"Our confidence in Citigroup is strong. The results reflect Citigroup's solid performance due to its strong and diverse banking services making the company more competitive," Prince Alwaleed had commented on Citigroup's net income results when they were announced. Citigroup announced a net income of SR80 billion ($21.54 billion) or $4.31 per share for the twelve months which ended in December 2006, up 7 percent. Revenues increased by 7 percent to SR336.5 billion ($90 billion) compared to the 2005 and Citigroup's assets total SR6.5 trillion ($1.73 trillion).
Prince Alwaleed in February, 2007.
Has the Prince expressed an opinion about Citigroup recently? He chewed out Prince (the US Prince) some time ago, but since then, has he sold? Had a fit, or what?
Is Poole really Cramer's favorite? Wow. I mean, I used to TA for Poole and have my own issues with his view of the world but I don't see him being on board with Cramer's cut rates to negative infinity to bail out everyone attitude.
The Fed will cut. We Fed speakers are trying to prop up the dollar for now. To cut now, or hint at rate cuts would make the dollar sink now. Thus, the fed will speak tough but cut the rates
Conjure and I were visiting an old friend today. CNBC, the financial news network for ADD patients, was blasting in every room, including the men's room.
"Bull denial," Conjure said. "We're going to give those cry babies something to really shed tears about. Let them eat cake!"
One good looking woman, some kind of fund manager, said, "Look, it's my business to be long." Conjure cackled hysterically and added, "But Wait! There's more! For only 5 easy payments of $19.99 she'll throw in a sharpener for all those knives you'll have to catch."
The Fed will not cut. They've said so very explicitly, and to back down now would completely destroy their credibility. Classic end to a game of chicken -- both cars collide.
Anyway, a cut right now wouldn't do any good. Remember, they're having a hard enough time keeping the overnight rate down to 4.25%.
"The Fed will not cut. They've said so very explicitly, and to back down now would completely destroy their credibility."
Um, excuse me, but they have not said explicitly they will not cut. To box themselves into a certain position would be foolish. Furthermore, what credibility are u referring to? You mean the one where they dropped the discount rate 0.5% the day before options expiration back in Aug? You mean the multitude of times they've said things are "contained". You mean the shock and awe 0.5% double whammy in Sept that shocked even the market, not to mention the world? You mean the Fed thats presided over the record low on the USD index? You mean the Fed that has allowed gold and oil to reach all time highs?
Here is an excelent opportunity for the Feds to crush oil. Increase rates by quarter point. With help of few Wall Street buddies, melt down couple of hedge funds that are speculating heavily on oil prices and then come back between meetings to do massive cuts.
Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion cash infusion from the investment arm of the Abu Dhabi government, according to people familiar with the situation.
The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in August.
abu dhabi need to prop up the C in capitalism because they've staked the future of their mega wealthy citizens on sucking up to the west (on the backs of about a million imported slave laborers).
You have to ask yourself one question: When was the last time "the market" didn't get what it wanted, or expected? Certain people are privy to gubbermint info before everybody else. The whole thing is a racket.
Oil MIGHT finally be poised for a correction. VLCC rates out of the Gulf spiked the last day or two, suggesting that the Saudi's have finally started pumping the extra million or so bbls per day they sort of committed two a month ago.
Concrete info on Citi's pending layoffs, whether 35K or 40K or 45K, will very likely have been communicated to the Fed by Rubin or one of his associates, the letter from Sen. Schumer slamming the Atlanta FHLB for funding Countrywide to the tune of $51 billion plus the huge flight to safety mid-afternoon today ought to have sealed the deal that the Fed does 25 bps on 12/11. Whether or not we can get there without a major crisis erupting is another question.
The stock market may be acting like a spoiled brat that hasn't gotten its way, but rational adults such as Larry Summers, Martin Feldstein, Lyle Gramley and Ed Hyman are making solid economic cases for the odds of a recession starting in '08 being over 50% at this point. The harsh stock market correction is perfectly in sync with a recession getting underway in 1H '08 -- which is pretty much what I expect at the moment.
Citi is going to get a lot of pressure to put its SIV's on its balance sheet, which it should do (as HSBC did) but can't right away because its capital ratios won't support the extra $80 billion of assets . . . . . . . If Citi ends up having to jam the SIV on its balance sheet, it'll have to find a way to shrink other parts of its lending programs to make room for the SIV -- and that's how a credit crunch really starts to bite - because credit rolls and new lending has to be denied to otherwise creditworthy borrowers because the bad loans made previously grind away at the foundation of equity capital needed to support the whole structure.
The Fed speakers over the next week or two may talk tough about reigning in inflation expectations and not bailing out lenders with big credit losses, but by December 11th the Bernanke Fed will flinch - because the alternatives are even worse.
This is really important, because now the "Too big to fail banks" have a new real source of capital. The Gov can bail out FNM and FRE and the Arabs bail out the banks. The equation has changed. We are living in interesting times...
THIS may have kicked off the immediate rally this evening:
Abu Dhabi Invests $7.5 Billion in Citigroup
By ROBIN SIDEL
November 26, 2007 10:04 p.m.
Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government.
The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in the summer. Citigroup Chief Executive Officer and Chairman Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, said it was facing as much as $11 billion more in losses.
Misean, congrats on successfully calling the 10 year below 4- it got there quickly!
What do you see next? Insana on CNBC had some good points: you don't typically see the bond yields down and stocks down and dollar down- he actually seems genuinely scared- and predicts more massive fed rate cuts down to the 1% again in order to get things liquid.
