First, I've been calling for another large round of writedowns and foreign infusions of capital the minute the last round of "kitchen sink" quarters were announced in the financials. This is about our 5th kitchen sink "moment" we are going to go through. Why it is a surprise to anyone is a shocker. This is the frustration with being "early" - you watch things that make no sense go on for weeks, months, sometimes quarters before the market catches up to your view. Ironically, today's news comes from the source of the foreign capital infusions themselves. Remember when they were "smart money" and since "they" were investing, all the pundits said you should throw your money in too? I refuted that constantly by saying people who live on top of dead dinosaurs and now benefit from that don't qualify for any bouts of genius.... just a lot of cash flow. [Eddie Lampart Selling out of Citigroup While Arabs/Asians Climb In]
- Mideast sovereign wealth funds may fail to save troubled U.S. banking giant Citigroup Inc (C) unless more cash is pumped into the lender, the head of a $13 billion Dubai-owned investment firm said Tuesday.
- Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.
- Al Ansari said "it would take a lot more money to rescue Citigroup."
Another prediction I made were the coming cuts on Wall Street - again I was early - I figured once the 2007 year end bonuses were secured for the execs, the axe would come down hard. It's taken a few months, but the Kool Aid is on the wall now, and people are finally realizing that large parts of the business are not coming back (at all in some cases) or for a long time in other cases. This news is Citigroup specific but I expect it to spread throughout Wall Street... now do you think companies banking on a "economic bounce in 6 months" would be laying off people? Somehow doubtful.
- Citigroup's job cuts could reach 30,000 or more over the next year and a half because of increasing writedowns from subprime-related debt, CNBC has learned.
- Chief Executive Vikram S. Pandit is currently conducting a massive cost review and could cut as much as 10 percent of the bank's workforce of 370,000, according to people familiar with the situation.
- In the past, Citigroup (NYSE:C - News) would lay off people and then hire them back as consultants. But with more bad-debt writedowns looming, Pandit wants to make the cuts permanent, sources say
Another prediction I've made - 2008 is going to be the worst year in auto sales in 2 decades. Up to a few weeks ago I was hearing Kool Aid from auto executives about the "2nd half recovery" story. That is starting to be silenced, as yet another reality check hits people. One can slice and dice the numbers and find glimmers of hope (as always), but the big picture is what matters and it's not looking good. And it will get worse - remember we are not even "in a recession" yet. Unless you're a car dealer in Omaha or Des Moines or Houston I suppose.
- Ford Motor Co., General Motors Corp. and Toyota Motor Corp. on Monday all reported declines in February U.S. sales, reflecting the tough climate for consumers during the persistent housing slump and credit crunch.
- The industry is in a "crisis, but a crisis is both good news and bad news," Dave Cole, Chairman for the Center for Automotive Research, said. "Crisis is bad news because it's very, very uncomfortable, but it's good news because it helps create a sense of urgency to make the fundamental changes required."
- The annualized rate of sales came in at 15.4 million cars and trucks, topping the 15.3 million targeted by a Thomson Financial survey of analysts.
- "We think there's going to be a lot of stimulus in the economy in the second half of the year, and we're banking on that," GM sales analyst Mike DiGiovanni said in a conference call following the results. (egad!)
Uncle Ben is starting to see just how bad the mortgage crisis really is after having head in sand in 2007 (remember, "subprime will be contained"). He is also suggesting what I've predicted would eventually happen as things degrade - the outright reduction of mortgage balances as housing values fall below earlier borrowed amounts (upside down homes). I do believe this will be the end game that is heavily pushed by the politicos. Remember, if this is not done, people have no reason (other than a credit hit) to not just walk away... I am glad the decision makers in this country see this about a year+ after some others - always on top of the ball... I don't agree with the policy since it's a pure bailout and was I made whole when I was upside down on a trade? No. But political pressure and the simple fact housing (asset prices) are so important to this economy staying afloat, will lend a great chance for this to happen. Another fact the bulls threw in our face last year - don't you worry about housing, it is only 4.5% of GDP. Funny how 4.5% of GDP is causing so much dislocation eh?
- Federal Reserve Chairman Ben Bernanke called Tuesday for additional action to prevent more distressed homeowners from falling into foreclosure. "This situation calls for a vigorous response," Bernanke said in a speech to a banking group in Florida.
- Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise "for a while longer," Bernanke warned.
- "Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," Bernanke said. "Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done," the Fed chief said.
- One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure," Bernanke said. With low or negative equity in their home, a stressed borrower has less ability -- because there is no home equity to tap -- and less financial incentive to try to remain in the home, he said.
- Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. "They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again," Bernanke said.
As for the market again folks, we are in this inflection point of S&P 1320. A break below to 1315 or so and I get extremely bearish. A bounce from here and I drink short term Kool Aid. The news flow continues to be awful but the market wants to hang onto this cliff by their fingernails. So we'll see how it goes.
