government hands) was only 140 million shares. That means there were 440 million shares outstanding yesterday (not taking into account the possible 45 million share underwriter overallotment). Of that, the Fairholme Fund owned 40 million shares according to their latest published information, and I don’t believe they were trading yesterday (its rumored that they were buyers in the re-IPO). That leaves just 400 million shares that could possibly have traded. So is it likely that over half of all the outstanding shares traded yesterday? That doesn’t really make sense. Why would any professional fund manager who purchased shares in Tuesday’s re-IPO be selling the day after, and at a loss? Wouldn’t he/she have been purchasing for the long-term? Well, I guess this leads us to the conclusion that a much smaller number of shares traded many times yesterday. Of course, it could also be that the short sellers were out in force yesterday and that the larger float simply facilitated pent-up demand to sell short. And there may be any number of other explanations that simply haven’t come to mind or I’m not smart enough to contemplate. The one thing for sure is that I would never have predicted yesterday’s market action, which, in itself, is confirmation of what I have maintained all along; I have no forecasting abilities. And since I can make no logical sense of yesterday’s market action I just view it with distant intellectual curiosity. It confirms my long-held belief that, to put it sophmorically, ‘Mr. Market is a retard!’.

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