It was the citigroup injection that popped up the futures. Remember back to the future the "bad future", with the wall-sized-tv Japanese boss? spot on ... only they got the nationality wrong.
It finally struck me today that some of the first ABS, securitized credit card receivables, were first issued on a large scale by Citigroup (then CitiBank (sp?)), back in the late 80's, as a way to buttress their weak balance sheets. Back then the credit ratings of the ABS tranches were analyzed based on the "East Texas experience" - a projection of credit card holder's performance during the crash in the oil patch in East Texas during the early 80s.
Clearly, credit rating standards have degraded substantially since then, and it's all coming home to roost.
"The equation has changed. We are living in interesting times..."
I am not sure C get bail out here.. the interest rate for the convertible is 11% and the convertible price is only a few percent from the closing pps. If the Abu Dhabi buyer start hedging the convertible tomorrow, we can see some real sell off. 7.5B converted at 31.83 a share translates into about 283MM share of C that Abu Dhabi buyer need to short...Average volume for C is 64MM per day.. Tomorrow is going to be an interesting day for C long and short...
More on Citi se4lling equity units to Abu Dhabai Investment Authority..
"Each Equity Unit is mandatorily convertible into Citi shares at prices ranging from $31.83 to $37.24 per share. The Equity Units convert to Citi common shares on dates ranging from March 15, 2010, to September 15, 2011, subject to adjustment. Each Equity Unit will pay a fixed annual payment rate of 11%, payable quarterly. The payment rate reflects market terms based on the conversion premium as well as Citis current dividend yield."
fruitcake, part of the deal is they cant hedge for 2 years.
If you take the 11%, sub out rf of say 4% and assume C cuts its divvy, they could be buying the stock for a ~15% discount from todays close. Its not the call option it is being pimped as.
"Transfer Restrictions The investor may not transfer, sell or hedge the Upper DECS Equity Units or its exposure to the underlying shares for at least 2-years following the settlement date. After 2-years following the settlement date, until 3-years after the final stock conversion date, the investor is subject to certain manner of sale restrictions. "
The way to value the C deal, as stated here, is to just assume they are buying the stock today with an agreement to hold it at least 3-4 years. They could instead put the money in T-bonds and get 3-4%. But Citi is paying them 11% instead. So, that lowers the effective stock purchase price to maybe about $30.
Which is exactly what the stock is selling for now. It's basically a way to buy stock at the current price while givine the market a reason to think the purchase price is higher, hence a reason to bid C up. It's a secondary equity offering a the market with smoke and mirrors.
The bond market says that we'll have a recession (the 10y treasury marches down to 3.75%): My money would be on the bond market being correct and that the FED must cut to not fall behind the curve. I would expect a 25 cut, but I would not be surprised by another 50 cut.
The people in the room making the rate cut decisions fear a general collapse of the financial system more than they fear a broken consumer.
The financial system was to be the way forward for the new American economy--it certainly isn't in teaching or nursing or bartending or leaning on a shovel for the government. If that goes, the shiny promise of tomorrow gets much dimmer.
Also, the people in the room know that all of the apparent economic growth of this decade has been due to financial wizardry and fun-house mirrors. Without the "inovations" of finance, the economy in this decade would have been flat or worse.
When will this information become generally accepted?
So, with the only legal instrument in their hands, they will cut and cut and cut until it is clear that the financial institutions will break and the consumer will break regardless. Then they might move onto direct monetization.
But then they will be able to say that they did what they could. Then on to the lecture and book circuit, ala Greenspan.
I wouldn't be surprised by a 50bp cut here. Freddie Mac bonds are trading 100bp over the Treasury curve on some maturities and according to Barron's that is more than double the usual spread. Since the Administration is paralyzed we can't expect a direct remedy to shore up the GSEs, at least until the 11th hour. Therefore the Fed will have to make sure conditions are hospitable for the GSEs by cutting rates.
Furthermore gold has bounced back to 826.60 as I write this... and if it can hold over 800 the gold correction will turn out to have been much less severe than those of May 06 and the Spring of 07. Rate cuts reduce the opportunity cost of holding gold and also reduce the rates of return on dollar denominated bonds -- and the dollar is gold's competition as a store of value.
In other words, gold's rebound is corroborating the rate cut forecast that fed fund futures have already provided.
"The way to value the C deal, as stated here, is to just assume they are buying the stock today with an agreement to hold it at least 3-4 years. They could instead put the money in T-bonds and get 3-4%. But Citi is paying them 11% instead. So, that lowers the effective stock purchase price to maybe about $30."
I am not sure it is the right evaluation. Either way, the 7.5B is goingt to C in the next few day. With the convertible, the buyer will get roughly 25% interest between now and the first conversion day. And they have to buy the stock roughly 7% higher than today's closing (31.83 compare to 29.77) so they roughly get 18% discount? They would have gotten the C divy if they purchase stock instead. Who know if C divy is going to be cut soon.. So their discout should be in the range of 1-2% all the way to 18% depending if C keep their divy or cut them (keeping the existing divy, buyer will have roughly 1-2% discount. Cutting the divy completely would mean Abu Dhabi investment authority get 18% dicount)..
