Citigroup Blames Short Sellers For Collapse

Ciitigroup is in deep trouble and here is the proof: Citigroup Said to Urge SEC to Reinstitute Ban on Short-Selling.

Citigroup Inc., which fell as much as 25 percent in New York trading today, is urging the Securities and Exchange Commission to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter.

The bank has also discussed with lawmakers its proposal to reinstitute the ban on bets that share prices will fall, said the person, who declined to be identified because the discussions weren't public. Citigroup, down for eight of the past nine trading days, declined $1.22 to $5.18 on the New York Stock Exchange at 2:37 p.m.

Buffeted by four straight quarterly losses, New York-based Citigroup has raised about $75 billion since December by selling assets and equity stakes, including a $25 billion injection from the U.S. Treasury.

SEC spokesman John Nester declined to comment. Citigroup spokesman Michael Hanretta didn't return a phone call seeking comment.

No One Wants To Comment

Since no one wants to comment, I will. It's a sure sign of desperation when companies blame short sellers for company woes. Make no mistake about it, Citigroup is desperate.

Let's look at a couple of charts.

Citigroup Weekly Waterfall



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Citigroup 60 Minute Chart



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Citigroup fell over 20% yesterday and at one point today was down over 30%, closing off $1.69 or 26%.

Citigroup's Ridiculous Short Selling Claim

Inquiring minds are looking at Citigroup Statistics as of October 28, 2008.




Citigroup is blaming shorts when the short interest is under 3%. That's ridiculous. If Citigroup does not understand this, it is a sign of incompetence. If Citigroup does understand how ridiculous their claim looks (and is), that is additional support for the desperation thesis.

Note the dividend. Citigroup is paying a dividend when it is clearly in need of capital . Is that a sign of arrogance or incompetence? That Citigroup is in this mess in the first place is clearly sign of incompetence somewhere, at some point in time. Current management will attempt to place that blame on Chuck Price, but the culture of greed, arrogance, and excessive risk taking, permeated the entire financial industry.

Top Call

Flashback July 10, 2007 Quotes of the Day / Top Call

Chuck Prince Citigroup CEO: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

I leave it to you to decide whether or not this is the "last dance".

It's tough calling a top but I am going to try. I suggest the current trend is exhausted. My last "top call" was specially in regards to housing in the summer of 2005. Can lightning strike twice?

Citigroup's $1.1 Trillion in Mysterious Shadow Assets

On July 14th 2008, I raised questions about Citigroup's $1.1 Trillion in Mysterious Shadow Assets.

The question of off balance sheet SIVs (shadow assets) came up again on November 17th 2008 in Citigroup's Town Hall Meeting.

Off Balance Sheet Holdings



Citigroup notes that the majority of $667 billion is unlikely to come on balance sheet yet presumes none of it will. I question the idea that Citi has no credit risk. Just how good are the counterparty guarantees for Citigroup to assume it has no risk on $667 billion? Also note that per an accounting rule change, Citigroup will be allowed to hide whatever risk there is, off the balance sheet and pretend that it does not exist at all. These risks need to be brought on the balance sheet and fully disclosed.

Citigroup would not be trading under $5 nor would it be down over 50% in two days if it was well capitalized as it claims. There is something wrong somewhere for the stock to be acting this way. Hiding behind accounting rule changes in this market is simply not going to work. Blaming short selling will not work either.

Looking ahead, foreclosures, credit card defaults, and bankruptcies are going to soar along with a soaring unemployment rate. Banks in general, and citigroup specifically, are woefully undercapitalized and unprepared for what is about to happen. One look at a chart of Citigroup should be proof enough.

The market seems to believe Citigroup is insolvent and so do I.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Unemployment Claims Jump Unexpectedly To 16-Year High

Bloomberg is reporting U.S. Initial Jobless Claims Rose to 542,000 Last Week.

First-time claims for U.S. unemployment insurance unexpectedly rose last week to the highest level since 1992, a sign the labor market is deteriorating as the economic slump deepens.

Initial jobless claims increased by 27,000 to a higher- than-forecast 542,000 in the week ended Nov. 15, from 515,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls the prior week rose to 4.012 million, the most since December 1982.

Job losses in the U.S. have totaled 1.2 million this year as the economy entered a downturn exacerbated by the worst credit crisis in seven decades. More firings will weigh on the economy and consumer spending, putting pressure on President- elect Barack Obama and Congress to agree on legislation that will stimulate growth.

The four-week moving average of initial claims, a less volatile measure, increased to 506,500 last week from 490,750 a week earlier. So far this year, weekly claims have averaged 404,000, compared with an average of 321,000 for all of 2007, when the economy added a total of 1.1 million jobs.

