Happy days are here again! The veritable poster child for screwed-up banks, Citigroup (C, Financial), is profitable!
This wonder of wonders was so unexpected, and is just so darned wonderful, Wall Street has scheduled a ticker tape parade in its honor.
Only instead of paper tape, we are going to shower the honoree with worthless bonds. Or maybe just hundred dollar bills.
Yes, you do detect a note of sour sarcasm here, but only a little one. I am actually grateful for this whole farce, and I’ll tell you why in a moment.
It’s Only Funny Till Someone Gets Hurt Tuesday’s memorable rally (The largest this whole year: How’s that for short-term thinking!) was stimulated by a petulant internal memo penned by Citi CEO Vikram Pandit noting that, if you ignored all the “extraordinary” items on Citi’s books – like taxes, toxic assets, and the billions in convertible shares they have sold to both our own and foreign governments (which is really just another form of debt) – they were making all kinds of money this quarter.
Pandit went on to whine that they should be rewarded for not once blowing up the global economy this week with an increase in share price: “We believe our credit spreads are disconnected from our condition and are inconsistent with the government’s announcements regarding support for the financial system.”
“Somehow” this internal memo got leaked to most every mainstream press outfit and blogger between here and Timbuktu, and a steady, almost zombie-like chant (accompanied by spooky jungle drums) began: “If Citi is profitable, then the bottom is in: Buy! Buy now and don’t look back!”
And Believe Me, Folks Are Getting Hurt
All across the country, investors stretched out their poor bandaged hands (bloodied a dozen times over from grabbing falling knives) and pressed the buy button on their computers for the first time in weeks. The very same pundits who told the lemmings to jump then lauded the fact that they did it: “See, we told you it’s a bottom!”
On Wednesday morning, all the big financial Web sites began the day with “Rally Continues” headlines. Except by the time they could get them posted, it already wasn’t true.
In fact, other than Tuesday’s hype-driven rally itself, virtually none of it was true. I would hope that an outfit as large as Citi would be able to make some sort of operating profit. After all: As Warren Buffett points out, their cost of capital is virtually nil.
Of Course That Money’s Mine, Your Honor: I Stole It Fair and Square!
This has absolutely nothing to do with whether or not Citi is a genuine, ongoing concern. You simply can’t ignore the cost of decades’ worth of criminal stupidity. That’s like describing Bernie Madoff as “worth millions” because he is still squatting in his multimillion dollar Park Avenue penthouse.
The only way Citi can survive is to declare bankruptcy and stiff virtually every investor on the planet (and certainly every taxpayer in the U.S.) to the tune of billions, perhaps even trillions of dollars.
Nor does a couple of days of bear-market rally mean that the bottom is in. Not for financial stocks and not for the rest of the market either. You want a real clue as to what’s happening on the financial front? Look to UBS’ news that they have found yet another billion in hidden losses, “discovered” AFTER they swore in court on a stack of savings passbooks that this sort of nonsense was over and done with.
The REAL Cost of Doing Business
“Mere phenomena!” you say? Looking for something a tad more objective? Try this on for size: the London Interbank Offer Rate (LIBOR) – the rate that banks charge each other for three-month loans and the gold standard for measuring faith in the system as a whole – has been rising pretty much nonstop since January and now stands at 1.33%.
In other words, the guys that know the banks, really know them inside and out, know that this whole run-up is based entirely on false pretenses.
A Fool’s Paradise, and a Trader’s Dream
I mentioned earlier that I welcomed this bear rally with open arms. That is because the very definition of “fair trading opportunity” is when you understand something better than the other guy.
The information is out there for all to see, if you choose to see it for what it is. Please understand that I am not saying to short banks. I would never advise you to short an outfit that can get its raw material for free. That’s just crazy talk.
But I will say that this indicates that we are nowhere near out of the woods yet. Which means you can short all sorts of other candidates. Just this week in WaveStrength Options Weekly, we recommended adding yet another put option to the portfolio. The latest victim is a major electronics player who may very well be the next GE before the dust settles.
If we get anywhere near our usual results [both our Lockheed (LMT, Financial) and Apollo (APOL, Financial) puts shot up in the first week], we will see this play edge toward triple digits by this time next week.