0339 GMT [Dow Jones] Abu Dhabi Investment Authority's US$7.5 billion bail-out of Citigroup shows desperation, says senior institutional trader at major U.S. brokerage. "They've avoided a discounted equity issue by selling convertible equity units at an 11% interest rate. That's massively high. It shows they were
super desperate for funds." Notes 2-year U.S. bond yield of 2.88%, 10-year yield of 3.84%. "Citigroup have had to go out and offer 11% to get their hands on US$7.5 billion. It's good news, but it's bad news as well because it shows how deep these problems are. That's quite an extraordinary rate." Australia's S&P/ASX 200 has retreated to 6414.60 after spiking up from 6350.0 to 6440.1 on the news, suggesting there's fear that Wall Street might not sustain initial positive reaction to Citigroup bail-out. DJIA futures currently up 0.8% on
Globex. S&P 500 futures up 1.0%. (DWR)
hey CR, Tanta ( for creating this ) and the commentators ( for participating ) in this blog deserve a pat on the back - So, about an hour ago while watching my trashy B4U Music channel ( don't ask ) I idly switched over to CNBC Worldwide and saw the futures had spiked, Nikkei was up - As I absorbed the news I thought it worthwhile enough to come over to CR to report it - Guess what ! several people had already noticed it and talked about it !
Way to go. BTW - Nikkei is back down again -67 per Bloomberg.
Wow, Citi must really be desperate for funds. I guess the oil barons are the only ones with capital to piss away. Aah, the price we pay to own a little slice of America.
Great deal for Citi execs, as they get to stuff a few more million in their Swiss bank accts for they are axed or led away in cuffs.
What does Citi care what interest rate they pay, once they are insolvent, we go by U.S. bankrupcy laws not abu dahbi's, right?
Equity is the cheapest form of financing for a company (not shareholders), especially with a low dividend. And it opens the door to an acquisition later. So, the stock might bounce up a little tomorrow, mainly because the market figures Abus got inside info and did their DD.
If you look at C as damaged goods a notch up from CFC, it's good news.
If you still see C as a bulwark of banking, it's bad news.
As up to date as everyone here is did anyone see things disintegrating this quickly a year ago? Myself I thought slow train wreck over 2-3 years to get where we are today. The breadth and speed of this downturn has been breath taking.
"Transfer Restrictions: The investor may not transfer, sell or hedge the Upper DECS Equity Units..."
My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
The people in the room making the rate cut decisions fear a general collapse of the financial system more than they fear a broken consumer. - Neal
Amen. If the system breaks the consumer is toast regardless. Save the system and you can go back for the consumers later [those that survive].
So, with the only legal instrument in their hands, they will cut and cut and cut until it is clear that the financial institutions will break and the consumer will break regardless. Then they might move onto direct monetization.
Plus there will be a NEW administration by then and whole new crop of pig to be turned into pork. Monetarism isn't the only white meat ya know.
o one will acquire citi..at 150 billion it is still too big and its book value will be closer to 200..actually decreases the chances of spinning of certain assets which is a negative i belive
My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
AZ_Cowboy | 11.27.07 - 12:01 am | #
Exactly - how are they going to know? Audit every shadow bank account in the Caymans?
A rate cut for sure, and more important, pumping cash into the economy. Nothing like a little inflation to bail out the debtors, whoever they are and screw the foreign dollar holders in the process. Those Walmart toys cost you 1.25 for which Walmart paid their supplier a dollar and now the poor chinee are only going to get 75 cents...damn subsidized trade anyway.
Fieldstone Mortgage Co., which originated $5.5 billion in mortgages last year, filed for Chapter 11 protection in U.S. Bankruptcy Court in Baltimore on Friday. The company said it has little cash to finance its operations and would be forced to shut down unless it's allowed to borrow $3.8 million from Credit-Based Asset Servicing and Securitization, or C-Bass.
C will get pounded hard tomorrow as will the market and the destruction of fictitious capital continues unabated. CFC didn't respond too well to BAC's capital infusion and neither will C. Any ramp of C is a great opportunity to short massively. The big boys know this is not good news, and is in fact, terribly bad news. Abu Dubhai may be shorting most heavily of all, LOL! Makes perfect sense for a vulture capital pole position similar to the BAC/CFC deal.
On to other things. There seems some general agreement amongst the more experienced of us that there will be a rate cut of 25 or 50bps, this really cannot be argued considering the last couple of Fed-dove moves. Regarding the last cut, the Fed didn't get nearly as much mileage out of it as the first one. Why not? Questioning minds want to know the answer to this riddle. What makes any of you believe that a large cut would be met with any kind of a rally in the financials or the general market? My call is 50bps AND a large sell-off to boot, although weak-dollar plays may sky for a very brief period.
Heli-Ben and the Pigmen Boyz could really hand the weak-dollar crowd an ass-pounding with a hold or a raise, seeing as how everybody is lined up on the same one-way bet, but they will pass up this opportunity. As Fleck says, the Fed is run on the applause meter, and Cramer thinks BB is a rock star. BTW, the weak dollar is an illusion meant to suck in as many gullible dupes as possible. It's a race to the bottom and no (major) foreign currency is intrinsically any good, so it's all relative. Queue the gold bugs...
" My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
AZ_Cowboy | 11.27.07 - 12:01 am | #
Exactly - how are they going to know? Audit every shadow bank account in the Caymans"
No, they don't need to audit anything.. It is not exactly easy to hedge 283MM share of C.. Who can be the counter party without the world know about it? i.e. how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it? I love a good story.. but this one look to me like a straight investment and C is desperate to raise capitals (hence the discount). And the shareholder is going to take some dilutions and see how things will play out....
"how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it?"
Are you kidding? With the kind of float C has? Get real, ADIA will be shorting with both fists, directly or indirectly matter not. Watch the way the stock moves straight down and that will be the tell tomorrow.
