CitiGovernment Has Been Born

It may not officially be nationalization but if it looks like a duck, walks like a duck, and sounds like a duck, it must be a duck. The U.S. government is converting some of its preferred stock to common equity and the same opportunity is open to other preferred share holders. The U.S. could wind up owning as much as 36% of Citigroup. We would expect the common stock and preferred shares of other large banks to drop today in sympathy. We believe the new deal will also halt preferred dividends.

The markets won't like this news as it portends more difficult times ahead for the financial industry. The markets have been very volatile in the last few weeks and has been headed down. New lows are being hit on all the indices and the bottom doesn't seem to be in sight. We still haven't had panic in the markets but it should be just around the corner. Liquidity will be king and caution remains key. The economy is weak and getting weaker and the markets are following along. Buckle up because the ride will remain bumpy.