Yours truly,
Adam Lass,
Senior Editor, WaveStrength Options Weekly
www.taipanpublishinggroup.com
This wonder of wonders was so unexpected, and is just so darned wonderful, Wall Street has scheduled a ticker tape parade in its honor.
Only instead of paper tape, we are going to shower the honoree with worthless bonds. Or maybe just hundred dollar bills.
Yes, you do detect a note of sour sarcasm here, but only a little one. I am actually grateful for this whole farce, and I’ll tell you why in a moment.
It’s Only Funny Till Someone Gets Hurt Tuesday’s memorable rally (The largest this whole year: How’s that for short-term thinking!) was stimulated by a petulant internal memo penned by Citi CEO Vikram Pandit noting that, if you ignored all the “extraordinary” items on Citi’s books – like taxes, toxic assets, and the billions in convertible shares they have sold to both our own and foreign governments (which is really just another form of debt) – they were making all kinds of money this quarter.
Pandit went on to whine that they should be rewarded for not once blowing up the global economy this week with an increase in share price: “We believe our credit spreads are disconnected from our condition and are inconsistent with the government’s announcements regarding support for the financial system.”
“Somehow” this internal memo got leaked to most every mainstream press outfit and blogger between here and Timbuktu, and a steady, almost zombie-like chant (accompanied by spooky jungle drums) began: “If Citi is profitable, then the bottom is in: Buy! Buy now and don’t look back!”
And Believe Me, Folks Are Getting Hurt
All across the country, investors stretched out their poor bandaged hands (bloodied a dozen times over from grabbing falling knives) and pressed the buy button on their computers for the first time in weeks. The very same pundits who told the lemmings to jump then lauded the fact that they did it: “See, we told you it’s a bottom!”
On Wednesday morning, all the big financial Web sites began the day with “Rally Continues” headlines. Except by the time they could get them posted, it already wasn’t true.
In fact, other than Tuesday’s hype-driven rally itself, virtually none of it was true. I would hope that an outfit as large as Citi would be able to make some sort of operating profit. After all: As Warren Buffett points out, their cost of capital is virtually nil.
Of Course That Money’s Mine, Your Honor: I Stole It Fair and Square!
This has absolutely nothing to do with whether or not Citi is a genuine, ongoing concern. You simply can’t ignore the cost of decades’ worth of criminal stupidity. That’s like describing Bernie Madoff as “worth millions” because he is still squatting in his multimillion dollar Park Avenue penthouse.
The only way Citi can survive is to declare bankruptcy and stiff virtually every investor on the planet (and certainly every taxpayer in the U.S.) to the tune of billions, perhaps even trillions of dollars.
Nor does a couple of days of bear-market rally mean that the bottom is in. Not for financial stocks and not for the rest of the market either. You want a real clue as to what’s happening on the financial front? Look to UBS’ news that they have found yet another billion in hidden losses, “discovered” AFTER they swore in court on a stack of savings passbooks that this sort of nonsense was over and done with.
The REAL Cost of Doing Business
“Mere phenomena!” you say? Looking for something a tad more objective? Try this on for size: the London Interbank Offer Rate (LIBOR) – the rate that banks charge each other for three-month loans and the gold standard for measuring faith in the system as a whole – has been rising pretty much nonstop since January and now stands at 1.33%.
In other words, the guys that know the banks, really know them inside and out, know that this whole run-up is based entirely on false pretenses.
A Fool’s Paradise, and a Trader’s Dream
I mentioned earlier that I welcomed this bear rally with open arms. That is because the very definition of “fair trading opportunity” is when you understand something better than the other guy.
The information is out there for all to see, if you choose to see it for what it is. Please understand that I am not saying to short banks. I would never advise you to short an outfit that can get its raw material for free. That’s just crazy talk.
But I will say that this indicates that we are nowhere near out of the woods yet. Which means you can short all sorts of other candidates. Just this week in WaveStrength Options Weekly, we recommended adding yet another put option to the portfolio. The latest victim is a major electronics player who may very well be the next GE before the dust settles.
If we get anywhere near our usual results [both our Lockheed (LMT, Financial) and Apollo (APOL, Financial) puts shot up in the first week], we will see this play edge toward triple digits by this time next week.
Yours truly,
Adam Lass,
Senior Editor, WaveStrength Options Weekly
www.taipanpublishinggroup.com
