“Taxpayers are being ripped off. The only thing worse than nationalizing a bank is to pay for the entire bank and only get one-third of it.” -Congressman, Brad Sherman
Congressman Brad Sherman couldn't articulate the current debacle with Citigroup any more clearly. Why then aren't taxpayers absolutely livid? Why would they allow this to take place? The only probable explanation is that the vast majority of people really are so stupid, so ignorant and so apathetic they don't even know they're being raped.
Citigroup’s Third U.S. Rescue May Not Be Its Last, Analysts Say: "The U.S. government’s third attempt to help rescue Citigroup Inc. won’t stanch the company’s losses, which will continue to swell and may lead the bank to require more money in coming months, analysts said.
Yesterday’s action didn’t furnish the New York-based bank with new money, although it cuts expenses by eliminating dividends on preferred stock. Instead, it converted preferred shares into common equity, which absorbs the first hit in the event of further losses, at an above-market-value price of $3.25. The stock, which has fallen 78 percent since the beginning of the year, closed in New York trading yesterday at $1.50, its lowest since November 1990.
Vikram Pandit, 52, Citigroup’s chief executive officer, told investors yesterday that increasing tangible common equity to as much as $81 billion from $29.7 billion should “take the confidence issues off the table,” regarding the company’s ability to absorb losses. Still, Citigroup, which lost $27.7 billion in 2008, is expected to lose $1.24 billion in the first six months of 2009, according to the average of analysts’ estimates compiled by Bloomberg.
“There’s no difference here,” said Christopher Whalen, co- founder of Institutional Risk Analytics, a Torrance, California- based risk-advisory firm. “It won’t fix revenue, and you’re still going to see loss rates.”
One immediate change from yesterday’s announcement was that the value of the government’s investment fell by more than half. The government said it would convert as much as $25 billion of its preferred stock to common shares for a 36 percent stake in the bank. At yesterday’s closing price of $1.50, that investment is worth about $11.5 billion. Citigroup has a stock market value of $8.2 billion today."
Saturday, February 28, 2009
“Taxpayers are being ripped off. The only thing worse than nationalizing a bank is to pay for the entire bank and only get one-third of it.” -Congressman, Brad Sherman
Posted by Ben Bittrolff at 3:34 PM
Friday, February 27, 2009
Strap on your helmets. Here we go.
Citigroup (C) is bid @ 1.26... down 49% from yesterday's close @ $2.46.
Citigroup Gets Third Bailout as Government Plans to Raise Stake: "The U.S. government will raise its stake in Citigroup Inc. in the third attempt to bail out what was once the world’s biggest financial institution.
The plan will involve the Treasury Department converting as much as $25 billion of preferred shares into common stock, the Treasury Department said in a statement today. The government said it will make the swaps only if private holders agree to the same terms. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York- based company last year."
Posted by Ben Bittrolff at 7:50 AM
Thursday, February 26, 2009
Failure to clear the high of about $28.00 will result in absolute collapse thru the lows. Add to any current short positions below $24.75 with a stop above $28.00.
Commercial Real Estate: IYR, SRS, Pending Disaster
For example, the S&P 500 (SPX) was relatively stronger yesterday. However, failure to get above resistance of about 770 will result in a test of the lows around 742. The weakness in TRAN may be foreshadowing just such a test.
Sure the markets are Extremely Oversold, but it is from oversold territory that crashes occur. There is Still More Downside to equities.
Wednesday, February 25, 2009
Evil Speculator gets it. Nuff said.
You'd be amazed at how fast liquid capital can move if you try to tax it unfairly... The last thing the U.S. needs is capital flight. When that happens... its pretty much over.
Posted by Ben Bittrolff at 9:00 PM
The result of course has been the absolute destruction of the export dependent Japanese economy.
Consequently, the Yen will go cliff diving. The tricky part of course is the timing...
The Yen has come off quite a bit against the major currency pairs. Building a short position on strength with a longer term time frame would probably present the best risk reward profile.
Japan Exports Plummet 45.7%, Deficit Widens to Record (Update2): "Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.
The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.
Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.
“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.
Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.
The yen traded at 96.49 per dollar as of 10:49 a.m. in Tokyo from 96.72 before the report. The currency is near the lowest level against the dollar in three months as the weakening economy reduces its allure as a haven.
The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Nissan Motor Corp. and Toyota Motor Corp. This year, the currency has weakened 6.3 percent, offering some relief to exporters while indicating investors’ growing pessimism about Japan’s economic outlook."