Citigroup Inc., the fourth-largest U.S. bank, will eliminate 52,000 jobs over the next year, twice the target announced last month, as loan losses surge and the economy shrinks, the company said Nov. 17.

Carmakers are also shedding workers. Ford Motor Co. plans temporary shutdowns at nine North American plants this quarter, idling as many as 23,000 workers, as it slashes production after an 18 percent drop in U.S. sales this year, the company said Nov. 12.

Layoffs Not Yet Factored Into Unemployment Rate

Announced job cuts have been piling up so fast I do not understand how anyone could be surprised by the number of claims.

Those layoffs at Citigroup (C) and Ford (F) are not yet factored into the unemployment rate. Nor are job cuts at Goldman (GS), JP Morgan (JPM), GE (GE), and scores of other financial institutions. Nor are the huge jobs cuts at retailers that are coming early next year after what is going to be the worst Christmas shopping season ever.

The retailer layoffs have not been announced yet, but it is easy to predict they are coming. When the layoffs are announced and the jobless claims rise yet again, the safe prediction is that economists will once again be surprised by the announcements.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Treasury Yields At Record Lows, Swap Spreads Collapse

Once again treasury bears who do not understand the implications of a collapse in credit are taking a beating as Treasury Yields Drop to Record Lows.

Treasury yields declined to record lows, with two-year notes dropping below 1 percent for the first time, as global stocks slumped and a deepening recession drove investors to the safest assets.

Yields on two- and five-year notes and 30-year bonds dropped to the least since the Treasury began regular issuance of the securities. Ten-year note yields touched the lowest since 2003 after yesterday’s release of the minutes of last month’s Federal Reserve meeting showed policy makers expect the economy to contract through the middle of 2009 and more interest-rate cuts may be needed to counter deflation.

“Fear is dominating the market place,” said Andrew Richman, who overseas $10 billion in fixed-income assets as a strategist in West Palm Beach, Florida, for SunTrust Bank’s personal asset management division. “People are seeing their net worth evaporate.”

My Comment: Is it fear? Perhaps. But if so perhaps the fear is rational. This economy may not come back for years.

The 30-year yield fell 19 basis points to 3.72 percent, the lowest level since regular sales started in 1977. Yields on five-year notes declined to 1.92 percent, not seen since 1954, according to data compiled by Bloomberg and the Fed.

My Comment: I have been calling for record low yields. So far the only one not to happen is the 10 year note.

Some Fed policy makers said they were prepared to cut interest rates further as “more aggressive easing should reduce the odds of a deflationary outcome,” according to minutes of the Oct. 28-29 meeting released yesterday.

My Comment: Any cuts by the Fed now are purely symbolic. The Fed Funds Rate is effectively zero. Remember the claim that paying interest on reserves would put a floor under the Fed Fund Rate at 2? Another Bernanke academic solution meets real world experience.

Fed officials lowered their economic-growth estimates to zero to 0.3 percent for 2008, from 1 percent to 1.6 percent previously, the median forecast of Fed governors and district- bank presidents showed. The predictions for GDP next year ranged from a contraction of 0.2 percent to growth of 1.1 percent. The jobless rate is projected to be 7.1 percent to 7.6 percent.

My Comment: This is amazing optimism. I expect an unemployment rate of 8 percent minimum and 9 would not be surprising. Target GDP is complete silliness as well.

“You have the cloak of a declining inflationary environment,” said Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment- banking arm of Canada’s biggest lender. “People are denying it, but we are mirroring the whole Japanese situation and if that’s the case interest rates are going to go a lot lower.”

My Comment: A "cloak a declining inflationary environment” is not what we have. We have outright deflation not disinflation. Yes, we are mirroring Japan.

Swap Spreads Collapse

Bloomberg is reporting Swap Spreads Collapse as Concern of Global Recession Deepens.

The spread between the rate to exchange floating for fixed interest payments and U.S. Treasury yields collapsed amid concern a protracted recession will prompt the Federal Reserve to lower borrowing costs again.

The difference between the five-year swap rate and the benchmark Treasury yield, known as the swap spread, narrowed to 78.56 basis points today, the lowest since May 22.

“The drop in swap rates reflects the belief that interest rates might stay lower for longer than previously expected,” said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.

Yields on two- and five-year notes and 30-year bonds fell to the lowest since the Treasury began regular issuance of the securities, amid signs the economy is faltering further.

“A massive tightening in swap spreads is occurring today as the market prices for slower global growth, disinflation or deflation, unwinds hedges of curve positions and prices in significant U.S. Treasury supply,” wrote Jim Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, in a note today.

Yield Curve As Of 2008-11-20



click on chart for sharper image

US Treasuries Snapshot



Chart courtesy of Bloomberg.

Is that a 2 handle approaching on the 10 year treasury?
Why yes it is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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