No, they don't need to audit anything.. It is not exactly easy to hedge 283MM share of C.. Who can be the counter party without the world know about it? i.e. how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it?
I don't know.
Setser had bits on PBoC/SAFE supposedly moving big chunks of money through silent clients in the Caymans, London, Switzerland, etc.
It was how he explained the differences in account sizes from China side to US side on reserve build up - has to be third party help somewhere 'cause the official transaction numbers didn't add up.
I could see ADIA hedging this transaction in smaller bundles over time via some third party account (or chain of accounts) and the world would never know. And if they were suspected, what does 'the world' do about it?
My guess is you are right it is an investment but I'd guess an operation as large as an OPEC SWF could still find ways to hedge even if holding the C transaction separately in the left hand while hedging in the right... an arms length apart so to speak.
I think the stock market will begin to build a short term bottom pattern in the hope of a rate cut.
No rate cut would means crash. 25 bp cut would means the resumption (after an upward countertrend leg) of the downtrend. And 50 bp would prolong a sucker rally.
I am betting raise or hold with strong cuts in January, but I really do not have a freaking clue. I think they need to stand up for the dollar at this point in time.
Fed will cut. However, I think that they should support the dollar and not cut. The interest rate cuts are not help long term rates and inflation (education, health care, food, gas, etc) is increasing. Also, banks will request more down payment for loans to insure their capital requirements. Looking like the real estate issue will last longer than this administration into 2011.
"Regarding the last cut, the Fed didn't get nearly as much mileage out of it as the first one. Why not? Questioning minds want to know the answer to this riddle."
This blurb, from Wednesday 31 October 2007 BlackSwanTrading.com Newletter, may provide part of the answer:
So, are our cheaper dollars now at the right price? In the coming months, all eyes will be on the consumer price index for the answer. Unfortunately, there are circumstances in which excessive monetary creation can destabilise the economy while the rate of CPI inflation remains low. These tend to be present when the danger of monetary destabilisation is at its highest because people have lost faith in the ability of money to keep its value through time. As one of the great monetary economists of the last century, Jacques Rueff, pointed out in the late 1960s, people react to the growing insolvency of a reserve currency, such as the dollar, by acquiring gold, land, houses, corporate shares, paintings and other works of art having an intrinsic value because of their scarcity.
ounds familiar? Indeed, this is the story of our present decade, one in which alternatives to the dollar as a store of value have soared even while the CPI has remained subdued. Following the 2001 dotcom crash, resources flowed into real estate, foreign exchange and commodities, while CPI inflation remained modest. In 2007 the housing bubble finally burst, causing credit to crunch as the market struggled to out the owners of dud mortgages and mortgage-linked contracts.
The Fed reacted with cheaper dollars, which did precisely nothing in that regard. Credit risk fears remain unabated. But the market duly dumped dollars for harder assets, pushing the euro, shares, oil and gold to record dollar prices.
i agree with the mkt. buy gold hard.
Hmm oil 125.00 or 150.00 a barrel.
"Our confidence in Citigroup is strong. The results reflect Citigroup's solid performance due to its strong and diverse banking services making the company more competitive," Prince Alwaleed had commented on Citigroup's net income results when they were announced. Citigroup announced a net income of SR80 billion ($21.54 billion) or $4.31 per share for the twelve months which ended in December 2006, up 7 percent. Revenues increased by 7 percent to SR336.5 billion ($90 billion) compared to the 2005 and Citigroup's assets total SR6.5 trillion ($1.73 trillion).
Prince Alwaleed in February, 2007.
Has the Prince expressed an opinion about Citigroup recently? He chewed out Prince (the US Prince) some time ago, but since then, has he sold? Had a fit, or what?
And here is the Cramer dance remix, courtesy of Big Picture.
The Big Picture
Bill Poole is a SHAME! He's SHAMEFUL!
The market acts like my two year old when she does not get her way.
I think it is time to hold the line and force the two year old to grow up a little bit.
Prince Alwaleed is the modern face of Saudi royalty, but his sums don't quite add up in C when they made investment.
Alwaleed and the Saudis are getting punked by Buscho and their banking cronies.
I think the UAE is more enterprising with buys into Sony and AMD.
Is Poole really Cramer's favorite? Wow. I mean, I used to TA for Poole and have my own issues with his view of the world but I don't see him being on board with Cramer's cut rates to negative infinity to bail out everyone attitude.
NO RATE CUTS. We need to work this out the old fashioned way.
oh, ok, i just rewatched the cramer video (had forgotten what he said) and realize the poole comment is a joke.
Hard drive crash. No computer. Can only retaliate against silly posts by iPhone.
Pls send help.
The Fed will cut. We Fed speakers are trying to prop up the dollar for now. To cut now, or hint at rate cuts would make the dollar sink now. Thus, the fed will speak tough but cut the rates
This Fed has yet to demonstrate any backbone whatsoever. Expect another cut, and if the DOW breaches 12000 it'll be at least 50bp.
Wait, Atrios wasn't in on a joke?
You're slipping, dude.
Cramer wasn't joking about Poole. Poole had just made some comments about not needing to cut, and Cramer didn't agree, if I recall correctly...
Would love the Christmas present of no cut. A 2000 point drop would do wonders for my PUTS.
Conjure and I were visiting an old friend today. CNBC, the financial news network for ADD patients, was blasting in every room, including the men's room.
