Where is the US economy headed?

If yall believe the economy in general and Citigroup in particular are going into a total tail-spin, read no further.

I read a column in the WSJ yesterday that intrigued me a bit re Citigroup, which I will paraphrase (but with the disclaimer that just as we shouldn't offer legal advice on a2k, investment advice is also frowned upon and I have no investment in Citigroup).

The article suggested that Citigroup, despite it's many problems with the sub-prime debacle (and perhaps, with defaults on credit cards) is still positioned to be a strong company in the longer term.

They will be offering a convertible* preferred* (cumulative?*) stock via a prospectus* soon that will yield 7% and will turn positive on conversion* if the common stock price recovers 20% from where it is now. Down 50% from where it was, if that matters.

* I or others can define these words, if asked.

50 Billion? Just from Citi?

By the way, Cyclo, the next a2k meet is in Albuquerque between 5/14 and 5/19. It would be great if you could join us. I would enjoy meeting you.

Citigroup ended the quarter still exposed to $37.3 billion of subprime mortgages and related assets, most residing in crumbling collateralized debt obligations that it hasn't been able to sell to investors. That's down by nearly one-third from $54.6 billion at the end of September, but not enough to satisfy some investors given bank executives' gloomy outlook for the economy.

"Why not write down the $55 billion CDO/subprime portfolio by more than $18.1 billion?" Sandler O'Neill & Partners analyst Jeff Harte said in a client note, noting that some rival banks and Wall Street firms have been more aggressive in their assumption of further write-downs. Citigroup's capital-raising plans also suggest that it knows things are getting worse, Harte said.

Moreover, Citigroup still has $43 billion of risky corporate loan commitments for leveraged buyouts on its balance sheet - down from $57 billion at the end of the third quarter - and like other banks is having trouble finding investors interested in buying the high-interest loans.

A more worrying consideration is that when a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well.
If Ambac and MBIA lose their top ratings, billions of dollars of muni bonds will be downgraded, and the guarantees that have been sold on mortgage-related securities such as collateralized debt obligations, or CDOs, will lose value.
Bond insurers guarantee roughly $1.4 trillion worth of muni bonds and more than $600 billion of structured finance securities, such as mortgage-backed securities and CDOs, according to Standard & Poor's. Ambac alone has guaranteed about $67 billion of CDOs.
"The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame," Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday.

FinndA wrote: I'm sure there is more than one explanation, but I am also sure that the main reason is that these folks have been bombarded by a liberal biased media's message that the economy is bad.


It's not the "liberal biased media's message" when seven million more Americans are without health insurance, more middle-class families have fallen into poverty, their source of money (credit card debt) has dried up, and their home value is dropping for most. You don't need to read the media to know what's happening to our economy.

FYI, Michigan has the highest unemployment rate in the nation. That some still feels that their situation is getting better or remain steady doesn't help those without jobs. Banks will be laying off by the thousands very soon; and they're not going to find replacement jobs when they are jobless. That's the reality; no polls need be taken.

A more worrying consideration is that when a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well.

Saw a snippet on our TV news of GW pleading with the oil sheikhs for lower oil prices.

Must say he came accross as a pathetic figure, (Jeez it seems to me I heard someone else use the word "pathetic" to describe Bush in Saudi Arabia. What a coincidence!) mumbling something about how if they don't, they will suffer ,as the West will end up buying less when their economies go into meltdown. Yeah, right.

The world has the technology to move past oil dependant economics, but there is too much vested interest in its continuation.

GW is playing party politics and anything he says is pretty much intelligence insulting. Why can't he just disappear gracefully?

from cyclenes post :

Quote:

A more worrying consideration is that when a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well.

it's like hearing that the company you insured your house with has stopped paying claims - makes you wonder why should bother buying insurance .
as many market watchers are saying : INVESTORS ARE GETTING NERVOUS and are feeling insecure - and that's a VERY BAD sign ,
hbg