Shorting Citi on Today's Jump

Talking to a smart trader (former heavy hitter at a major firm) who says he's looking to short Citigroup (NYSE:C) on today's gap-up. According to him the write downs are more real than people suspect, nothing to be recaptured. Lots of headline risk and a definite recap has to get done, they're going out the well again very late, will affect pricing.

Morgan Stanley is also out on Citi this morning saying their forward view is more challenging in light of credit deterioration. Citi’s miss vs. consensus today had more to do with rising credit costs and reserve build than the market related losses. While Citi was $3B higher than their estimate, the Street was building in significantly higher write-downs. This is a negative for the stock, as credit deterioration will be longer tailed than market losses. EPS estimates likely to come down.

Notablecalls: It probably makes some sense to scale into a short position in C this AM. I've already started with a small position around $26.25.

Disclosure: Short C

Comments

[carlivar:]

The day's high is $25.80, how did you get a position at $26.25?

2008 Apr 18 10:41 AM

[East Coast:]

premarket

2008 Apr 18 11:20 AM

[Voice of Re...:]

Wall Street "professional" = some guy that shorted his butt off and is desperately trying to cover his position before his broker notifies him of a margin call.

Wall Street "heavy hitter" = some guy that bought 1,000 Put contracts and watched in horor as the stock gapped up 5 dollars.

A "smart" trader knows tips are only for waiters.

What's the difference between a trader and an investor?

The former tends to lose money while the investor makes money.

2008 Apr 18 04:40 PM

[WD:]

How can anyone in his or her right mind listen to a blip written by "anonymous Wall Street professional"? What crap. What a waste of time. I'll be sure not to read anything else from "Notable Calls", they are an insult to every investors and traders intelligence. The writer should get a real job and stop stealing from people.

2008 Apr 19 09:15 AM

[bearfund:]

Ok, voice of unreason, enough is enough. Investors do indeed make money, but if - and ONLY IF - they invest wisely. A buy and hold C forever strategy has to be evaluated in at least two contexts: absolute performance in the form of dividends, capital appreciation, including inevitable dilution, and performance relative to its peers. C is still trading at 1.2x book and the company is performing terribly in all respects. A 5.3% yield and huge losses aren't a sustainable combo and the shares are not particularly cheap. That dividend will be cut or diluted further no matter what line of BS management is selling right now, and when management finally bites that bullet while also delivering improving overall performance, we'll have a real bottom. Given all the downside potential here, I can't see any reason for "investors" to be excited about owning C at 25. Therefore, for those who do trade and take short positions, it's a reasonable call. If that's not you, ignore it and move on to the next article.

The only thing you're right about is that tips are only for waiters. So ignore the tip and examine the facts. In this case, they say the same thing.

2008 Apr 19 12:51 PM

[Dan Schmeidler:]

Shorting the financials is still a very good trade, but by no means a way to make money in the long run. Still, like any investment, pick your financials wisely, like focusing on equities with exposure to weak or weakening lending markets. C, like Wamu, has already been through every whiplash (up or down) imaginable. It would be annoying (to say the least) to try trading that kind of garbbage. Instead, focus on other financials that maybe have not hit the news as much. In order to maintain my credibility (yes, tips are for waiters) I will not give any stock tips here, but allow you to do your own research. Anyhow, I do like the above call, even though the $26.25 does sound a bit too perfect.

2008 Apr 19 05:21 PM

[sugarfree:]

whoa now. that last comment was not cool. the opinion is fine, but the way it was said is unprofessional and unpolite.

2008 Apr 20 03:43 AM

[sugarfree:]

to be clear, i was referring to user 169377

2008 Apr 20 03:44 AM

[MarketM:]

This guy should change his name to "Horrible Calls".
Thats all he seems to make.

2008 Apr 21 08:21 PM

[Chief Debt ...:]

Wow... It was a good call.

2008 Apr 29 07:00 PM