Citigroup is in deep trouble. Its share price is $1.95 and the market is recognizing what I said a year ago: "Citigroup Is Insolvent". Of course it is not just Citigroup that is insolvent, the entire global banking system is insolvent.
Citigroup is pressing the US government to agree on a new capital injection that would increase the authorities’ stake in the troubled bank to about 40 per cent but stop short of an outright nationalisation.
People close to the situation said Citi executives had been in discussions with regulators during at the weekend over a plan that would enable the government and other shareholders to convert up to $75bn of preferred shares into common stock.
According to its proponents, the injection of common stock would bolster Citi’s capital base while at the same time allaying market fears of a nationalisation. Under the plan, first revealed by the Financial Times last week, Citi could also try to raise fresh equity with a public share offering. The aim would be to keep the government stake to no more than 40 per cent or at least below 50 per cent, said people familiar with the plan.
People familiar with the plan said it would hinge on the price at which the government and other shareholders, which include sovereign wealth funds and Prince Al Waleed, convert their shares as well as how many of its $45bn-worth of shares the government converts.
Top Government Officials – who are trying to establish seeking a want a more strategic and less ad hoc response to the crisis – were and are anxious to avoid if possible the type of Sunday night crisis announcement that became a staple for Hank Paulson for ’s crisis management at the Treasury last year.
The Treasury said secretary Tim Geithner would “preserve a financial system that is owned and managed by the private sector”.
Citigroup Is A Black Hole
Citigroup is a black hole, sucking in every dollar thrown at it and it still wants more. No amount seems enough to save it. Taxpayers have already guaranteed a whopping $300 billion dollars worth of Citigroup debt. Now, two months later, Citigroup is begging for still
China is securing long term supplies of oil, aluminum, iron and other hard commodities at ‘favorable prices for years to come.’
The United States is investing in increasingly worthless paper, insolvent banks, crony capitalist ponzi schemes, non-productive consumption, and enormous bonuses for Wall Street financiers.
After a visit to China a few years ago, touring their factories with workers quietly hunched over their worktables in fear, working whatever hours were offered in difficult conditions, Bill Gates observed that this was ‘his kind of capitalism.’
The choices you make, what you choose to do or not to do, will pay significant returns, either good or ill, for your children and your children’s children.
Plus ça change, plus c’est la même chose.
NY Times With Cash to Spend, China Starts Investing Globally By David Barboza
February 21, 2009
SHANGHAI — With the world suffering through a tight credit market, China has suddenly gone shopping.
Beijing said on Friday that one of its big state-owned banks, the China Development Bank, agreed to lend the Brazilian oil giant Petrobras $10 billion in exchange for sending China a long-term supply of oil.
That investment came after similar deals were signed this week with Russia and Venezuela, bringing China’s total oil investments this month to $41 billion.
China’s biggest aluminum producer also agreed earlier this month to invest $19.5 billion in Australia’s Rio Tinto, one of the world’s biggest mining companies. And last Monday, the China Minmetals Corporation bid $1.7 billion to acquire Australia’s OZ Minerals, a huge zinc mining company…
China wants reliable supplies of crude oil, to fuel its growing transport sector; it needs iron ore for steel production, and copper and aluminum to build homes and consumer goods…
Analysts say China could continue to make deals for a variety of small oil and gas companies, mineral producers and mining firms.
While markets appear to be waiting for the hammer of government to come crashing down on the nation’s two largest banks, several government officials in interviews with CNBC on Sunday described a process in the works that is far more deliberative.
Some details will be made available this week, but parts of the plan will take weeks, months and even more than a year to play out as the Obama administration puts together a program that they hope will return banks to long-term health.
What is clear is that they are specifically trying to avoid “Lehman Weekends,” referring to the furious efforts in September when Lehman Bros. went bankruptcy and AIG was bailed out. Officials stressed that there were no separate meetings going on surrounding Bank of America or Citigroup specifically and that the two banks would be treated under the broad plan now in the works.
Neither bank has asked for increased government assistance and one official said such assistance is not needed at this time.
Officials would not rule out increased or even outright government ownership of large banks at the end of the process, but they say their intent is to avoid that outcome and that it is anything but certain. They say the government does not want to be running these companies.
