Citigroup Debacle/Bailout
Why is Citigroup getting such a favorable deal in their 2 bailouts? – $45 billion plus a 300+ billion guarantee against bad loads (CDS’s).
No restructuring.
No new business plan.
No executive jobs lost.
No one held accountable.
AIG, Fannie & Freddie didn’t get this kind of sweetheart deal and relatively the auto industry is being raked over the coals for their bailout. John Podesta, the head of Obama’s transition team says Citi should be held "accountable "
A firestorm of controversy has erupted. On the surface Bush’s Secretary of Treasury Paulson looks like he’s giving sweetheart deals to his fellow bankers. (Paulson former CEO of Goldman Sachs.) He is. These were the crooks or idiots who got us into this whole mess in the first place.
But if you look beneath the surface the major players of the newly appointed Obama Economic team are up to their eyeballs in this mess.
Robert Rubin, who sat directly next to Obama when his first economic advisory group was announced is directly involved in the Citi sweetheart give away. Rubin was Clinton’s former Sec. of Treasury and the mentor for both Larry Summers and Tom Geithner. They hold the #1 and #2 positions in Obama’s new economic team. Rubin also holds a major post on Citigroup’s Board of directors – pay $15 million a year
- Both Summers and Rubin endorsed moves that allowed Citi and so many others to merge and become "too big to fail."
- Summers (Rubin’s protegee) endorsed and fostered the Credit Default Swaps and leverage schemes that are the root causes of the credit crisis.
- Geithner who Rubin supported for his post at NY Fed was supposed to oversee Citigroup a NY bank.
- Rubin talked directly to Paulson about the bailout of Citigroup, who has paid him $107 million over the years.
This is a blatant case of the foxes guarding the hen house. The Feathers are Freshly Falling From Feeding Foxes.
From the right a slash and burn by NY Post "Bounce These Bozo’s "
From the left a more responsible attack on Rubin and friends "Obama chooses Wall Street over Main Street "
From NYT’s Tom Friedman a broader explanation of the Citigroup failure and the breakdown of almost every level of the financial chain "All Fall Down ."
These giant monopolies that are too big to fail need to get broken up into pieces that can fail and do not require a taxpayer bailouts to survive. What’s happened to accountahbiltilty? Will Obama’s team institute the right regulations to govern financials? Time will tell if Citi & others will be held accountable, but right now the foxes are feeding.
We all hope Obama will bring change on January 20th. About the best you can say is Rubin does not have a major formal post on Obama’s team and there is opposition within Obama’s administration.
NB – Ex Fed Chair Paul Volker was put in charge of another Obama Economic committee. Volker is a great choice unlike the foxes involved in the Citi debacle.
Stocks
AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING
Headline – Another Obama Rally
Index % Change Volume
Dow +2.91% down
NASDQ +4.60% down
S&P500 +3.27% down
Russell2000 +5.79% –
US Market & Foreign Markets
Technicals
Big rally in light reduced volume. Volume did NOT confirm the move higher.
Technically the volume behind the first few days of the rally is encouraging. Dow at 8,443. Dow 8923 is the first minor resistance level and the falling 50 day moving average at 9287 is the next. 9654 is the major resistance level (see chart of Dow below).
India markets gained almost 1% despite terrorist attack in Mumbai.
Chart of the benchmark S&P 500
Chart of the Russell 2000
Chart of the NASDQ
Chart of the Dow
Fundamentals
- Obama holds a press conference on the Economy and the markets rally.
Today is a 1/2 day for the markets. Historically this 1/2 day has usually been good for the markets. Also November/December are usually good months for stocks.
Three Month Treasury Bill & LIBOR
Credit markets are the dog and the Stock Markets are the tail. Without credit the tail won’t wag.
Real progress WAS being made. The credit spreads are tightening and LIBOR has fallen from 4.8% a five weeks ago to @2 .17 LIBOR inched lower Wednesday. LIBOR rates have flattened over the last two weeks. LIBOR is the rate banks charge each other, not businesses. LIBOR 2.217 the AM.
