Unfortunately my most recent prediction about implications of Paulson's fiasco with TARP seems to be coming true- run on the "next weakest" bank- Citi. Now according to this WSJ article- Citigroup's execs are considering following the steps of Wachovia and Merrill by selling out? While I personally believe that despite all the negative news Citi actually has quite a valuable franchise, and appears to have plenty of capital to get them through this mess, shorts decided differently and now are certainly having a great time running them into the ground...The only question now is who could possibly buy Citi in one piece? HSBC is really the only bank that could possibly pull it off at this time.
"The internal discussions are at a preliminary stage and don't signal that Citigroup's board and management are backing down from their insistence that the New York company has ample capital, funding and strategic direction, these people said. But with the stock down another 26% Thursday, its worst one-day percentage decline ever, Citigroup officials have decided they need to reckon with a range of scenarios that were unthinkable only weeks ago."
Bad news don't stop there- it is now official- current decline is worse than the one in 1929. Below is a great chart from Doug Short's blog showing how the worst bear market declines unfolded. Surprisingly enough, current fiasco is already worse than the first leg of the 1929-1932 bear market.
The only good news I can come up with after reviewing many of these charts is that we have to be nearing a point of a pretty significant counter trend rally. What can trigger it? I am not yet sure but most likely some kind of government action like short selling ban, massive stimulus announcement or simultaneous global rate cut. Because of that possibility I decided to take profits on my SDS ultra short position today as these ETFs tend to move much faster on the downside than on the upside...
Stay safe out there, I know it's tough skepticalcapitalist@gmail.com
Archive Comments (2)
Is there a fundamental difference between C and JPM and BAC ? Or are we looking at these following C into single digit small numbers ? I hate to see what is happening , but what is going to stop this run on banks ? What is your opinion on the preferreds of these banks. C pref. are taking a beating, should they?. I noticed that the corporate bonds of C are holding steady.
Posted by exide November 21, 2008 7:19 PM
Preferreds have been taking a pounding ever since Paulson's TARPedo hit the market... Not surprising given the spreads on CMBX and RMBS securities.
Is Citi safe? I think fundamentally that should have been made it ok, but with hyena's circling around and stock under $5 a share who know what can happen now? Confidence is the key for a banking institution and it certainly seems to be lacking in Citi's case now. I am not sure what happens over the weekend but without government intervention of some sort, odds are not in their favor.
One thing I am afraid of is that unless hyenas are stopped quickly, we might not have a privately owned financial system by the time it's over...
Very disappointing outcome to say the least, as it has clearly gone way beyond the fundamentals... Need some quick and bold action on the part of FDIC and Treasury over the weekend.
Posted by VY November 22, 2008 1:00 PM