Sunday, November 23, 2008

Citi in Trouble, Violent Market Swings and Staring at Stock Charts: My Thoughts

Citi won't be allowed to fall, we got accustomed to violent swings pretty fast and I admit it: I'm addicted to stock charts.


#1 Citi's troubles are a whole different ball game

During this crisis a lot of "unthinkables" occurred, changing our perspective on the financial markets and their institutions. I don't believe anyone dared dream both Bear Sterns and Lehman Brothers might go bankrupt nor Merrill Lynch sold.

Still, investment banks are one thing. Huge retail Banks are a whole other matter. Investment banks had the reputation of financial troublemakers, even though they were thought to be stable and profitable (which they were for quite a long time). Retail banking is one of the cornerstones of our economy.

Should Citi fall the ripples will surely tear through the global financial world faster than any shockwave. Banks worldwide have billions of dollars in exposures to Citi and its many activities, a staggering blow indeed.

That's why I'll risk saying Citi won't be allowed to fall (much like the automakers). I may be forced to eat my hat in the weeks to come but I'll take the chance. This obviously shouldn't motivate anyone to invest in Citi right now as we've seen how low bailed out stocks can go.


#2 Getting used to violent market swings


Oddly enough we've got accustomed to violent market swings quite fast. Only half a year ago shifts of 4% in any market index were reason for extreme fears, panic or hope (remember that 10% daily surge?).

Today, 4% shifts are hardly breaking news anymore and almost nothing will surprise investors. Volatility is immediately translated into risk and risk into premium which surely enough puts enormous pressure downwards on stock prices.

The first sign for household investors to slowly yet steadily make their way back into the market (in the fortunate case you've liquidated yourself) will be reduced volatility. Sure we might miss on the significant surge up (which will eventually present itself) but we will also avoid another bull trap like the ones only recently avoided.

Keep in mind an old market saying: Pigs get fat and hogs get slaughtered. Are we, with all the required reserve, hogs or pigs? Are we waiting on lower and lower levels before jumping back in? I'm starting to move restlessly in my seat.


#3 Staring at stock charts


I don't know about you but I've found myself staring a lot more in stock charts lately. There's something fascinating about the way they plummet downwards. I think it's the assumption some stocks will skyrocket back to previous levels and new highs.

Unimaginable daily drops catch my eye and I keep wandering back to the screens whenever I have 5 minutes to spare. I do believe I'm becoming an addict.

I'd like to take this opportunity to share a few carnivals from the past weeks, in gratitude to their hosts:

Image by: glamhag

4 comments:

Anonymous said...

My mortgage is through Citi. So, I wonder what will happen to it if it fails?

Dorian Wales said...

Hi, somehow I just know they'll find a buyer for that :>

vilkri said...

Yes, Citi can't really go under. That would be a disaster. But will this latest rescue plan change anything? - It appears to me that banks are so shell-shocked about their recent experiences that they forgot what they are all about - take deposits and make loans, which is at the core of our capitalist system. In my mind, a rescue plan is not successful when it prevents a bank like Citi from failing, but only when it gets the banks to do business again.

Louisa said...
This comment has been removed by a blog administrator.