Citigroup is going down
Fell 7% today ... C has been outperforming the market for the past few months for reasons that escape me. While I don't understand rational people investing in any American banks during the continuing Great Housing Disaster, I particularly don't get people buying one that is heavily owned by our incompetent federal government that, you can be sure, will be happy to unload its shares at any price it can fetch over it's buy-in (which is 20% down from here).
What's wrong with C? I mean what's particularly wrong with it, compared with other banks? Several things:
1. Unlike what many ill-informed bulls have posted in the comments on C's page, C has sold off its GOOD assets, not the bad ones. C has unloaded the money-makers like the SmithBarney brokerage rather than the bad ones (the derviatives, the sub-prime exposure, the HELOC exposure etc.)
2. The leverage is absurd. The last time I took a good look at C's balance sheet, they had a negative book value. Now, somehow, it's popped up to over $5 a share. What's this tell you? A) People are marking up assets again even though houses aren't selling, defaults are rising, and unemployment is steady. There's inflation of expectations, which has caused C to make up its assets without basis. When you look at Cash vs. Debt, you see C only has a dozen or two billion dollars sitting around in excess of their debt. Cut their short-term swap lines and C is dead immediately. This won't happen as long as the government is involved ... once the government is done unloading, look out.
3. The market cap is extremely excessive. How much is C's market cap? Don't be fooled by the low share price, due to the MINDBOGGLINGLY large amount of dilution in shares, the market cap is $110B (with a billion.) To all you calling for $10 and up on C, keep in mind you are calling for markets caps of $250B and greater!!!
Newsflash: Google (a very healthy company) has a market cap of $140B. C, whose survival is in great doubt, has a cap of $110B. Point is, even if C survives, it isn't going up. It just can't. There's too many shares.
When I recommended C in 2009 (my 2 CAPS green thumbs both returned 80+ points and gave you doubles on your investment if you followed them), there was A) a much lower share count and B) a much greater chance of survival as they hadn't sold the profitable assets yet.
Outlook, a price target of $1 (market cap of $30B) is reasonable, as this values their survival chance fairly, the brand still has a reasonable amount of value if they can survive all the lousy assets they own. Of course, if the market starts to suspect C is going down, a price around 50 cents a share or so (market cap of $15B) is more likely. In the long run, I expect C to go to 0, but it'd be a interesting speculative purchase under about 75 cents.
To all you you ill-informed C longs, please score at least 230 points on the stock and capture my score leader status on the stock before calling me a moron. Thanks.