If the banks end up in government hands, officials say, the intent would be to get them into private hands quickly and do so in a way that is not much different from how the Federal Deposit Insurance Corp. currently resolves bank insolvencies, which typically take place over the weekend. The extent of government ownership, they say, will depend on the size of the losses at the banks, the access of banks to private capital and how the recession plays out.
Said one high-level official, “I think the market is missing that the whole intent of this process is to show that the banks have enough capital for even worse outcomes than we currently envision and to show there’s a program in place to give banks access to that capital if they need it.”
Here’s the inside scoop on the current state of brokerages and investment banking, courtesy of one of our readers. He explains:
The firms most aggressively pursuing brokers are foreign banks UBS and Duetche Bank, neither of which is restricted by the compensation caps that come with TARP funds.
Morgan Stanley and Citigroup’s brokerage joint ventue will attempt to avoid the TARP compensation caps through corporate structuring. The argument is that the JV didn’t take TARP funds, even though it was capitalized by corporate parents that took TARP. (This was actually our advice on how to avoid the paycaps.)
The dominant players in investment banking will be Morgan Stanley, Goldman Sachs and JP Morgan, who will form a kind of new oligopoly. Margins will be lower but leverage will be as well. With so much risk taken out of the game, they may even trade at higher multiples to earnings.
That’s just the summary. Here’s the details:
It amazes me how so many clueless folks can drone on about stuff they know nothing about. The running assumption being that all precedents can be extrapolated to all new situations.
First, those that say with the shit shape the industry is in there’s no place to go, you clearly haven’t a clue. In the retail advisor space, the primary recruiting competition to the MSSB JV is UBS. They have the most aggressive bid in the market for talented brokers with current payments for jumping ship being 200-250% of trailing 12mos gross revenue. Since September, the reality for the average broker, is that each month that passes means his trailing 12 gross is decreasing due to market conditions. Thus, for MSSB, time is of the essence (MS lost dozens of FAs last week with the expiration of the February offers). The second most aggressive bid is Duetche Bank. Note that both are non-US firms and neither is subject to any restrictions, real or populist inspired, due to TARP dealings. Thus, these non-US firms have an unfair advantage in competing for talent if the domestic firms are having their hands tied by Congress, the media or internet no-nothings. Funny, but
The Wall Street Journal has an interesting opinion piece by none other than Phill Gramm this weekend. It begins thus:
"The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis."
Oh good. You intend to talk about what people believe caused this crisis, instead of what did cause it?
Fantastic Phil. This is going to be amusing.
I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.
Politicization of mortgage lending?
You mean to tell me that the creation of 2/28, 3/27 and OptionARM loans was the result of politicization of mortgage lending?
Oh boy, this is a good one.
The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse.
The speculative bubble in the equity market burst Mr. Gramm because the companies in the Internet space were making knowingly inflated statements about their prospects for growth and in fact factually incorrect statements about demand growth after the first "burst" of adoption of the technology took place.
This is not conjecture, it is a fact – a fact that I outlined several times leading up to the bust. It was the reason that I, as CEO of MCSNet, refused to finance any of my equipment, refused to take any debt whatsoever in the operation and expansion of my enterprise and refused to get involved in what I knew for a fact was a game of Russian Roulette – with five bullets.
Nonetheless I was able to operate that company with greater than a 40% pretax operating margin for more than five years,
In the wake of the Madoff scandal, it is only a matter of time before the Fund of Funds industry disappears, as investor anger grows at the glaring failure of Fund of Funds’ primary responsibility – due diligence. Fund of Funds are currently perceived as worthless middle men between hedge funds and investors, pocketing 1% management fees and 10% incentive fees for arguably doing no work whatsoever.
So as the investment industry contracts and Fund of Funds do all they can to stay around for a few more quarters, it makes sense to take a look at some entities that few have considered: the state pension and retirement funds. Notable among these are the California Public Employees Retirement System (Calpers), The Teachers Retirement System of Texas (TRS), the Orgeon Public Employees Retirement System and the granddaddy of them all: The New York State Common Retirement System and the New York State Teachers Retirement System.
