Fast Money Recap - Who Cares about the Citi Rally? (11/24/08)

Recap of CNBC's Fast Money program, Monday November 24.

Citi (C) Saved: Reason to Be Bullish? S&P 500 (SPX)

The Dow saw its biggest 2 day rally since the aftermath of the 1987 crash, but the Fast Money group was not so optimistic. Jeff Macke said the market only went back to where it was last Tuesday and that the government’s declaration that it wouldn’t let any banks fail is proof positive that “capitalism is dead.” Karen Finerman thinks it is not bullish news that “the foundation of our entire banking system…Citibank…needed to be bailed out.” Joe Terranova added the market rallied only because it was terribly oversold. Tim Seymour thinks there is reason to be positive about the FDIC program. Jeff Macke added he would sell into the rally and would short the S&P 500 with a stop out at 865.

Big Three’s Plea: GM (GM), Ford (F), Chrysler

President-Elect Obama’s senior advisor, David Axelrod says the auto companies are going to have to come up with a tangible plan of action before they are going to receive government funds. Karen Finerman remarked consumers and not automakers should determine how many cars should be sold. Tim Seymour said if they build 8 million vehicles a year and bust the unions the Big Three will be fine.

More on Citi

The government decided to shoulder a good portion of Citi’s losses and commit $20 billion toward a bailout of the nation’s largest bank. The government may increase its stake in Citi by another 4.5%, Morningstar Equity Analyst Jamie Peters is optimistic about the bailout; “It gives Citigroup an opportunity to rearrange their business so they can survive in the long run." The bank will shed assets and make cutbacks which are “necessary for its survival,” commented Peters.

On his site, IcahnReport.com, activist investor Carl Icahn had harsh words for the goings-on at banks like Citi; "One of the big reasons why this greed and recklessness is allowed to flourish is that many states enable corporate managers and boards to perpetuate themselves in office, no matter how incompetent they are. Most shareholders can’t fight back effectively."

"One of the big reasons why this greed and recklessness is allowed to flourish is that many states enable corporate managers and boards to perpetuate themselves in office, no matter how incompetent they are. Most shareholders can’t fight back effectively."

Obama Unveils the Team

President-elect Obama unveiled his financial team on Monday, with Treasury Secretary Tim Geithner and Director of National Economic Council Larry Summers at the lead. While the Dow rose on the news, it dropped while Obama was speaking, and Dylan Ratigan commented The Street is troubled by the lack of specifics. Ratigan asked Obama advisor Laura Tyson some tough questions. Defending the Citi bailout, she said; “We have to do whatever is necessary to bring the capital market back into some normalcy of functioning,” Dylan Ratigan asked Tyson for a specific range for a stimulus package and Tyson said it should be between $300 to $600 billion. She indicated the funds would be committed toward infrastructure and energy efficiency.

Are Stocks Cheap? Abbott Labs (ABI), Burlington Northern (BNI), General Mills (GIS)

With a 50% drop, investors are wondering which stocks are really cheap. Karen Finerman suggested looking at the balance sheet of a potential investment and to beware if sales are going down, no matter how low the stock price. Joe Terranova likes ABI, BNT and GIS for their balance sheets, strong fundamentals and hardy performance during the crisis, however Macke noted BNI failed to rally on Monday when other stocks jumped.

How Bad Will It Get?

On the upcoming release of the GDP numbers from the Commerce Department, it is estimated the drop will be 5%, the highest GDP fall since the recession in 2001. Joe LavVorgna, Deutsche Bank chief economist noted that banks’ willingness to lend is cratering, and the lending situation hasn’t been as dire since 1980, when the GDP fell 8%. LaVorgna added "If the automakers go under we're toast," and the U.S. will see double digit unemployment. LaVorgna added, "I think the debt markets reflect that scenario but not the equity markets.”

Final Trades: Tim Seymour, Long Vimpel-Comm (VIP), Karen Finerman: long Diana Shipping (DSX) and short Genco Shipping (GNK), Joe Terranova: long CurrencyShares British Pound ETF (FXB)

Seeking Alpha is not affiliated with CNBC or Fast Money

Comments

[buyitcheap:]

Did anyone catch in the Citi announcement that with the infusion their tier 1 capital is at 9%? 9%? That's it? that STINKS!!! A break up is still better - but at least the top dogs will get their bonuses.

2008 Nov 25 07:41 AM

[88008:]

$20B does nothing for Citi except make them appear to be not totally insolvent. The hole they have is too big unless the taxpayer is willing to keep another corrupt organization in business. It must be nice to be a friend of Paulsens.

2008 Nov 25 02:06 PM

[happysoul77777:]

Investors should care. Here's why.

The purchasing strategy does not work because sellers do not want to sell the assets that are still performing.

With the new strategy, the Treasury will act as an insurance company. Taxpayers are protected, because the Treasury will get paid for insuring the investments. The insured invesments may carry an implied rating of AA or AAA. Citi will continue to hold the investments until they pay off or until they are sold. A very efficient model. Shareholders are not wiped out. Capitalism is saved! The stock market should appreciate this strategy much more.

2008 Nov 25 09:35 PM

[Poor me:]

Are you kidding, we couldn't survive without Citi..??? Oh woe, what would become of us. I have nightmares.

2008 Nov 26 01:57 AM

[Ames Tiedeman:]

This is how markets bottom, at least for the short term...

2008 Nov 27 11:14 AM