Monday, November 24, 2008

Citigroup -Your an Owner and Your Paying for this Privilege

If you pay taxes, you are now a partial owner of Citigroup. It was one of the most awful purchases you ever made. What is going on is just insane. It makes you want to throw up your hands and just give up. Does this deal somehow help the system by screwing the tax payers? If it did that than maybe it would be worth it. The problem is I don't think it does. Not only are we now bailing out debt holders but we are working on bailing out (with taxpayer money) common equity holders. How is the Citigroup management still have their jobs with huge salaries and massive previous bonuses? Why does the government act like they are negotiating when their counterparts do not hold any of the cards. The government has pocket aces and Citigroup has 2 and a 7 off suit. On the flop another ace comes out. The government is acting like Citigroup also has two aces. It is asinine. It is just going to cost us that much more and prolong the problem. (I have never had a position long or short in Citigroup)

The markets rallied and set up for a great risk reward short at the close. The S&P rallied back to major resistance around 850. You also have the Case Schiller index numbers coming out tomorrow and more importantly the FDIC banking and troubled bank report. Friday I passed on doing anything. Today I shorted right at the close. Your basically doing nothing (which is a great option) or trading occasionally when it sets up right. I am doing both. Trading with about 5 to 10% of the portfolio and nothing with the rest. It's not what I am used to but when you have companies like Berkshire trading in 10% ranges daily something like the entire financial sector up 15% in one day, I think your a fool if your not taking advantage of craziness. Playing small makes sure you don't get killed in the insanity. If your buying or covering shorts at the close today you got it backwards. Outcomes are so bifurcated right now, for everything, that unless you have a balance sheet play, I see very little to long term invest in. Earnings are still as about as predictable as the eventual date of the end of the earth.

Speaking of bifurcation (which has become my word for 2008), my biggest fear continues to be massive inflation. That the dollar eventually starts to tumble as the price of bailout America and the equity holders skyrockets and faith in currency itself disapears. This is not something I am predicting, just something I worry about. One of the most interesting things the last couple of days has been gold's strong move higher. Since last week Thursday, you are up by over $80 an ounce. Despite all the deflation talk gold is at the same price it was on January 1st of this year. Talk about an outperforming asset class. I watch gold daily along with treasury yields. That will be the canary in the mines telling you if inflation is going to become a major concern in the not to distant future. Gold's action in the last three trading days raised one of my eyebrows.

We shall see what kind of insanity occurs tomorrow.

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