"Bull denial," Conjure said. "We're going to give those cry babies something to really shed tears about. Let them eat cake!"
One good looking woman, some kind of fund manager, said, "Look, it's my business to be long." Conjure cackled hysterically and added, "But Wait! There's more! For only 5 easy payments of $19.99 she'll throw in a sharpener for all those knives you'll have to catch."
It will be funny to see if they cut rates and the markets still tank.
Who here thinks the consumer can take $125 oil?
The Fed will not cut. They've said so very explicitly, and to back down now would completely destroy their credibility. Classic end to a game of chicken -- both cars collide.
Anyway, a cut right now wouldn't do any good. Remember, they're having a hard enough time keeping the overnight rate down to 4.25%.
"The Fed will not cut. They've said so very explicitly, and to back down now would completely destroy their credibility."
Um, excuse me, but they have not said explicitly they will not cut. To box themselves into a certain position would be foolish. Furthermore, what credibility are u referring to? You mean the one where they dropped the discount rate 0.5% the day before options expiration back in Aug? You mean the multitude of times they've said things are "contained". You mean the shock and awe 0.5% double whammy in Sept that shocked even the market, not to mention the world? You mean the Fed thats presided over the record low on the USD index? You mean the Fed that has allowed gold and oil to reach all time highs?
Oh, that Fed!
Here is an excelent opportunity for the Feds to crush oil. Increase rates by quarter point. With help of few Wall Street buddies, melt down couple of hedge funds that are speculating heavily on oil prices and then come back between meetings to do massive cuts.
To the Rescue!
Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion cash infusion from the investment arm of the Abu Dhabi government, according to people familiar with the situation.
The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in August.
Abu Dhabi to Bolster Citigroup With $7.5 Billion Capital Infusion - WSJ.com
The Fed has been saying don't expect a rate cut in December; meanwhile the market is debating the size of the cut: 25bps or 50bps.
The expectation is there anyway and the debate seems to have been resolved at 50bps.
What Wall Street wants, Wall Street gets. It's just the way this country is being run.
I agree with idoc . . . I said to myslef (and my wife) there was no way the could credibly cut rates, and they did so twice. (That's our Fed!)
They will put off as much pain as possible until after the election . . . and then it's the Democrats problem.
50 bps cut no doubt in my mind about it.
abu dhabi need to prop up the C in capitalism because they've staked the future of their mega wealthy citizens on sucking up to the west (on the backs of about a million imported slave laborers).
OT does anyone know why the futures markets have suddenly gone up huge in like the last 30 minutes?
That's 3 month dollar index:
INO Equities Stocks Indexes - US DOLLAR INDEX (NYBOT:DX) Price Chart and Quote
Down 7.6% in 3 months. I think the Fed is trapped and can't cut.
IMHO
Cheers,
You have to ask yourself one question: When was the last time "the market" didn't get what it wanted, or expected? Certain people are privy to gubbermint info before everybody else. The whole thing is a racket.
Couple of things.
The Fed speakers over the next week or two may talk tough about reigning in inflation expectations and not bailing out lenders with big credit losses, but by December 11th the Bernanke Fed will flinch - because the alternatives are even worse.
Citi and Petrodollars
This is really important, because now the "Too big to fail banks" have a new real source of capital. The Gov can bail out FNM and FRE and the Arabs bail out the banks. The equation has changed. We are living in interesting times...
THIS may have kicked off the immediate rally this evening:
Abu Dhabi Invests $7.5 Billion in Citigroup
By ROBIN SIDEL
November 26, 2007 10:04 p.m.
Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government.
The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in the summer. Citigroup Chief Executive Officer and Chairman Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, said it was facing as much as $11 billion more in losses.
Citigroup announced the transaction Monday night.
Misean, congrats on successfully calling the 10 year below 4- it got there quickly!
What do you see next? Insana on CNBC had some good points: you don't typically see the bond yields down and stocks down and dollar down- he actually seems genuinely scared- and predicts more massive fed rate cuts down to the 1% again in order to get things liquid.
Anyway, appreciate your comments and predictions.
It was the citigroup injection that popped up the futures. Remember back to the future the "bad future", with the wall-sized-tv Japanese boss? spot on ... only they got the nationality wrong.
It finally struck me today that some of the first ABS, securitized credit card receivables, were first issued on a large scale by Citigroup (then CitiBank (sp?)), back in the late 80's, as a way to buttress their weak balance sheets. Back then the credit ratings of the ABS tranches were analyzed based on the "East Texas experience" - a projection of credit card holder's performance during the crash in the oil patch in East Texas during the early 80s.
Clearly, credit rating standards have degraded substantially since then, and it's all coming home to roost.
Thanks anarchus
Nikkei went from 370 down to up 150 in less than an hour.
Could be the 7.5 billion to Citi.
Also read there are a record number of people online for black Monday or whatever it is called.
You see the 11% rate C is paying on these?
"The equation has changed. We are living in interesting times..."
I am not sure C get bail out here.. the interest rate for the convertible is 11% and the convertible price is only a few percent from the closing pps. If the Abu Dhabi buyer start hedging the convertible tomorrow, we can see some real sell off. 7.5B converted at 31.83 a share translates into about 283MM share of C that Abu Dhabi buyer need to short...Average volume for C is 64MM per day.. Tomorrow is going to be an interesting day for C long and short...
Belated thanks to Justin as well your comment was not up till after I posted.
More on Citi se4lling equity units to Abu Dhabai Investment Authority..
