Just when we think we might of found some support – it seems like we get a good punch to the stomach. It would be nice to find some sort of bottom or relief – if not just temporary so we can stop to catch a breath. However – it seems that the deleveraging needs to run its course and regardless of what the government does (in all its best intentions) it is just going to happen.
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Citi Nationalized !
Sure you can label it whatever you want, “Temp-Nationalization”, “Government Partnership”, “Bailout”, etc. At the end of the day Citi is now going to be owned 40% by the Government (with the option to take ownership to 80%). On CNBC they noted that Saudi Prince who owned only 4% was treated like a king and when he asked them to jump – Citi responded how high? Pandit (CEO) already pandered to Congress – I am sure he is now going to be just a lap dog.
Traditionally we point our fingers at Venezuela, China, Russia and say “Look the government is nationalizing their Oil Companies, or this or that!” Our politicians tell us how WRONG that is and that the government is stealing the people’s freedom and ability to prosper. Now we are doing the same thing – but under the guise of helping the bank (the very banks that the administration blames for creating the problem in the first place.)
What is ironic and sad – I would say that Venezuela, China, and Russia are WAY smarter in their nationalizing efforts – they are taking over companies and assets that MAKE money! You think THEY would pour good money after bad to save a failed bank? Of course not – they go after rich oil fields or shipping companies. Socialism is BIG government business and Venezuela, China, and Russia have mastered it well – it’s like our country is doing it all backwards. (Note: that is sarcasm – I know why we are doing it – it is just from a business standpoint a very bad investment with the people’s money.)
Citi stock is getting hit very hard in the pre-market and the news is driving the entire market down in the early session (the banking sector is getting hit pretty hard right now).
But there is more – converting half of the governments investments into common shares and also cutting the dividend on the preferred shares does NOT mean the government’s role is over. The government has indicated there will be fresh round of funding to Citi in the near future. At that point it is only a matter of time that the government dilutes the balance of their holding into common and might as well just take the whole company over at 80%. We also could assume at these large numbers that Citi is TOO BIG TO FAIL – meaning that the government will indefinitely continue to pour MORE money into that massive sink hole – why not it is their sink hole now.
The big fear is how will other countries (which the United States relies on to buy debt) see this move? If the pre-market indication is any measure – it would read – Don’t buy U.S. debt!
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GDP contracts greater than expected!
If the Citi news wasn’t bad, the GDP news was the knock-out blow this morning. The U.S. economy shrank in the 4th quarter at a faster pace than expected. Gross Domestic Product (GDP) – contracted by 6.2% (annual pace) – more than forecast and well above economist estimates. Consumer spending makes up about 70% of the GDP and the contraction on the consumer side was massive (the fastest pace in over 30 years.)The news certainly took a chunk out of the futures in the pre-market after they already got the beat down on the Citi nationalization.
For more details: http://www.bloomberg.com/apps/news?pid=20601087&sid=aH1jAXX4xlIM&refer=home
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GM having problems on the other side of the pond.
If GM didn’t have enough of its own domestic problems – it is now reaching over to Germany and other European countries to ask for aid to keep their Opel unit from going out of business. Saturn, Hummer, now Opel. It seems we might as well stick a fork in this bird – It’s done. Of course it too will soon be nationalized – is it TOO BIG to fail? So far the government seems to think so – and if you ask the UAW (one of the top lobbyist) they certainly will tell you it IS too big to fail (not to mention the 10s of millions in campaign contributions must count for something).
Futures Pre-Market
OUCH! Citi, GM, and GDP – doesn’t make the opening look good. The ARB traders would love to step in on this spread and ready to short the cash basket, but I think the low liquidity levels on the buy side at the opening make keep the spread wider than normal. Expect downside pressure at the opening.
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Support / Resistance
Day of capitulation? Let’s hope not – but it seems like hope is all we have left.
INDU 7000!!! (We might see the 7k number this morning – let’s see if the market and world can absorb this news and rally the market into the close.)
NDX 1100 !!! (We will probably see the 1100 number this morning!)
SPX 735 !!! (That needs a solid close above that number to hang on.)
RUT 400! (We are below it – which is not the low – but a big number for the broader market.)
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Gold 900-950+ (We had a good pull back from 1k to 950 over the last 3 days – 900 is in the cards – but we might see a rush to gold this morning from the negative economic news.)
Silver 13+ (Gold’s little brother)
Oil 35-40+ (We got a decent pop the last couple of days and are seeing a pull back this morning. I still think the 35-40 range is a big support area and we WILL see oil rise.)
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Conclusion
Sen. Gregg’s interview yesterday really got me fired up and upset. Citi’s nationalization was only a matter of time – more are probably to follow. The money we continue to shove into this seemingly bottomless whole is rather alarming – but most people either want to bury their head in the sand and ignore it or really don’t have problems with Socialism (which I find shocking).
Regardless if you are a Democrat, Republican, Socialist, or whatever – the most important issue we can NOT overlook is the dollar – which we are SERIOUSLY putting at risk. Because whatever government you want or we get – it is all based on the dollar. Regardless of moral philosophy as to the government’s need or want or responsibility to help those less fortunate (welfare or subsides) it cannot do it at the hazard of breaking our currency. Obama’s budget is insane – not for what it purposes to do, but rather it doesn’t take the dollar into any consideration. It ASSUMES that we will be able to finance 1.7 trillion. What country and WHO is going to buy 1.7 trillion in treasuries in one year? That is too big of an assumption to make – regardless if you feel you need to spend $600 billion on healthcare, or $1 trillion on bailing out banks. When the dollar breaks – how do you pay for healthcare? We need to CUT spending and not raise taxes on ANYONE.
So if we can’t fund the 1.7 trillion this year, and the purposed 1.2 trillion next year – it is just printing money time and massive monetary inflation. We may not be seeing it now – but come 2010 or 2011 (or sometime in the near future) the dollar bubble is going to be massive and if we don’t get a handle on that – none of the welfare, bailouts, healthcare reforms, or whatever will really mean anything.
We need to keep our dollar strong – because it is DOLLARS that is used to keep the economy going. The numbers coming out of Washington are just insane – we say 100s of billions and now trillions as if it means nothing. We continue to laugh at Zimbabwe – guess what they talk in 100s of billions too.
Please – wakeup to this. I am not trying to scare you – I just want us to get REAL! The math is right there – you just need to do the math and you’ll quickly realize this will NOT work – we just can’t keep printing money. It is just like the housing bubble or dot.com bubble – people failed to do the math. Are we just that stupid that we can’t do the math or just want to ignore it?
Sorry – it’s Friday and the news of the GDP and Citi – just got me fired up. I wish I would of slept in this morning.
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