Don Dion's Weekly ETF Blog Wrap

Don Dion is a contributor to TheStreet.com. His ETF commentary is also available through his blog on RealMoney.com. These selected blogs -- on AIG, the U.S. Natural Gas fund and European economies -- were featured during the week of Aug. 17-21.

AIG Climbing on Pure Emotion

Posted 8/21/09 10:10 a.m. EDT

AIG's(AIG Quote) stock keeps marching to higher ground, and the company's new CEO's comments could keep it climbing.

After the stock popped 21% yesterday, bringing the total gain since Aug. 4 to 139%, new CEO Robert Benmosche said, "We believe we will be able to pay back the government, and we hope we will be able to do something for our shareholders as well."

AIG received $182 billion from the U.S. government, but it is on the hook for only $80 billion. Asset sales should reduce the total to $55 billion. Even if AIG can return to prebubble levels of profitability, that would probably require directing 100% of profits to the government for at least a decade, and that assumes there are no capital needs between now and then.

AIG isn't the only piece of junk shooting higher in recent weeks. Freddie Mac(FRE Quote) has gained 162% since Aug. 4, and Fannie Mae(FNM Quote) has climbed 93%. A combination of short-squeeze and short-term buying is pushing these shares higher because the broader financial ETFs have very tepid gains.

iShares Dow Jones U.S. Financials(IYF Quote) advanced 3.8% over this period, SPDR Financial(XLF Quote) climbed 4.8%, and SPDR KBW Bank(KBE Quote) added 7.4%.

Bullish and bearish investors should stick with the broader financial ETFs. While there's plenty of opportunity in the volatility of AIG, it is a stock completely unhinged from the fundamentals and running on pure psychological forces.