-- Posted Friday, 21 November 2008 | Digg This Article | Source: GoldSeek.com
Rick’s Picks
Friday, November 21, 2008
“Phenomenally accurate forecasts
We forecast an 1800-point plunge in the Dow Industrials here yesterday, but an even scarier prediction appeared in the Touts section of yesterday’s edition – i.e., that Citigroup’s shares would fall to $3.58 -- accompanied by the sound of “trumpets from on high.” The way the stock has been crashing though Hidden Pivot supports lately, there was little reason to doubt it eventually would reach the target. But we did not imagine it would happen as early as this week. Now it seems likely. In just the last two days, Citi has plummeted 48%. If you go back to November 14, when the stock traded as high as $14.68, the losses total 70%. Yesterday Citi settled at 4.67 after rebounding in the final minutes from an intraday low of 4.39. We held a small long position coming in yesterday, having bought a few January call options the day before as the stock unraveled. But we told subscribers to dump them for a 35% loss at the opening, fearing (as we wrote at the time) that the former banking giant’s shares were nearing the “vortex of bankruptcy”.
Until recently, Paulson & Friends had managed to keep Citi out of the headlines. Although there have been recent announcements of huge layoffs at the bank, the last time they made waves on the front page was when they tendered a bogus, $2 billion offer for Wachovia at the same time Wells Fargo was offering $15 billion in more or less real money. Citi initially had the chutzpah to threaten Wachovia with a law suit in order to force the deal through, but someone way up in the chain of command must have told them to back off and keep their mouth shut. Which they did. But if Paulson was hoping investor scrutiny of Citi’s terminally shaky portfolio would wane, those hopes were dashed when sellers sent the stock into a potential death dive yesterday morning.
Shades of 1991?
Now, unless Paulson and Bernanke can pull one helluva rabbit from the hat, this could be Citi’s swan song, since institutional investors and pension funds cannot own stocks priced below $5. If the company’s shares don’t levitate above $5, money managers would have till the end of the quarter to dump them. It wouldn’t be the first time Citi lay within a heartbeat of flatlining. It happened during the allegedly mild recession of 1990-91, when a bond issued by Citi looked like it was going to be undersubscribed. This would have caused a Moody’s downgrade of the bank’s debt that could have been fatal. Fortunately, the Federal Reserve came to the rescue, changing the rules in the ninth inning so that Citi was effectively allowed four strikes. The Fed’s shenanigans saved the day, but it was a piece of cake compared to what the central bank is dealing with this time.
Last Class in 2008
Because the November 5-6 Hidden Pivot Seminar was sold out, we will be offering the class again on December 3-4 for $1150. The fee includes entry to weekly tutorial sessions for an entire year. For more information, click here.
***
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 Friday, 21 November 2008 | Digg This Article | Source: GoldSeek.com