"Each Equity Unit is mandatorily convertible into Citi shares at prices ranging from $31.83 to $37.24 per share. The Equity Units convert to Citi common shares on dates ranging from March 15, 2010, to September 15, 2011, subject to adjustment. Each Equity Unit will pay a fixed annual payment rate of 11%, payable quarterly. The payment rate reflects market terms based on the conversion premium as well as Citis current dividend yield."
11% !!
The Fed has one, and only one goal here: do not be blamed for the coming recession.
fruitcake, part of the deal is they cant hedge for 2 years.
If you take the 11%, sub out rf of say 4% and assume C cuts its divvy, they could be buying the stock for a ~15% discount from todays close. Its not the call option it is being pimped as.
The 11% shows hoe desperate Citi is, but it does same them for a few years. This deal saves the system for a while, not Citi shareholders...
Even for 11% potential gain this seems like a risky deal
xo, re: potential hedging by Abu Dhabi
"Transfer Restrictions The investor may not transfer, sell or hedge the Upper DECS Equity Units or its exposure to the underlying shares for at least 2-years following the settlement date. After 2-years following the settlement date, until 3-years after the final stock conversion date, the investor is subject to certain manner of sale restrictions. "
so short term savings rates are going to drop further if the fed cuts, no? Good bye 4.75% 6 month CD
.
Still, I thank CR and folks for helping me ride the TIPS gravy train
VIPSX: Basic Chart for VANGUARD INFLATION PROTECTED SE - Yahoo! Finance
Woot! Up near 10% since mid-August when I got in.
"xo, re: potential hedging by Abu Dhabi"
Thanks, Is the 8K posted yet? can you post the link to the info.. Tomorrow is going to be fun in C land (and I have some C put.. heh heh)...
184 visitors at this time of night interesting night.
The way to value the C deal, as stated here, is to just assume they are buying the stock today with an agreement to hold it at least 3-4 years. They could instead put the money in T-bonds and get 3-4%. But Citi is paying them 11% instead. So, that lowers the effective stock purchase price to maybe about $30.
Which is exactly what the stock is selling for now. It's basically a way to buy stock at the current price while givine the market a reason to think the purchase price is higher, hence a reason to bid C up. It's a secondary equity offering a the market with smoke and mirrors.
The bond market says that we'll have a recession (the 10y treasury marches down to 3.75%): My money would be on the bond market being correct and that the FED must cut to not fall behind the curve. I would expect a 25 cut, but I would not be surprised by another 50 cut.
Tip to newbie Fed watchers. Ignore the speeches for the next 2 weeks, they are meaningless.
Ben could have taken two routes, and he has chosen inflation. There is no turning back at this point, no taking back the rate cuts.
The jawboning behind the curtain is noise. Heed it at your portfolio's peril.
The people in the room making the rate cut decisions fear a general collapse of the financial system more than they fear a broken consumer.
The financial system was to be the way forward for the new American economy--it certainly isn't in teaching or nursing or bartending or leaning on a shovel for the government. If that goes, the shiny promise of tomorrow gets much dimmer.
Also, the people in the room know that all of the apparent economic growth of this decade has been due to financial wizardry and fun-house mirrors. Without the "inovations" of finance, the economy in this decade would have been flat or worse.
When will this information become generally accepted?
So, with the only legal instrument in their hands, they will cut and cut and cut until it is clear that the financial institutions will break and the consumer will break regardless. Then they might move onto direct monetization.
But then they will be able to say that they did what they could. Then on to the lecture and book circuit, ala Greenspan.
I wouldn't be surprised by a 50bp cut here. Freddie Mac bonds are trading 100bp over the Treasury curve on some maturities and according to Barron's that is more than double the usual spread. Since the Administration is paralyzed we can't expect a direct remedy to shore up the GSEs, at least until the 11th hour. Therefore the Fed will have to make sure conditions are hospitable for the GSEs by cutting rates.
Furthermore gold has bounced back to 826.60 as I write this... and if it can hold over 800 the gold correction will turn out to have been much less severe than those of May 06 and the Spring of 07. Rate cuts reduce the opportunity cost of holding gold and also reduce the rates of return on dollar denominated bonds -- and the dollar is gold's competition as a store of value.
In other words, gold's rebound is corroborating the rate cut forecast that fed fund futures have already provided.
The C infusion might give the Fed a little cover. It has no effect on the recession.
Looks like the futures and the Nikkei are falling back. Somebody must have read the whole press release.
It doesn't even give the fed cover. Other than buying C time, it's almost meaningless.
What do you call it when a company sells more equity as the stock price declines?
A junior death spiral?
"The way to value the C deal, as stated here, is to just assume they are buying the stock today with an agreement to hold it at least 3-4 years. They could instead put the money in T-bonds and get 3-4%. But Citi is paying them 11% instead. So, that lowers the effective stock purchase price to maybe about $30."
