Monday, February 23, 2009

Morning Update/ Market Thread 2/23

Good Morning,

Futures are up this morning after reports yesterday evening that the government may take up to a 40% stake in Citigroup common shares. To me this is simply an attempt to prevent the stock from going to zero while incrementally nationalizing. Whatever, this has NO, I repeat zero, meaning in terms of helping the underlying economy. If anything, once again, it will simply make the underlying math worse and delay the inevitable.
NEW YORK (CNNMoney.com) -- Citigroup Inc. is in discussions with regulators about a plan for the federal government to take a larger ownership stake in the bank, according to published reports.

The Wall Street Journal, citing sources familiar with the matter, reported that the government would convert a large portion of its preferred Citigroup shares to common shares.

The government received the preferred shares in return for investing $45 billion in Citi as part of the $700 billion bailout of the financial system.

According to the Journal, the talks involve Citi executives and regulators at the Federal Reserve and Office of the Comptroller of the Currency. Officials in the Obama administration have not said whether they support the plan, the Journal reported.

Citigroup spokesman Michael Hanretta declined to comment on the Journal report. On Friday, the bank issued a statement saying that its capital base is "very strong" and capital reserves were among the highest in the industry at the end of the fourth quarter.
"We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," Hanretta said.

The Treasury Department, which has spearheaded recovery efforts for the financial system, declined to comment on the report, noting it has a policy of not discussing conversations with specific banks.

Yet the department noted that it was open to allowing financial institutions to covert government's existing preferred shares into new convertible preferred stock - a move that would ultimately allow Citigroup to strengthen its capital levels.
As of right now I’m still showing the DOW within its latest downtrend wedge, well inside its larger down trending channel. The S&P is just outside its wedge, but also inside the larger channel.

No economic news released today, consumer confidence and Redbook come tomorrow.

Today’s higher open may confirm those hammers on the DOW and S&P. There is much talk that we may make it back up to a gap fill. I do not think so, I think this is wave 4 of 3 down and we will subsequently get wave 5 down of three and then a larger degree wave 4 – If my count is right and I note that over the weekend Caldero changed his count to reflect the same one Doc and I have been working. The next significant overhead pivot is 789 on the SPX.

Bonds are down pretty sharply today, we’ll have to keep an eye on that as there are a lot of auctions going off today and later this week.

Also keep an eye on the currency crosses, some interesting things going on there. I see that the EUR has been gaining against the Yen, but against the dollar it rose overnight and then fell back down. Think the signs of a rip roaring rally are not there at present, but that could change, so we’ll watch the channels, the oscillators and other indications and will update on the daily thread.

Hope everyone has a great day,

Nate