The 3MTB fell from 0.10% yesterday and closed at a rate of 0.05% The Fed rate is 1.00% . A normal 3MTB would be just under the Fed rate. – The situation is beyond dismal.
Sure looks like PANIC has returned to the credit markets again (check out chart)
3 MTB chart
LIBOR chart (3 month)
Spread sheet listing all the Treasury bonds traders of last 15 days. This gives a broader picture of the panic or lack of panic over US financial systems. This We will use the 3 MTB as a benchmark, but notice the 1 month MTB is down to 0.02% Not good.
Daily Treasury Yield Curve
Bottom Line – LIBOR (Interbank lending rate) falling helps Main Street’s a bit – Credit cards to adjustable mortgage rates are often tied to LIBOR. These is simply NO confidence in the credit markets. PANIC RULES
OIL
Chart of oil (WTIC)
The Dollar
Chart of Dollar
The VIX
The VIX (measures amount of fear/volatility in S&P) .
Chart of VIX
Short Term Outlook
Reading the Tea Leaves – italics = same comments as yesterday.
Best guess – Rally looks to have legs to take out some minor resistance levels. We did take out some minor resistance levels Wednesday and historically today’s 1/2 day is usually positive. PANIC RULES the credit markets and its hard to see money flowing into stocks while so many potential investors are putting $ in treasuries at ridiculously low rates.
Going Out on a Limb – We will probably move higher in the short term. Dow at 8726. But, its hard to see the major 9654 resistance level fall and perhaps some of the more minor resistance levels will reverse the rally.
Long term – Bears Rule Trend is still firmly in place. When it looks like the sky is falling nibble a little. Even if you think Obama can walk on water this is one hell of a mess and there is NO quick fix.
The established technical trend is Bears Rule – A long term series of lower lows (in price) and lower highs. Until this pattern is broken, Shorting (See ETF’s suggested below) as markets get closer to old highs is recommended.
AS ALWAYS DO YOUR RESEARCH BEFORE INVESTING
Long Term Outlook – BEARS RULE
Changes to Bottom Line section bolded
Technicals – Series of Lower Lows and Lower Highs = Bears Rule
Reading tea leaves – Look for range between 7449 and 9654 for rest of year.
Fundamentals – Financial mortgage transparency problem (credit default swaps $50 to $70 trillion) is far far far far far far far far far bigger than anyone thought.
We are in a recession. How bad/long the worldwide recession will be is be is the major question. It’s looks like the recession will last through 2009 – perhaps longer Hopes of a more competent Obama administration have rallied stocks.
Asset Allocation/Recommended Sectors (long term)
50% to 90% Cash – This depends on your risk tolerance – Long Term Investors (up to 15+% stocks – only buy big dips) Wait for the next big dip to add 5 to 10%
Be Cautious and PROTECT YOUR MONEY.
*5%+% US Index Funds
UWM (ETF that does 2x what Russell 2000 does) & QLD (ETF that does 2X the NASDQ ) DDM (ETF that does 2X the Dow ) SSO (ETF does 2X the S&P 500)
*5%+ Emerging Markets
EWZ (Brazil) should out perform other emerging markets in a rally and under perform in a fall – highest risk
FXI (China ETF)
*5%+ Alternative Energy
GEX(Alternative energy ETF) Obama administration will focus on this area
*5% Gold
GLD is the ETF for gold
Chief Strategy – Buy the DIPS of trending sector – This is not your fathers market- over the 8 Bush years the Dow has gone from 11,000 to 8,500 and uncertainty clouds the future.
The major trend now is volatility.
Traders who have a strong tolerance for risk jump in on dips and invest more. Sell or go short into major rallies. Long term Investors who can tolerate risk and are 100% in cash nibble just a little on big dips. (5% on each big dip) Do not buy into rallies.
Shorting – Three ETF that short 2x what the the major indexes do.
TWM – ultra short Russell 2000
QID – ultra short NASDQ
SDS – ultra short S&P 500
As Always Do Your Own Research Before Investing
