While Citigroup Jumps on John Paulson's Investment, AIG Jumps on Anything

The surreal life in the subsidized stock market continues. I will say in the old market activities like we are seeing now would make me so contrarian... but it's a new paradigm. Government-sponsored stocks are a whole different animal.

Via the Wall Street Journal

• Since Aug. 5 — when we saw names like Fannie, Freddie and AIG reawaken — trading in those three stocks, plus Bank of America and Citi, has averaged about 31.5% of the NYSE consolidated volume. At their peak on Monday, these five stocks accounted for nearly 43% of the NYSE consolidated volume.

5 stocks, all government supported... 30-40% of the US stock market action [NYSE]. And I am sure countless smiles in Washington D.C. that they "succeeded". You ask me how healthy of a country we live in.

*******************

John Paulson is taking too big to fail to heart, pushing massive amounts of money into the two largest benefactors of US government largess in the commercial bank space - first Bank of America (BAC) [Aug 12, 2009: John Paulson Makes Bank of America 2nd Largest Holding after Gold] and now Citigroup (C)

• Hedge-fund hotshot John Paulson has been quietly snapping up shares of beleaguered Citigroup in recent weeks, sources tell The (NY) Post.
• Paulson was said to have acquired a roughly 2 percent stake in Citi -- below the 5 percent threshold that would require him to disclose his investment stake in a securities filing, according to one source.
• Although it's unclear what the hedge-fund master's rationale is for buying shares of the nation's most troubled bank, of which Uncle Sam holds a 34 percent stake, sources think that Paulson believes Citi's assets are undervalued. One source said that Paulson sees Citi's shares trading closer to its book value of $5 to $7 a share, and that he has been scooping up shares in the bank over the past several weeks.

As I wrote in the Bank of America piece

Considering we have 4 major financial oligarchs who dominate US financial commercial bank assets (plus BAC via their own operations + Countrywide shares an oligopoly in the mortgage market) as long we are sure the US will happily provide cover (which they have made it clear they will) I concur with these banks as long term "sure things". Even too bigger to fail, if you will.

As some have said, you literally have Bernanke and Geithner lobbying for you on a daily basis. The balance sheet is still a black hole but balance sheets don't seem to matter anymore because of the above mentioned US taxpayer providing backstop on all future losses. So, much like some of my investments are plays on the government using taxpayers money to support certain industries or companies, Paulson is utilizing the same idea - in a much bigger way.

Full on corporate socialism looks like it is succeeding in the U.S.

And despite owing the United States of Socialism $180 Billion ...AIG is surging day after day. Let me remind you this company was in default in 2008 and required 3 bailouts. It is still trading why SEC?

Today's news? The old CEO will help the new CEO - well that is worth a 30% gain. I assume if the company paid back the US the $180B, AIG would have some profits to call its own sometime around 2132. But nevermind that - it's basically ponzi scheme trading at this point; now really reminding me of NASDAQ 1999 - just don't be the last one out when Pets.com implodes. Except these Pets.com are government-backed and secured. Look you can either complain as a taxpayer or become rich off your fellow taxpayers and join the party - jump in!

• The shares of insurance giant American International Group Inc (NYSE:AIG - News) rose nearly as high as 33 percent in morning trading, buoyed by the firm's improving relations with former long-time CEO Maurice "Hank" Greenberg.

The other 2 wards of the state are only up 2-5% - poor Fannie and Freddie. Well they are just resting up - after all they were jumping 30-50% a day last week. Go team USA.

No position

Comments

[Roger Knights:]

"the United States of Socialism"

"The USSA" says it more succinctly.

Aug 28 07:17 AM

[gon4beer:]

Da comrade roger-pass the vodka

Aug 28 08:57 AM

[john s. gordon:]

bailouts for friends of Hank sure made a difference didn't they?
> jack

Aug 28 10:25 AM

[mikebrah:]

But even if they are government backed, that doesn't make them a good investment. It just means they won't go to zero, right? It does NOT make them any more profitable so the buying spree still doesn't make sense.

I've said this before, but simply NOT going bankrupt doesn't make these stocks a good investment. At some point people will realize they are paying virtually infinity PEs for these "zombies" and the silliness will stop. OK, so BAC is not going bankrupt. Fine. That fact alone doesn't make it worth $156B which is the current market price.

Most "bull" arguments I read essentially come down to this: yeah, I know its all BS, but I don't want to miss it and I'll just get out before it gets bad!

Not exactly what I would call sound.

MM

Aug 28 11:20 AM

[RobertVaughan:]

You may want to consider this. The U.S. government has a 20 billion dollar stake in C, a stake that rises each day with a rising ticker. The housing market is showing signs of recovery, and that basket full of toxic assets are getting less toxic. City has made major moves and has sold assets, cut expenses and will probably post a profit and maybe a significant dividend. No, I think there is substance in the sudden rise in stock price. I predict that it will go to $7.15 before it flattens out for a more steady rise.

