S&P Falls To 12 Year Low On Third Citi Rescue
S&P 500 FALLS TO 12-YEAR LOW ON THIRD CITI RESCUE
Stocks fell to a 12-year low Friday as a move by the U.S. government to take a large stake in common shares of embattled Citigroup fanned nervous whispers that other banks could go the same way.
Although the U.S. Treasury is not infusing Citigroup with any new capital, it will convert up to $25 billion in preferred shares to common stock in its third attempt to prop up the bank in the past five months
The deal is contingent on private investors also agreeing to a similar swap. Existing common shareholders would see their ownership stake shrink to as little as 26%.
It probably comes as no surprise that shares of Citi tumbled while the KBW Bank index of larger banks dropped substantially, as well.
Strategy Session with the Fast Money Traders
After news like that, no one wants to go long into the weekend, explains Pete Najarian. That’s what triggered the late day sell-off.
Closes like this on Friday make it easy to push slightly past support, says Jeff Macke. Don’t make too much of that but make no mistake we are right at support in the S&P.
It seems to me that there’s a ton of pessimism in the market, adds Joe Terranova. And that could be enough to get long. It’s making celebrated contrarian investor Doug Kass bullish.
From the perspective of preferred shareholders the news on Citigroup is a home run, explains Karen Finerman. Citi preferred shares traded a third higher because the market had discounted something much worse. My trade going forward is longBank of Americapreferred and short the Bank of America common against it.
If you have a Wharton background go ahead and buy preferred shares, counters Terranova. Otherwise stay away from Citigroup. Instead I’d look at Morgan Stanley and Goldman Sachs.
As far as I’m concerned Citigroup did the deal with the government to avoid a downgrade from credit ratings agency, bristles Jeff Macke. They sold common shareholders up the river to hold onto their credit rating.
I totally disagree, counters Karen Finerman. Equity shareholders are risk takers. They shouldn’t be saved.
GE TAKES THE PLUNGE
General Electric plans to cut its quarterly dividend by 68 percent to 10 cents a share, starting in the second half of 2009, a move that it said would provide it with more "flexibility" in the face of a recession.
The U.S. conglomerate said that it had no plans to raise additional equity, and that reducing its dividend from 31 cents a share would save it about $9 billion a year.
I think it’s a smart move, muses Karen Finerman.
TOPPING THE TAPE: TECH
Despite the rough tape, technology stocks appear to be holding most of their ground with the Technology SPDR ETF only down 2%. Both Dell and IBM finished the day in positive territory with investors liking Michael Dell’s cost cutting plans and IBM’s guidance.
I’m long Dell, explains Joe Terranova. I think Dell could get to $11 very easily. It’s massively shorted and at some point short sellers will have to cover that trade.
I don’t like Dell, counters Pete Najarian. I don’t see any growth coming. Instead I’d look at IBM. That company is doing well on their service revenues.
BATTLE THE BEAR: GOLD TRADE OVER?
Investors are wondering if gold’s $1000 move was, in fact, the top. The precious metal plunged 6% this week despite a strong environment for safe haven plays.
$920 - $930 should be a point of support, says Joe Terranova.
OIL SOARS 12% FOR THE WEEK
Although it settled lower on Friday, oil jumped big for the week, soaring a whopping 12%. Meanwhile coal producers such as Massey and Arch Coal traded higher.
In the energy complex nat gas made a 6-year low and then turned around, says Joe Terranova. It looks like the space is coming together and I think it’s a buy. Personally, I’m long ConocoPhillips $35 calls.
In commodities I like the ag names, adds Pete Najarian. There’s a Credit Suisse conference coming out the week after next and it could create a catalyst for ag stocks.
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Trader disclosure: On Feb. 27th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (DNA) Calls; Najarian Owns (DOW) Call Spread; Najarian Owns (FCX) Call Spread; Najarian Owns (GDX) & (GDX) Short Calls; Najarian Owns (GS) Call Spread; Najarian Owns (MSFT); Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (MOS) Stock; Najarian Owns (V) & (V) Calls; Terranova Owns (OTS), (DIS), (FXC), (XBI), (BRCM), (WYNN), (INTC), (DELL), (JOYG); Terranova Owns (AMGN) & (AMGN) Puts; Terranova Owns (IBM) Call Spread; Macke Owns (MS), (GS), (SDS), (TM); Finerman's Firm Owns (MSFT), (RIG); Finerman's Firm Owns (DNA) & (DNA) Calls; Finerman's Firm Owns (BAC) Preferred; Finerman's Firm Owns (WFC) Preferred; Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO)
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