See Japan's "Unimaginable" Contraction for more details.
Posted by Ben Bittrolff at 9:00 AM
Yesterday Gold and Silver fell the most in six weeks...
Moving stops to the Friday's highs on any core short positions is prudent. Since this correction is just getting starting, adding on strength over the next few days is ideal. With Equities Sitting on Support, and Extremely Oversold, expect this counter trend bounce to have some follow thru. This will put significant downward pressure on precious metals.
NOTE: Some of the mining stocks are ripe for some serious shorting. A couple examples can be found over at The Slope of Hope.
Gold Falls as Demand Ebbs After Rally to $1,000; Silver Drops: "Gold fell the most in six weeks as demand ebbed following a rally last week that sent the precious metal above $1,000 an ounce. Silver also declined.
Before sliding today, gold’s seven-day relative-strength index had topped 70 since Feb. 17, a signal that prices may drop in the short term. For the first time since Jan. 28, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, was unchanged for three straight sessions. The assets rose 4.4 percent last week to a record 1,029 metric tons.
“If the ETF inflows do not start again within a day or two, some traders may attempt to test the downside in gold,” John Reade, a metals strategist at UBS AG in London, said today in a note.
Gold futures for April delivery fell $25.50, or 2.6 percent, to $969.50 an ounce on the New York Mercantile Exchange’s Comex division, the biggest decline for a most-active contract since Jan. 12. Yesterday, the price dropped 0.7 percent.
The metal still has gained 9.6 percent this year. Last week, the price reached $1,007.70, the highest since March 18.
Silver futures for March delivery dropped 45.5 cents, or 3.1 percent, to $13.995 an ounce. The metal is still up 24 percent this year.
Investments in ETFs have helped drive gold and silver prices up this year. Gold and silver were the best performers in the Reuters/Jefferies CRB Index of 19 commodities this year until today."
For intraday fun with silver, there is a new ultra short ETF with the ticker ZSL that is starting to get some volume.
For overnight positions, options provide the best risk reward profile.
Tuesday, February 24, 2009
NOTE: The really scary rinses tend to happen from deeply oversold levels. So it really is do or die time.
Monday, February 23, 2009
I know I know... the world is gonna end and gold must go straight to a kaballion... Oh and silver will go up even more because the gold silver ratio is at ridiculous levels. Money is worthless and there will be super hyper inflation and then we're all gonna die.
Alright, with that out of the way let's move on to more serious business.
The broader equity markets absolutely collapsed today. There was plenty of bad news, that included Citigroup and AIG both pleading for more money. It is absolutely amazing what kind of black holes the world's financial institutions have become.
AIG May Seek to Convert Preferred Shares to Common (Update1): "AIG may need to increase its cushion against losses as the U.S. recession forces down the value of fixed income securities. North American insurers have posted more than $140 billion in losses and writedowns since the beginning of 2007, with AIG representing about 40 percent of the total. The company may post a $60 billion loss, CNBC said today, citing a source it didn’t identify.
The U.S. previously expanded the AIG bailout package to about $150 billion in November, when the insurer posted a third- quarter loss of $24.5 billion. The initial $85 billion federal credit line, provided in September when AIG agreed to turn over an 80 percent stake to the U.S., wasn’t enough to rescue the insurer."
It is absolutely vital to understand just how deflationary all this is. The destruction of money and credit going on here is EPIC. While the Fed and Treasury are indeed bailing these institutions out repeatedly, these actions are not inflationary because they are not PRINTING money or MONETIZING debt. To date the trillions deployed have all been BORROWED. Most of these dollars have been borrowed via the issuance of government debt and the rest of them via complex 'cash for trash' swap arrangements. All this does is suck capital out of other areas of the economy and directs it towards these miserable failures. (A complete waste of time and money.)
It is true that the Fed has threatened to monetize debt by purchasing longer dated treasuries, but they have not yet done so. Even if they eventually do, they would have to monetize faster than the rate of credit destruction just to break even on deflation. That is indeed The Master Plan, but it has yet to be fully implemented.
From a technical perspective both Gold and Silver are extremely overbought. Everybody and his momma is long. Gold did close above $1000, but a Massive Catalyst is Required for a sustained move higher. Today the market plunged on new concerns over Citigroup, AIG, European and Eastern European banks and both Gold and Silver fell. That was the tell. Gold and Silver are clearly exhausted. A significant downward correction in price is pending.
