One Albatross Taken Care Of

The government finally stepped in to keep the patient alive as Citigroup was injected with a second life. The U.S. Government is guaranteeing $306 billion of troubled mortgages and other toxic assets while also injecting another $20B into the company. Losses on the bad assets will accrue 90% to the taxpayers and 10% to Citigroup. The government also will receive as compensation $27 billion of an 8% preferred stock and 254 million warrants to buy stock at $10.60. This package will go a long way to stabilize Citigroup and allow it to survive. It would make sense for the company to begin to sell some assets now and clean up its balance sheet before more assets become depressed.

The combination of this bailout and President elect Obama's $500 billion stimulus plan should lead to another stock market rally. It is also clear that taxes are not going up next year. The economy is still bad and getting worse but each of these tea leaves is important for the bottoming process. Once we get all the research analysts to drop their projections for next years' earnings, we will be at a bottom. Today, Goldman lowered their 2009 earnings expectations for the S&P by 22% and we would expect others to follow.

Enjoy the day or at least the morning as positive news is in the air but remember volatility is still present and the market won't go straight up. Bad news will continue to present itself but high quality companies will be around when the dust clears. Gold should continue to become more valuable as the printing of dollars continues to 24 hours a day.