I am not sure it is the right evaluation. Either way, the 7.5B is goingt to C in the next few day. With the convertible, the buyer will get roughly 25% interest between now and the first conversion day. And they have to buy the stock roughly 7% higher than today's closing (31.83 compare to 29.77) so they roughly get 18% discount? They would have gotten the C divy if they purchase stock instead. Who know if C divy is going to be cut soon.. So their discout should be in the range of 1-2% all the way to 18% depending if C keep their divy or cut them (keeping the existing divy, buyer will have roughly 1-2% discount. Cutting the divy completely would mean Abu Dhabi investment authority get 18% dicount)..
from the wire:
0339 GMT [Dow Jones] Abu Dhabi Investment Authority's US$7.5 billion bail-out of Citigroup shows desperation, says senior institutional trader at major U.S. brokerage. "They've avoided a discounted equity issue by selling convertible equity units at an 11% interest rate. That's massively high. It shows they were
super desperate for funds." Notes 2-year U.S. bond yield of 2.88%, 10-year yield of 3.84%. "Citigroup have had to go out and offer 11% to get their hands on US$7.5 billion. It's good news, but it's bad news as well because it shows how deep these problems are. That's quite an extraordinary rate." Australia's S&P/ASX 200 has retreated to 6414.60 after spiking up from 6350.0 to 6440.1 on the news, suggesting there's fear that Wall Street might not sustain initial positive reaction to Citigroup bail-out. DJIA futures currently up 0.8% on
Globex. S&P 500 futures up 1.0%. (DWR)
11%---Yikes
what about the discount window...
how bad could it have possibly been?
WSJ -
Abu Dhabi to Bolster Citigroup With $7.5 Billion Capital Infusion:
Abu Dhabi to Bolster Citigroup With $7.5 Billion Capital Infusion - WSJ.com
Bank of America probably thought they got a deal on CFC to. Wonder what these idiots will think at 15 dollars a share?
OTS Media Advisory: Nation's Foremost Experts Headline National Housing Forum Next Week (and the Money Honey will be a panel moderator)
Nation's Foremost Experts Headline National Housing Forum Next Week
hey CR, Tanta ( for creating this ) and the commentators ( for participating ) in this blog deserve a pat on the back - So, about an hour ago while watching my trashy B4U Music channel ( don't ask ) I idly switched over to CNBC Worldwide and saw the futures had spiked, Nikkei was up - As I absorbed the news I thought it worthwhile enough to come over to CR to report it - Guess what ! several people had already noticed it and talked about it !
Way to go. BTW - Nikkei is back down again -67 per Bloomberg.
-K
50 bps cut no doubt in my mind about it.
Anonymous | 11.26.07 - 10:14 pm | #
So which Anonymous are you?
Wow, Citi must really be desperate for funds. I guess the oil barons are the only ones with capital to piss away. Aah, the price we pay to own a little slice of America.
Great deal for Citi execs, as they get to stuff a few more million in their Swiss bank accts for they are axed or led away in cuffs.
What does Citi care what interest rate they pay, once they are insolvent, we go by U.S. bankrupcy laws not abu dahbi's, right?
Dr. No: The Fed will not cut. They've said so very explicitly, and to back down now would completely destroy their credibility.
Oh! You funny! Haha!
Now, try saying it again, without giggling this time.
Equity is the cheapest form of financing for a company (not shareholders), especially with a low dividend. And it opens the door to an acquisition later. So, the stock might bounce up a little tomorrow, mainly because the market figures Abus got inside info and did their DD.
If you look at C as damaged goods a notch up from CFC, it's good news.
If you still see C as a bulwark of banking, it's bad news.
As up to date as everyone here is did anyone see things disintegrating this quickly a year ago? Myself I thought slow train wreck over 2-3 years to get where we are today. The breadth and speed of this downturn has been breath taking.
"Transfer Restrictions: The investor may not transfer, sell or hedge the Upper DECS Equity Units..."
My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
Oh yeah, put me in for a 25bp cut. 50 if the market goes to hell before the meeting.
The people in the room making the rate cut decisions fear a general collapse of the financial system more than they fear a broken consumer. - Neal
Amen. If the system breaks the consumer is toast regardless. Save the system and you can go back for the consumers later [those that survive].
So, with the only legal instrument in their hands, they will cut and cut and cut until it is clear that the financial institutions will break and the consumer will break regardless. Then they might move onto direct monetization.
Plus there will be a NEW administration by then and whole new crop of pig to be turned into pork. Monetarism isn't the only white meat ya know.
o one will acquire citi..at 150 billion it is still too big and its book value will be closer to 200..actually decreases the chances of spinning of certain assets which is a negative i belive
My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
AZ_Cowboy | 11.27.07 - 12:01 am | #
Exactly - how are they going to know? Audit every shadow bank account in the Caymans?
So which Anonymous are you?
The one that lives in the sandhills.
C is charging their SIVs to their new Abu Dhabi card at an introductory rate of 11%!
C - starved for immediate cash.........neat!
A rate cut for sure, and more important, pumping cash into the economy. Nothing like a little inflation to bail out the debtors, whoever they are and screw the foreign dollar holders in the process. Those Walmart toys cost you 1.25 for which Walmart paid their supplier a dollar and now the poor chinee are only going to get 75 cents...damn subsidized trade anyway.
Fieldstone Mortgage Co., which originated $5.5 billion in mortgages last year, filed for Chapter 11 protection in U.S. Bankruptcy Court in Baltimore on Friday. The company said it has little cash to finance its operations and would be forced to shut down unless it's allowed to borrow $3.8 million from Credit-Based Asset Servicing and Securitization, or C-Bass.
The one that lives in the sandhills.
Anonymous | 11.27.07 - 12:21 am | #
Well that explains it - you must be the only one - the sandhills are pretty empty.
C is charging their SIVs to their new Abu Dhabi card at an introductory rate of 11%!
Allen C | 11.27.07 - 12:22 am | #
Do they get frequent flier miles?
