Roubini: Nationalize vs. Gross: Recapitalize (Outlooks)

Bill Gross and Roubini don't agree on nationalization. Watch this great interview with Roubini on Tech Ticker and then listen to Bill Gross's investment outlook below.



Bill Gross is watching the US Dollar: "Global willingness to accept American dollars is being tested. Granted, the U.S. currency has appreciated strongly against its counterparts during most of this crisis, but technical short covering as opposed to a flight to quality may have been the dominant consideration. Watch the dollar. If it falls hard, there may be nothing policymakers can do to restore the ensuing financial chaos." Full Text

Bill Gross March 2009 Outlook (MP3 Source)


I had to add this video from Tech Ticker today (3/2/09) with Roubini explaining why Gross is wrong. Either way something needs to happen fast. The Dow broke 7,000 (at 6,824) and the S&P is testing 700 (at 707) down more than 50% from the October 2007 peak. Truly a disaster!

Nassim Taleb on "The Black Swan" (Video 2/4/08), Roubini & Taleb Discuss Crisis on CNBC (2/9/09)

The man, the myth, Nassim Taleb talks about his book "The Black Swan" on 2/4/08. It's an event that is difficult to predict based on historical information. Check out his webpage Fooled By Randomness. At the bottom watch Roubini and Taleb discuss the crisis on CNBC on 2/9/09. As a special bonus I added a video of Roubini on PBS. Roubini makes a good point about nationalization and how IndyMac was scooped up by the private sector once restructured by the FDIC.

Bernanke's Hedged 2010 Recovery Bet, U.S Dollar at Inflection Point.

Today the market had a great catalyst to move it higher. Ben Bernanke said in testimony today that there's 'reasonable prospect' that the recession could end in 2009 and recover in 2010 but he heavily hedged his bet. Read the full Reuters article and watch the CNN video clip below.

Canada's Banks Are Solvent. Stephen Harper Interview (Canadian Prime Minister on Fox Business).

Canadian Prime Minister Stephen Harper was interviewed on Fox Business talking about the health of the Canadian financial sector. He said,
"Canada has a stronger system of regulation and we have a more activist regulator who meets with the major players in the financial sector. Most of our banks didn't actually test the limits of their ratios and were far less leveraged than their American counterparts. The sector was leveraged 18/1 in Canada, 30/1 in the U.S and 40/1 in Europe. We haven't had to to put any money in our banks or do any bailout. But Canada will make sure they stay competitive with banks with Government guarantees. We have no plan to nationalize our banking sector."

Dow Breaks Nov '08 Lows, S&P Testing Lows, Market at 1997 Levels. Need Positive Catalyst Immediately.

Today the S&P tested the November lows closing at 743. The S&P hit 741 in November, 2008. The Dow already broke the lows a few days ago and it's been in a pattern recently that the S&P follows the Dow (link). I'm not saying it will happen this time.... Still we're trading at levels not seen since 1997 which has been a disaster for the long term index fund investor. These are major levels if breached here. What's interesting though is the $VIX (Volatility Index) isn't even close to the highs we saw in November so does that mean we're in for a slow death or a base around these levels? Things are definitely bad right now w/ nationalization fears, poor earnings and economic data but back in November when Lehman went bankrupt the financial system almost broke down, LIBOR spiked and the TED Spread (difference between what banks and the Treasury pay to borrow for 3 months) widened.

Now we're dealing with the same problems. GE Capital was valued at 0 today, AIG needs more capital to stay alive, the Gov could own 40% of Citi's common stock and JPM just cut their dividend by 87%. Also Obama could tax some market participants on Thursday (video and quote below) so be on the lookout for the market reaction. Here are the charts. Some of the shorts could get knocked out here but we really need a positive catalyst. Plus I'm also watching the U.S Dollar. With the monetary base spiking and the US Dollar Index catching a bid it doesn't reflect well on the strength of other countries or the reflation attempt. So what will the positive catalyst be, nationalizing the banking sector??? (Roubini says a takeover and resale is the market-friendly solution (WSJ.)

Taxpayers Could Own 40% of Citigroup's Common Stock, Implied Volatility and Option Volume Popped on Friday

It looks like there's a possibility that the Gov will convert 7.8% of their preferred Citi stock into common stock. This would bring massive dilution to the common holders however it would improve the bank's financial health by boosting it's TCE (tangible common equity) ratio. Preferred stock is not factored into the ratio. Citigroup officials are also trying to persuade other large preferred stock holders to convert like the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority. This could possibly stem off bankruptcy fears. $C's implied volatility was definitely predicting this type of news on Friday (chart). We'll see how the US markets react to this. It looks futures are up overnight. It's important to know that this is just a proposal and could fail. Also we have Bank of America and the autos to deal with so it's a mess but hopefully we get through this eventually..
"Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said." WSJ

http://online.wsj.com/article/SB123535148618845005.html



Citigroup Options & Volatility (ISE.com)


Also read this WSJ Article: 'Nationalize' the Banks. Dr. Doom says a takeover and resale is the market-friendly solution.