However, this is not a trade without risk. Being short outright via the futures or the ETFs could result in a rather sudden, painful overnight gap up if something big somewhere in the financial system suddenly snaps. This of course is not conducive to proper risk management. Therefore, puts are 'safer' as the premium clearly defines the maximum risk.
The potential reward is definitely large enough.
NOTE: This is a trade and not a 'short Gold and Silver forever to zero' situation.
Gold (GLD): A retracement to the first Fib around $88 can be expected from these overbought levels. This would coincide with the rising trendline off the $69 and $80 lows. Via the Slow Stochachastics, multiple pushes into overbought territory tend to resolves themselves with significant downard price corrections.
Silver (SLV): Silver has gone damn near parabolic on declining volume and has exceeded the 50% Fib retracement level. A correction down to the 38.2% Fib, and the 200 day EMA (green line) is probable. Silver is ridiculously overbought. Nobody and nothing can sprint forever. A short breather is required.
On these trades, stops will be tight and I will only add to the positions as they move onside.
Gold Falls After Reaching 11-Month High in N.Y.; Silver Drops: "Gold fell in New York as some investors sold the metal after a rally last week to the highest price since March. Silver also declined.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund, or ETF, backed by bullion, rose 4.4 percent last week to a record 1,029 metric tons. Gold’s seven-day relative strength index topped 80 on Feb. 20, when the metal touched $1,007.70 an ounce, the highest since March 18. Analysts say a reading above 70 often signals a price drop in the short term.
“That $1,000 level stopped gold,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “Gold is overbought. This isn’t the end of the bull run. You’d rather see a slower, steadier build.”
Gold futures for April delivery fell $7.20, or 0.7 percent, to $995 an ounce on the Comex division of the New York Mercantile Exchange. The price is still up 13 percent this year.
Silver futures for March delivery fell 4 cents, or 0.3 percent, to $14.45 an ounce. The metal has climbed 28 percent this year.
Gold prices dropped as much as 2.6 percent earlier as the Standard & Poor’s 500 Index rose as much as 1 percent before declining. The index sank 6.9 percent last week when gold gained 6.4 percent.
“We continue to be wary of a bear-market rally in equities as profit-taking could see gold correct,” John Reade, a UBS AG metals strategist in London, said today in a report. “We merely highlight the risks that large, long-gold positions on the Comex pose to investors here.”
As of Feb. 17, speculative long positions, or bets prices will rise, increased 1 percent to outnumber short positions by 165,921 contracts on Comex, the Commodity Futures Trading Commission said last week in Washington. That’s the highest level since July 29.
Still, a pullback in prices may be a buying opportunity, some investors said.
“Gold is about the only commodity that’s going higher,” FuturePath’s Lesh said. “There’s a lack of confidence in paper assets. Right now, the gold ETF is getting a lot of capital that would normally go to a bank or equities. There’s a perception that gold is going to hold its value.”
Gold will rise to $1,050 within a month, up from a previous forecast of $900, Reade of UBS said. The metal will trade around $1,100 in three months, he said. Silver will trade at $15.75 within a month and $17 within three months, according to Reade."
Posted by Ben Bittrolff at 8:00 PM
A Rick Santelli rant BEFORE the first bailout attempts... when the S&P 500 was still trading at the lofty level of 1191.20.
He had it right from day one.
"They're insolvent for gods' sake!"
I'll say it again: Rick Santelli for President!
Posted by Ben Bittrolff at 11:00 AM
This should be interesting. Think about Citigroup and read carefully.
SFCG Goes Bankrupt With 338 Billion Yen Debt, Most in a Year: " SFCG Co., a Tokyo-based lender whose creditors include Citigroup Inc., collapsed in the biggest bankruptcy by a publicly traded Japanese company in more than a year, listing 338 billion yen ($3.6 billion) in liabilities.
SFCG, whose shareholders include Hikari Tsushin Inc. with an 11.5 percent stake as of Feb. 4, owes Citigroup 71 billion yen, according to a securities report filed by SFCG on Oct. 27. Shinsei Bank Ltd., owed 54.1 billion yen by SFCG as of July 31, led declines among Japanese lenders in Tokyo trading.
SFCG’s finances deteriorated because of difficulties obtaining credit and collecting on loans as the global financial crisis deepened, the company said in a statement today. Its shares, down 92 percent in the past year, will be delisted on March 24, according to the Tokyo Stock Exchange’s Web site.
A record 33 publicly traded companies in Japan declared bankruptcy last year as banks trimmed lending and consumers stopped spending money due to concern about jobs. Urban Corp., a Hiroshima-based developer, filed for protection with 255.8 billion in liabilities on Aug. 13, the biggest failure last year.