C will get pounded hard tomorrow as will the market and the destruction of fictitious capital continues unabated. CFC didn't respond too well to BAC's capital infusion and neither will C. Any ramp of C is a great opportunity to short massively. The big boys know this is not good news, and is in fact, terribly bad news. Abu Dubhai may be shorting most heavily of all, LOL! Makes perfect sense for a vulture capital pole position similar to the BAC/CFC deal.
On to other things. There seems some general agreement amongst the more experienced of us that there will be a rate cut of 25 or 50bps, this really cannot be argued considering the last couple of Fed-dove moves. Regarding the last cut, the Fed didn't get nearly as much mileage out of it as the first one. Why not? Questioning minds want to know the answer to this riddle. What makes any of you believe that a large cut would be met with any kind of a rally in the financials or the general market? My call is 50bps AND a large sell-off to boot, although weak-dollar plays may sky for a very brief period.
Heli-Ben and the Pigmen Boyz could really hand the weak-dollar crowd an ass-pounding with a hold or a raise, seeing as how everybody is lined up on the same one-way bet, but they will pass up this opportunity. As Fleck says, the Fed is run on the applause meter, and Cramer thinks BB is a rock star. BTW, the weak dollar is an illusion meant to suck in as many gullible dupes as possible. It's a race to the bottom and no (major) foreign currency is intrinsically any good, so it's all relative. Queue the gold bugs...
" My take is that the ADIA can't hedge the risk directly. I'm sure the Abu govt already has an indirect method of hedging in play. 11% with no risk. Nice.
AZ_Cowboy | 11.27.07 - 12:01 am | #
Exactly - how are they going to know? Audit every shadow bank account in the Caymans"
No, they don't need to audit anything.. It is not exactly easy to hedge 283MM share of C.. Who can be the counter party without the world know about it? i.e. how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it? I love a good story.. but this one look to me like a straight investment and C is desperate to raise capitals (hence the discount). And the shareholder is going to take some dilutions and see how things will play out....
"how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it?"
Are you kidding? With the kind of float C has? Get real, ADIA will be shorting with both fists, directly or indirectly matter not. Watch the way the stock moves straight down and that will be the tell tomorrow.
xo-
The key word in my post was "indirect". And any hedge they took out was already put on before the deal was announced.
No, they don't need to audit anything.. It is not exactly easy to hedge 283MM share of C.. Who can be the counter party without the world know about it? i.e. how are they going to borrow that many C stock, write any kind of derivative and/or other hedging without letting anyone know about it?
I don't know.
Setser had bits on PBoC/SAFE supposedly moving big chunks of money through silent clients in the Caymans, London, Switzerland, etc.
It was how he explained the differences in account sizes from China side to US side on reserve build up - has to be third party help somewhere 'cause the official transaction numbers didn't add up.
I could see ADIA hedging this transaction in smaller bundles over time via some third party account (or chain of accounts) and the world would never know. And if they were suspected, what does 'the world' do about it?
My guess is you are right it is an investment but I'd guess an operation as large as an OPEC SWF could still find ways to hedge even if holding the C transaction separately in the left hand while hedging in the right... an arms length apart so to speak.
that fat cat garfield (Citi) shipped his little happy buddy odie(Siv junk) to abu dhabi cash on delivery. how fitting!
I think the stock market will begin to build a short term bottom pattern in the hope of a rate cut.
No rate cut would means crash. 25 bp cut would means the resumption (after an upward countertrend leg) of the downtrend. And 50 bp would prolong a sucker rally.
EWZ
I am betting raise or hold with strong cuts in January, but I really do not have a freaking clue. I think they need to stand up for the dollar at this point in time.
I've said it before and I'll say it again;
Bernanke is Wall Street's bitch.
Fed will cut. However, I think that they should support the dollar and not cut. The interest rate cuts are not help long term rates and inflation (education, health care, food, gas, etc) is increasing. Also, banks will request more down payment for loans to insure their capital requirements. Looking like the real estate issue will last longer than this administration into 2011.
Anyone think there is a chance of higher than 50 bps?
Time for a bit of tough love me think.
A 25 bps raise could do wonder to remind the markets that it is not because they want it that they need or should get their cut.
But Ben Bernanke is no Paul Volcker.
Darth Toll
"Regarding the last cut, the Fed didn't get nearly as much mileage out of it as the first one. Why not? Questioning minds want to know the answer to this riddle."
This blurb, from Wednesday 31 October 2007 BlackSwanTrading.com Newletter, may provide part of the answer:
So, are our cheaper dollars now at the right price? In the coming months, all eyes will be on the consumer price index for the answer. Unfortunately, there are circumstances in which excessive monetary creation can destabilise the economy while the rate of CPI inflation remains low. These tend to be present when the danger of monetary destabilisation is at its highest because people have lost faith in the ability of money to keep its value through time. As one of the great monetary economists of the last century, Jacques Rueff, pointed out in the late 1960s, people react to the growing insolvency of a reserve currency, such as the dollar, by acquiring gold, land, houses, corporate shares, paintings and other works of art having an intrinsic value because of their scarcity.
ounds familiar? Indeed, this is the story of our present decade, one in which alternatives to the dollar as a store of value have soared even while the CPI has remained subdued. Following the 2001 dotcom crash, resources flowed into real estate, foreign exchange and commodities, while CPI inflation remained modest. In 2007 the housing bubble finally burst, causing credit to crunch as the market struggled to out the owners of dud mortgages and mortgage-linked contracts.
The Fed reacted with cheaper dollars, which did precisely nothing in that regard. Credit risk fears remain unabated. But the market duly dumped dollars for harder assets, pushing the euro, shares, oil and gold to record dollar prices.