Which brings us to an interest point. As the financial system collapses and states’ budget deficits skyrocket, the lives of citizens are about to get very ugly as legislators’ only options are to cut state employees (i.e. police officers, healthcare workers and educators) and raise taxes through the roof. One need look no further than California which is on the brink of collapse, as absent federal assistance, it will be unable to fund its $42 billion state deficit. New York is in no better position, and David Paterson has had numerous media appearances attempting to warn New Yorkers just how difficult lives in the state are about to become.
In the meantime, public workers, current and retired, of troubled states will shortly begin receiving very disturbing news, as their pensions and benefit packages are about to be drastically reduced if not eliminated altogether. The culprit? The falling market.
New York State Retirement System
At the market’s peak a little over a year ago, the two principal funds that New York uses to invest retirement money, the New York State Common Retirement System and the New York State Teachers’ Retirement
I pretty much did one on Friday in the morning post and I posted my weekend reading list this morning at the end of Friday's comments for members and Peter D posted 4 excellent plays for those of you willing to dip your toes in the financials once again. We actually had a great day on Friday as we sold premium in long SKF and had a fantastic 10-bagger on SKF puts later in the day. At 9:45 I called fro a switch from UYG at $2.02 to FAS at $4.30 and FAS ran up to $5.20 and finished at $4.90 (14%) while UYG peaked at $2.24 and finished at $2.20 (up 9%) so a good switch to the faster horse.
We also flipped from FXP covers to FXI longs (hedged at $20.98/21.99), a very well-timed about face as we sold FXP into the initial excitement. VLO got too cheap to turn down on the leaps and even C became attractive at 1:35, when the Sept $3s hit .52 and I noted they could be covered with 2011 $5s at .58 but, so far, we haven't needed to pull the trigger on the cover! My last call of the day came at 1:48, when I said to members: "SKF $200 puts at $1.45 for the brave, out if XLF cant cros $7 when Volcker starts speaking." As we expected, the moment Volker came on TV to dispell some of the silliness we got a double and were able to take half off and let the rest ride. That ride took us all the way to $16 just one hour later – not bad for a day trade!
I did add a mattress layer at 2:34, going for the $185 puts for $2 and those quickly ran to $6 but "yawn" compared to our original play as it ran and ran. We were all stopped out by 3:12 and sadly, by 3:28 we had to turn a little bearish (we had originally planned 50:50) as the administration backpeddled on a statement that the Treasury would actually have a plan for us next week. Since we never had to trigger our bearish QID play from the morning post, I was wishy-washy about the downside and…
When I sit down each week to write, I essentially do what I did nine years ago when I started writing this letter. I write to you, as an individual. I don’t think of a large group of people, just a simple letter to a friend. It is only half a joke that this letter is written to my one million closest friends. That is the way I think of it.
This week’s letter is likely to lose me a few friends, though. I am going to start a series on money management, portfolio construction, and money managers. It will be back to the basics for both new and long-time readers. I am not sure how long it will take (in terms of weeks), but it is likely to make a few people upset and provoke some strong disagreements. Let’s just say this is not stocks for the long run.
And because many of you want some continuing analysis of the current crisis, each week I will throw in a few pages of commentary at the beginning of the letter…
And now, let’s turn our eyes to Europe.
The Risk in Europe
I mentioned last week that European banks are at significant risk. I want to follow up on that point, as it is very important. Eastern Europe has borrowed an estimated $1.7 trillion, primarily from Western European banks. And much of Eastern Europe is already in a deep recession bordering on depression. A great deal of that $1.7 trillion is at risk, especially the portion that is in Swiss francs. It is a story that could easily be as big as the US subprime problem.
In Poland, as an example, 60% of mortgages are in Swiss francs. When times are good and currencies are stable, it is nice to have a low-interest Swiss mortgage. And as a requirement for joining the euro currency union, Poland has been required to keep its currency stable against the euro. This gave borrowers comfort that they could borrow at low…
On first blush, it may seem odd to suggest that talking about a depression will cause one. On the other hand, talking about depression spreads fear and more depression, so arguably there’s something to it. Which leads to the broader issue of whether the country is depressed in an economic or psychologial sense. Perhaps we should all get on Prozac and see if the economy picks up.