Overall corporate bankruptcies rose 15.8 percent to 1,360 cases in January, the eighth monthly increase.
Calls to Citigroup’s Tokyo office from Bloomberg News were not immediately returned."
Uh oh Citigroup. In the Citigroup, Bank of America: Prisoner's Dilemma, Electronic Bank Runs and Nationalization I wrote:
"Unfortunately there will be no angry mob lining up at the bank. Like Bear Stearns and Lehman Brothers, the run will be overnight, instant, electronic and leave no trace.When the tipping point is hit, the world at large won't know until AFTERWARDS.
Big money investors can't run the risk of waiting and hoping that everything will work out just fine. They find themselves in a Prisoner's Dilemma. Since they can't play nice as a team, they have to be first to act... and act they will. The first to panic wins."
Could some of the price action on Friday be explained by the pending bankruptcy of SFCG? Could it be that an electronic run on the bank has begun?
We can't know until the dust settles of course...
Posted by Ben Bittrolff at 9:00 AM
In the Citigroup, Bank of America: Prisoner's Dilemma, Electronic Bank Runs and Nationalization I wrote:
"Citigroup (C) declined 61% from a peak of $4.10 to an intraday low of $1.61 over just 10 trading days. Bluntly put: Citigroup is dead.
Bank of America (BAC) declined 64% from a peak of $7.05 to an intraday low of $2.53 over just 10 trading days. Bluntly put: Bank of America is dead.
Dead actually means dead. It is unlikely they can survive the weekend... and if they do, they most definitely cannot survive the week."
News is slowly leaking out that Citigroup is desperately scrambling for some kind of additional government money.
Citigroup in Talks That May Raise Government's Stake, WSJ Says: "Citigroup Inc. is in talks with federal officials that may increase the government's ownership of the bank, the Wall Street Journal said, citing unidentified people familiar with the situation.
The government may end up holding as much as 40 percent of Citigroup's common stock, while bank executives prefer the stake to be closer to 25 percent, the report said."
To be honest. I don't see the point. With a market cap of about $10 billion as of Friday's closing price, even a 40% stake would be about $4 billion. That kind of money won't last more than a quarter... especially if it is paid out in bonuses...
Therefore, despite wide spread opposition Citigroup will eventually get nationalized... or pre-privatized... or whatever 'politically correct' term is invented to cover up the fact that complete and utter failure is being rewarded.
Sunday, February 22, 2009
Latvian Government Resigns as Recession Deepens (Update2): "Latvia’s four-party coalition government, facing the steepest economic decline in the European Union and plunging public opinion ratings, resigned after two parties called for Prime Minister Ivars Godmanis to step down.
President Valdis Zatlers told a news conference in Riga today that he had accepted the resignation and that talks on forming a new government would begin next week, which coincides with the visit of an International Monetary Fund mission.
“I will continue to work and guide this government until a new one can be formed,” Godmanis, 57, who has led the coalition since December 2007, said. It was the second government to resign in Europe during the economic crisis after Iceland.
East Europe has been battered by the global financial crisis, which is curbing demand for their exports while shutting off credit and investment. Gross domestic product in Latvia, which has had 14 governments since breaking from Soviet rule in 1991, contracted 10.5 percent in the fourth quarter. The country followed Ukraine, Serbia and Hungary in seeking international aid when it lined up 7.5 billion euros ($9.5 billion) in loans from a group led by the IMF in December."
Street violence is just street violence... until it isn't. This occurs when the people finally coalesce around a new leader and a new ideal. Then they unceremoniously overturn in it's entirety the old order... with all the chaos and violence that that entails.
"The deepening economic crisis has sparked the worst street violence since independence, when hundreds rioted in Riga’s old city, smashing windows and battling police after a peaceful anti- government demonstration of about 10,000 people on Jan. 13 had dissolved."
10 000 protestors of a population of about 2.2 million is actually pretty serious. For context, about 15 292 500 protestors would have to descend upon Washington to field the same relative numbers...
The serious riots started on January 13th 2009, and then grew more serious on January 16th, 2009 . By February 20th 2009 the government was done.
It would appear, that when the people finally have nothing left to lose they suddenly grow a pair.
Riots and unstable governments coming to a country near you: Up to 120,000 Protest in Recession Hit Ireland.
Global Protests, Riots, Violence as Economies Unravel
Hyperinflation First, Then Global War
Global Violence, Gold: But Not Yet