Citigroup...Effectively Nationalized

The government has begun to exchange the preferred shares of Citigroup to common shares, which raises the governments stake in this dog to roughly 36%. Which is effectively nationalization. The government will replace the majority of Citigroups sycophant board of directors. The company has come and stated that they think this will remove the uncertainty that investors currently have...well the stock is of 43% in the pre market to $1.38. Anyway you look at it, its a bad deal that had to happen, the economy cant sustain the bankruptcy of this institution. The only good thing in terms of the public, is the government is converting their stake to common, not pumping anymore money into Citi.

BOFA is the next target, then Wells Fargo will soon follow.

There will be a time when the banks will bottom, maybe today is the day, I doubt it, as the 4Th QTR GDP figures just hit the tape, and they are real bad. GDP shrank a whopping 6.2% in the 4TH QTR. A horrible figure, that is sure to kill stock index futures, but there is a silver lining in that next years comparisons will look that much better. The powers that be wanted this report to be bad...Food for thought.

The market is now looking 200 points lower off the GDP and Citigroup news.

This situation with Citibank is eerily similar to the governments actions with regards to AIG. Its all about the massive dilution that shareholders are about to take. When the government made their move in AIG, people thought that the pain had stopped until more and more bad news came out on AIG. This just confirms not only that the problems at Citigroup are far more serious, but more of these type of actions are going to happen. I think the damage is going to be confined to C, BAC, WFC, and the regional banks. In the short term, like I said bad news, but mid to long term good news in the sense that what ails the banks is the inability of their trading desks to properly value/mark their toxic securities. This action by the govt will speed up the process of properly pricing these bonds, and to extricate them from balance sheets going forward. At this moment no one knows or can make a true assessment of where the banks stand, because they lie all of the time with regards to their operations. Just listen to Ken Lewis at BOFA, watch closely, his nose is bigger at the end of his interviews.

This form of nationalization had to happen. The country/economy cant afford a lost decade like Japan had in the 90's. The system will feel lots of pain but its worth it in the long run.

This is good news for the market, not withstanding the GDP figures which are hammering the futures, I am venturing a guess to say that 6900-7000 should be the low, if we break that, then all bets are off.