Big Cap Financials are Frightening

I wrote in this week's summary

Last, the action in financials is beginning to worsen again - despite all our tax dollars funneled into their back pockets. Citigroup (C) and Goldman Sachs (GS) look like death the past two weeks, and General Electric (GE) with its large finance arm doesn't look much better. Worrisome.

The action in Citigroup (C) is just plain scary considering it is our largest banks (by assets, not by market capitalization).


Bank of America (BAC) is beginning to fall off a cliff - I can understand that one too due to their Countrywide exposure.... but.... JPMorgan (JPM)?? The company the US government leaned on for the Bear Stearns and Washington Mutual buyouts is now dropping like a rock. These are part of the Government's Chosen 9 [Oct 13: US Reveals the Chosen 9] and 2 of Ken Heebner's top 4 positions. [Nov 14: Heebner Moves into Financials Big Time]

I never considered it possible for the U.S. to close its stock market but I think it could be possible now after watching this. (think it's impossible? Just remember all the things that have happened the past year that we once deemed impossible) It's also looking increasingly like Citigroup (C) might be joining AIG (AIG) in the land of "biggest individual bailout" of all time.

We're making good money today because we're properly positioned but in terms of thinking of the health of the US economy, it really is very sad to watch this all play out. CEO at Citigroup cuts 53K out of 350K jobs which usually Wall Street, in all it's cold hearted manner, cheers (cost savings) but the stock does not react at all - then plummets the next few days. Bank of America gets $15 Billion from tax payers and decides to spend $6 Billion in investing in Chinese bank... instead of huddling down for what is going to be coming down the pike the next 2 years... smart.

Looks like its time to bring back the banning of shorting of financials, eh?

• Shares of JPMorgan Chase & Co (JPM), Citigroup Inc (C) and Bank of America Corp (BAC) tumbled to multiyear lows on Wednesday on expectations that deteriorating credit conditions and a contracting economy will weigh heavily on the three largest U.S. banks.
• JPMorgan shares fell as much as 9.6 percent to their lowest level in 5-1/2 years, predating the arrival of Jamie Dimon as chief executive. Citigroup dropped as much as 14.1 percent to a 13-year low, and was surpassed as the fourth-largest bank U.S. by market value by U.S. Bancorp (USB), which has one-eighth as much in assets. Bank of America shares fell as much as 10.9 percent to an 11-1/2-year low.
• Investor worries swelled after Credit Suisse analysts said two big, new commercial loans were near default. That fanned fears that credit deterioration that has already saturated the residential mortgage market and worsened in credit cards was heading to a major new area, commercial real estate.
• Citigroup on Wednesday also said it agreed to buy $17.4 billion of assets remaining in a series of funds known as structured investment vehicles. Such vehicles were among the earlier major classes of investments to implode in the global credit crunch that began last year. On Monday, Citigroup announced 52,000 job cuts.

As for the market we remain on the edge of abyss - holding this 830-835 range. A close below and I believe we trigger the next leg down. I think everyone else knows this too so "they" will try to defend it at all costs as "they" already have. We now have the very rare (ok never really heard of one) quintuple bottom staring at us. A cynic would say "they" will find a way to make another fake rally late in the day; not that I'm cynical ;) ... but I'm going to take about 25% of short exposure off here assuming we get some fake rally. If we break down and close below S&P 830, I'll buy it back around 3:59 PM.

Lonh Ultrashort Financials in fund and personal account