Futures spiked as this news hit the wire. Citi shares in Japan were up 12-15%.

Source: WSJ

Taxpayers Could Own Up to 40% of Bank’s Common Stock, Diluting Value of Shares

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks.

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BKX – Bank Index Chart

Banks are on a death march. If there’s some good news brewing, the market is not showing it. I’ve been watching (PGF: 18.92 +0.00%) for the last 3 days and it looks quite ugly (Bank Preferreds). Last year before all of those bank disaster weekends, preferreds were the canaries in the coalmine.
I regret shorting FAZ, went against my conviction. Hedging is expensive 🙁

SPX – S&P 500 Index Chart

Ouch, closed below January lows. Have to wait to see if it gets trapped under that new resistance for 1-2 more days (on a closing basis). Rsi(14) isn’t terribly oversold.

I have a new stock that I love to hate — SSO, and as I mentioned before SSO marketmaker is an *ss.

Good day!

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BKX Bank Index

Former support level at $25+ is now resistance. Note, there’s no open gap in BKX.


XLF has an open gap that may get filled partially; again, support became resistance. XLF is oversold based on all metrics, but financials need a catalyst to punch through these new resistance levels.

Position updates: still short (FAS: 58.19 -1.17%) with a more aggressive hedge via short (FAZ: 13.99 +1.30%).

I’m short (FAS: 58.19 -1.17%) – triple financials ETF (from $17+ – left that trade running while away). Trying to see where financials will go next.

As a small hedge, I’m also short (FAZ: 13.99 +1.30%). My FAS-to-FAZ ratio is 4:1.

Triple ETF erosion is a beautiful thing, by the way.

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BKX – Bank Index (daily chart)


XLF – Financials Select SPDR (daily chart)


Bank stocks are Canadian darlings of the moment: a lot of people are concentrating on the relatively high dividends and solid blue chip stocks, still scared after the tech fallout of 2000.

I’m sticking with the mining sector for now but will be looking to diversify next year. However bank stocks will not be my first pick, because it’s still not clear which ones will take a bigger hit from the sub-prime mortgage problems. This is not a big issue in Canada, at least not yet, but I still think there are going to be some repercussions for the Canadian banks when the rates are raised.

I’m biting my nails, not sure whether to convert our Scotia Flex mortage into a fixed one. If Bank of Canada raises the rate just once this year, I wouldn’t even be thinking about it, but the rumour is it may happen twice and that means we’ll take a “hit” starting in September, and then again next March. Clearly this calls for a spreadsheet. (I hate this, makes me feel all grown up).