Citigroup: Buy Today for a Rainy Day

Doug Kass of TheStreet.com has an historical take on Citigroup's (C) 40% dividend cut:

In 1975, General Motors (GM) cut its dividend, and two of Putnam [Management Company]'s portfolio managers, in total panic, wanted to sell the stock. In fact, they were apoplectic after the announcement. [Technical analyst Walt Deemer], a man of dry wit and strong technical moorings, remarked in the halls of Putnam that morning (repeatedly so all could hear), "I'm glad General Motors stock didn't go down in vain."

Walt turned out to be very right on General Motors' shares. (He usually turned out right!) After the dividend cut, the shares subsequently doubled in 1975 and added another 47% in 1976.

Citi's stock has not had an easy ride from investors recently, despite the company pulling out several stops in an attempt to clear up the mess. Kass, however, is confident enough to follow Walt's philosophy:

Buy Citigroup today, and put the shares away in a drawer for a year or two.

For more on the challenges facing Citi, see:

• Q4 2007 earnings call (January 15, 2008)
• Business update call (November, 5, 2007)

Comments

[ballsschweaty:]

I predict Citi will be bankrupt within 2 years. Credit collapse is devastating to a bank. Enjoy!

2008 Jan 17 10:43 PM

[Reinko:]

There is much more reason why not only Citi but large parts of the entire US financial sector will be gone in a few years.

The most important reason is the gigantic need for new debt, estimates indicate that for the entire US financial sector something like 2500 billion US$ is needed in this year 2008.

Don't believe me?

This is easy to proof:

Go to the Federal Reserve flow of funds sheet, here is the link:

federalreserve.gov/rel...

Go to the one before last column (total domestic financial sector debt) and scroll down until you get the last two numbers.
They say, total debt is

2007 Q2 = 14855.0
2007 Q3 = 15435.3 billions of US$.

Since 15435.3/14835 = 1.039 we have 3.9% Q on Q.

Thus a yearly estimate of 1.039^4 = 1.166 thus 16.6% Y on Y.

And 16.6% of the latest known 15435.3 billion is a rough 2500 billion US$.

2008 Jan 19 05:28 PM

[Roger Cuddy:]

This is what, the third or fourth time that citi has been declared dead by many journalists in the last 20 or so years. This may or may not be the bottom but the point is sound. Buy now and stick away for a few years.

2008 Jan 20 07:04 PM

[nicoo:]

should i selll citi today?

2008 Oct 10 04:58 AM