-- Posted Sunday, 5 October 2008 | Digg This Article | Source: GoldSeek.com

Rick’s Picks

Monday, October 6, 2008

Friday’s donnybrook over which bank will take possession of Wachovia was a stroke of luck for Rick’s Picks subscribers, since we’d bought some Citigroup November 20 puts earlier in the week for 1.60 apiece.  They changed hands for as much as 4.03 on Friday, yielding a paper profit so far of $960 for anyone who followed our advice to subscribers on September 26. Citi shares were trading for around 20.41 at the time, but we were looking to get short well above that price, presumably at the top of the next idiotic rally.  Here is the recommendation as it appeared in the Daily Touts section of newsletter: “Will the expected passage of a bailout package suffice to push Citi up to the nearest important Hidden Pivot resistance, a midpoint at 22.96 (shown in the inset)?  If so, we should be ready to intercept the craziness by shorting there, using November 20 puts.”  As it happened, Citi’s idiotic thrust somewhat exceeded our expectations, reaching a high of 23.50.  But it was only a matter of hours before the stock returned to earth, pushing the four put options we’d bought into the black, and thence toward solid gains yesterday, when the stock opened $3 lower on a gap.

The cause of Citi’s plunge, putting aside the still unacknowledged fact of its radioactive balance sheet, was a dispute over whether Wells Fargo’s surprise $15 billion offer for Wachovia Thursday night would pre-empt Citi’s earlier bid to take over the failing bank. Citi had already received the blessings of the FDIC for a shotgun wedding with Wachovia, and there was talk on Friday that the government would effectively force Wachovia to honor the arrangement. An irony that went unremarked in mainstream news accounts of the dispute was that, whereas Wells Fargo was offering to put up billions of real bucks for Wachovia, there was never a price mentioned by Citi.  Could it be because the Citi deal itself was just more of the same government-spun bulls**t that has made all of these bank-takeover pigs appear to fly? Whatever the case, we doubt that Citi, which we surmise to be in far worse shape than Wells, will want to put up real cash money when push comes to shove. Let’s see how the government spins that outcome so as to avoid the implication that Citi failed to buy Wachovia because it is flat broke.

Preparing for the Worst

Readers have responded with some great ideas concerning what we can do to prepare for the inevitable day when Americans are temporarily unable to access funds in their bank accounts.  There are some surprises, such as this note from a former institutional trader: “Do not fall into the trap of calling all doom and gloom. That is what novices and unfortunate goldbugs do. Fat lot of good it has done them.) Doom will be all pervasive then as all call for a continued fall and amateur participants capitulate and even begin to short. I will cover and begin buying.”  And there was also this: “Forget silver. It will continue to be tainted with the industrial metal tag. Unlike ill-informed and populist thoughts prevalent silver is not in short supply and in fact reduced future demand will add to its underperformance going forward.”   I plan to air your ideas and predictions in the Rick’s Picks chat room and on the subscriber page. In the meantime,  let’s hear from all who have something to contribute. You can send me an e-mail by clicking here.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. >From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Sunday, 5 October 2008 | Digg This Article | Source: GoldSeek.com

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