E.D. Hart

Citigroup Looks Overpriced

AIG was a global franchise too, but they crashed and burned on bad bets in the derivatives markets. Arguably, AIG will never return to its former glory.

The same can be said of Citigroup. There is no precedent for the current environment--its global deleveraging that will take a decade or more to work through.

There is no reason that they must return to their former glory--they may just be broken up and sold off in pieces to make up for bogus book value.


The closet analogy may be Japan and their deleveraging of their real estate and financial sectors. In 1989 3 of the words largest banks were Japanese. In 1999 none of them were. They are still recovering.

Citi may not be much different than the walking wounded Japanese banks--still recovering after 20 years. How can you value a company if the experts say you cant accurately determine the book value?

Why I'm Buying Citigroup Stock

I'm not bashing Citi. I owned it for a long time. I sold when it became clear that they weren't being forthright, and I had no idea how to value it.

BTW, it may indeed be the case that they are too big to fail, and that they have the implicit (or explicit) backing of the government.

But its non sequiter to suggest that because they have US backing, therefore its a good investment. That doesn't follow.

Remember Fannie Mae and Freddie Mac? They didn't "fail", but I wouldn't invest in them. A surviving company, particular a government backed bank while not technically "failing" can be dead money for decades. Japanese Banks are still recovering from their real estate deleveraging from 1989. Some of them are down 90%, yet they haven't "failed" because the governments backstopping them.

Worse case, Citi could be dead money for a decade or more. The point is, no one knows.

Why I'm Buying Citigroup Stock

We don't know the book value of C. They said they would not cut the dividend, until they cut the dividend. I hate to be a doomsayer, and wish you all the best, but with this global debt deleveraging, they could be wounded ducks for a decade as losses are written down over the next 40 quarters.

Worse case scenario, they issue more equity and or debt to recapitalize further. I'm not saying that you cant make money, only that strictly speaking their is no way to calculate the value of the franchise, whether it be negative or positive value.

Hey AIG had a great franchise too, and so did Lehman. If you asked a 100 people--Bankers and Pros--on Wall Stree in 2007, what were the chances of AIG or Lehman going down the drain this decade--you might have had one person say "maybe". The rest of the investment community would say--no way.

So beware the bulletproof and valuable "franchise" in the age of deleveraging.

Stock Rally Built on Fundamental Sand

Schiller calculates the S&P PE at 14 (ten year Trailing) and this points to something that I saw on SA a few weeks ago. At major market meltdowns with economic fundamentals declining such as the 73-74 bear market, and today--PEs can go, and do go, as low as 6 to 7. Therefore, the worst case scenario is that markets fall 50% from here. Don't just hope for the best, but be prepared for the worst. Not many are prepared for a 50% loss from here. They are the ones in denial.

Why I'm Holding On to Citigroup Stock

There is no way to value the company realistically. Its hope over reason. Avoid this stock, unless you want to speculate.

How Wall Street Keeps Dooming Itself

Profits are privatized and losses are nationalized. Absurdly, this is exactly counter to many of the dogmatic arguments for the superiority of the US system of capitalism which is said to raise all boats.

The Dow's Lost Decade

Compare the charts of xto to aapl over ten years and upl to goog over four years---and look at which stocks of this decade are really.

If you could only own two stocks for the last decade or the next one, I would choose XTO, and UPL. And they are still cheap.

My thesis: natural gas stocks look like they have limited downside, and large upside. Google and Apple could trade sideways for years.

It isnt just the information economy its also the "we need to get off imported oil economy". That basic truth will not be going away and will only intensify.

Citigroup's Flush

We've heard from Citigroup before..."no dividend cuts"...and then they cut. Why should we believe anything they say?

My Ten Predictions for 2008

This is the best list of predictions Ive seen in a long time. My prediction is that more than 50% of these predictions comes true in 2008. Thanks!