Aug 28 12:00 PM

[Stone Fox C...:]

assets are gaining value and the CEO is talking about profits. Who knows if the current price is justified, but its moving b/c people in the know have access to positive data. The INTC news today is a prime example of how the economy is getting much, much better then people thought. The plant is starting to bloom!

Aug 28 01:40 PM

[J.D. Kaad:]

You know this whole government involvement in C, BAC, & AIG wouldn't be so painful if they weren't such horrible investments. If I was Geitner or Paulson I would have at least insisted on a modest dividend (as any true capitalist would have insisted on), say a 3% coupon rate (which is less then current BAC bond yields or coupon rates). Then use those dividends towards our income taxes to either use towards more government expenditures or to give us some more relief.

Aug 28 03:54 PM

[TraderMark:]

This was the same thinking in 1999 NASDAQ
Those who left the Titantic at the right time and did not buy back in on the repeated invitations given in 2000 prospered
Mos of us (hand raised) were happy to get the invite at 20-30% lower in 2000 and were punished taking away many if not all of our gains from 1999.

But the government was not backstopping NASDAQ in 2000 so we'll see how this episode turns out. There is no precedent


On Aug 28 11:20 AM mikebrah wrote:

> But even if they are government backed, that doesn't make them a
> good investment. It just means they won't go to zero, right? It
> does NOT make them any more profitable so the buying spree still
> doesn't make sense.
>
> I've said this before, but simply NOT going bankrupt doesn't make
> these stocks a good investment. At some point people will realize
> they are paying virtually infinity PEs for these "zombies" and the
> silliness will stop. OK, so BAC is not going bankrupt. Fine. That
> fact alone doesn't make it worth $156B which is the current market
> price.
>
> Most "bull" arguments I read essentially come down to this: yeah,
> I know its all BS, but I don't want to miss it and I'll just get
> out before it gets bad!
>
> Not exactly what I would call sound.
>
> MM

Aug 28 04:30 PM

[Dave Wrixon:]

The one that is killing me is that now Bank failures are accelerating again, they are now being referred to as a Lagging Indicator. Excuse me for being a little slow but didn't all this start with Bank Failure? So the Government intervened to stop them all imploding but unlike the little Dutch boy simply does not have enough fingers to stem the flow of failures. So rather than admit failure the underlying causes are now being reclassified as latent symptoms. Just how stupid do they think the American Public actually is? And more important, are they right?

Aug 29 06:15 AM

[Dave Wrixon:]

Does this John Paulson carry the same regressive genes as his name sake Henry? Seem to remember he made similar investments.

Aug 29 06:23 AM

[Ricard:]

"Look you can either complain as a taxpayer or become rich off your fellow taxpayers and join the party - jump in!"

That's my quote of the day :)

Aug 29 06:36 AM

[Steve20423:]

Hey it's the "United Socialist States of America" USSA get it right next time comrade ;)


On Aug 28 07:17 AM Roger Knights wrote:

> "the United States of Socialism"
>
> "The USSA" says it more succinctly.

Aug 29 09:58 AM

[buffteethr:]

It is funny to hear people say hosuing is recovered. I live in florida and in our neighbourhood there are a few sales but guest what just on my block there are about 6 houses that are empty that were on the market but were pulled off about 6-12 months ago. I think people are calling these shadow inventory. So can anyone tell me wht happens when these houses get put back on the market. Please remember I see them still building houses in our area.

Aug 29 12:06 PM

[Dan Schmeidler:]

This is nothing more but a bubble formation in equities. And yes, (from a Fed's perspective) this sort of bubble in equities ain't so bad, considering all these other places where inflation could be creeping up. Since the government is backstopping/owning these equities (as opposed to NASDAQ2000) we are likely going to see this process (and this type of action in equities) prolonged. And (as (TraderMark points out) the rise in these equities is signaling that the Feds could potentially manage to keep their stranglehold on the markets for a very long time.

Aug 29 02:34 PM

[David Zanoni:]

TraderMark - good point about the comparison of the financials now to the tech stocks in 1999. The financials will probably continue to rise along with the economy. Things are in fact improving, they just need to continue to improve.

Aug 29 08:40 PM

[FitBusiness...:]

The status quo will be maintained at all costs...even if it means enslaving our children to a 60-80% income tax.

What SHOULD happen will never happen.

Banks are lying about their assets and regulatory authorities have turned their backs on, well...authority.

Remember, panic and meltdown will be avoided at all costs.

This we can be absolutely sure of unless something outside the absolute control of inflation comes along.

Inflation cures everything except inflation.

Sep 15 06:04 PM