According to the Reuters-University of Michigan Survey of Consumers earlier this month, nearly two-thirds of consumers expected that the present downturn would last for five more years. President Obama, in his first press conference, evoked the Depression in warning of a “negative spiral” that “becomes difficult for us to get out of” and suggested the possibility of a “lost decade,” as in Japan in the 1990s. …
The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation — because the Great Depression serves as a model for our expectations, damping what John Maynard Keynes called our “animal spirits,” reducing consumers’ willingness to spend and businesses’ willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy.
The popular response to vivid accounts of past depressions is partly psychological, but it has a rational base. We have to look at past episodes because economic theory, lacking the physical constants of the hard sciences, has never offered a complete account of the mechanics of depressions.
The Great Depression does appear genuinely relevant…, and many people have been spooked by the story.
To understand the story’s significance in driving our thinking, it is important to recognize that the Great Depression itself was partly driven by the retelling of earlier depression stories. In
"The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon." David M. Walker
David Walker served as Comptroller General of the United States from 1998 through 2008. He is now the CEO of the Peter G. Peterson Foundation and leader of the Fiscal Wake Up Tour. He has been a lone voice in the wilderness for the last decade regarding our looming fiscal disaster. As head of the General Accounting Office he would go before Congress and explain that the country need to change course before we flounder in a Perfect Storm of debt. They listened to him respectfully and proceeded to add $5 trillion to the National Debt in the next eight years. The borrowing binge is now entering a hyper-speed phase. President Obama has been only concerned with speed rather than long term corrective actions.
“I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years. That is why we need to act boldly and act now to reverse these cycles.”
I prefer the wisdom of Thomas Jefferson and Abraham Lincoln.
”Delay is preferable to error.” – Jefferson
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” – Lincoln
The $787 billion 1,074 page stimulus bill has been passed. President Obama has signed it. The market immediately dropped 500 points. It will have no impact on the economy in 2009. The bill will stimulate nothing but the National Debt. Within months, plans for another stimulus plan will be demanded by the Democratic led Congress because speed and the appearance of action are how politicians get reelected. When I see Senator Charles Schumer of New York make a speech on the floor of the Senate saying, "And let me say this to all of the chattering class that so much focuses on those little, tiny, yes, porky amendments, the American people really…
In an email sent to his business partner and Democratic fundraiser Jeffrey Leeds, former Secretary of State Colin Powell wrote of Hillary Clinton, “Everything HRC touches she kind of screws up with hubris.”
Clinton’s tenure as Secretary of State during Barack Obama’s first term was an unmitigated disaster for many nations around the world. Neither the Donald Trump campaign nor the corporate media have adequately described how a number of coun...
Every day that goes by brings more shady deals from Trump's past – now Cuba, more stuff about his foundation, his taxes! No wonder he doesn't want to release his taxes either – who the heck knows is buried in there.
In the meantime, Trump gets up at 5:00 AM to tweet about Alicia Machado! What a despicable coward little man-child!
I admit I find it hard to keep up the sense of humor about things these days. We laughed a lot during the Bush years, didn't we, my fellow pony aficionados. Trump should just make me laugh and laugh and laugh and laugh. But with Bush we could sorta pretend that people voted for him because they didn't quite see him for what he was. There's no doing that with Trump. Trump is Trump. He won't win, but a lot of...
Consider this. You’re a mob boss. You run a $1.8 trillion network of businesses across state lines and continents. Many of these are legit, but a select subset of them – not so much. Every so often the illegal components flare up; some Washington commission launches an investigation, someone blows a whistle, people lose their homes, a pack of investors sheds a ton of money and lawsuits fly. You get reprimanded and have to pay lawyers and accoun...
Eight years ago this month, Lehman Brothers failed in large part due to panicked hedge funds pulling their money. With some big hedge funds worried enough to cut their exposure to Deutsche Bank AG, the parallel is obvious—but also deeply misleading.
Deutsche Bank’s shares have plummeted in recent weeks after The Wall Street Journal reported that the U.S. Justice Department suggested the bank pay $14 billion to settle allegations around mortgage securities. The bank expects ...
Below looks at Commodities ETF DBC over the past decade. Since the highs in 2008, DBC has been a great asset to avoid. Is it time to start paying attention and potentially own this hard hit ETF? Check out the rare price situation below in DBC.
CLICK ON CHART TO ENLARGE
The CRB (Commodities Index) has been down 5-years in a row, this has never happened in the history of commoditi...
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I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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