The Shadow Stock Trader
Friday, November 21, 2008
By Horacio Marquez
Email – #34
** The market gaps up on a stellar choice for Secretary of the Treasury
New York Fed President Tim Geithner, a man who has been warning for years about structural problems in the banking system and financial markets, like Credit Default Swaps and others, is Barack Obama’s choice for Secretary of the Treasury. Discounting a friendly reception by the financial expert community and a quick nomination, the markets are gapping up.
“Safe” financials like Charles Schwab, which focuses on servicing investment clients rather than lending money, are rallying “only” 14% today, while the S&P 500 is rallying some 5%. But Citigroup’s future is still pending unspecified market doubts. I say unspecified, because even though I tried beating Wall Street friends over their heads, I can get no one to pinpoint what the problem seems to be.
All I can get from them, as well as from the press is a “loss of confidence” in management statement and some rumors about positions in mortgages that Citi has clarified by saying that their exposure is much lighter than others like JPMorgan. Finally, the issue could be what some in the media point t the flip-flop by Secretary of the Treasury Paulson on the use of the TARP program to buy bad assets could have opened the door for some doubts on Citi, if those investors or short-sellers had been confident in Citi’s ability to sell the to the TARP and now that possibility is denied.
If allowing Lehman to fail was a mistake, like many sophisticated free-market advocates and investors like Steve Forbes opined recently, then Citigroup is clearly too big to fail. But I am not going to opine, because it is unclear to me what Geithner would do, even knowing that Mr. Geithner saw former Treasury Secretary Rubin as his mentor. But the market, in this triple-witching options expiration day, is reacting very positively.
We are making good money today, despite the losses due to the market reversal yesterday on our IShares Russell 2000 Index (IWM), and we are some 2% below our entry point in an ultra-volatile market. Small caps typically outperform large caps on the way up in the middle of recessions. This happened in the “big one” back in 1929. The huge question is whether the huge naked shorts that Citi’s President Vikram Pandit is complaining about and many others in this, at times irrational market, will close before year end or not. In any case, the solution has to be based on clarity about future profitability, rather than whether there is shorting activity or not. Massive shorting activity is typically not attracted unless there are detectable weaknesses.
Let’s see what the future of Citigroup will be over the weekend. The company keeps reassuring investors of its solid Tier 1 capital and liquidity, but the market has been shooting first and asking questions later whenever someone smelled any weakness. We will see.
Enjoy and Profit,
Horacio Marquez
All Shadow StockTrader recommendations will be posted on the Money Map Press website. Simply go to http://www.moneymappress.com and click on “Money Shadow Stock Trader.”
Current Portfoli
Name: iShares Russell 2000 Index (NYSE: IWM)
Current Price: $40.64
Comments: Buy
Name: Biotech Holders Trust (AMEX: BBH)
Current Price: $154.70
Comments: Buy
Name: S&P DEP RECEIPTS (AMEX: SPY)
Current Price: $79.90
Comments: Buy
Name: Powershares DB Agriculture Fund (AMEX: DBA)
Current Price: $23.48
Comments: Buy
Name: Materials Select Sector SPDR (AMEX: XLB)
Current Price: $20.17
Comments: Buy
Name: HealthShares Enabling Technologies (NYSE: HHV)
Current Price: $18.77
Comments: Buy
Name: Energy Select Sector SPDR (AMEX: XLE)
Current Price: $44.42
Comments: Buy
Market Watch
NASDAQ
1462.11
0.00
SP 500
778.12
0.00
DJIA
7395.70
+178.73
As Of 5:33AM 3/18/2009
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