Citi and the Tax-Cut Rally

Here's our tax cut rally. The key point isn't that the tax cuts were extended, it's that the total package is more comprehensive than anyone expected: a 2 percent payroll tax cut, allowing businesses to expense all investments immediately, an estate tax deal wraps up several issues in a single deal, if it can be done.

Where do we go from here in the next few months? The bull scenario is as follows:

1) the economy is improving

2) the Fed is on your side

3) stocks are under-owned

4) credit is not an attractive buy.

Yes, higher inflation and higher rates are a distinct possibility down the road, but for the moment stocks are the strongest bet, bulls argue.

Citi: unloved no longer?

At 11:30am ET, Citi had traded about 1.6 billion shares, that is about half the total volume of the NYSE consolidated tape (all trading in all NYSE stocks).

The government's final exit from Citi has bulls excited for a number of reasons:

1) tangible book value is about $5.00, well above the current price of $4.65.

2) they have the highest capital ratios of any bank in the world

3) little or no mortgage put-back risk

4) will likely buy back stock and announced dividend in 2011.

Another short-term boost: Standard and Poor's announced this morning the would increase the weighting of Citi in the S&P 500 at the close today; KBW estimates stock indexers would have to buy back about 378 million shares. Citi has already traded north of 1.5 billion shares.

Talbots: many analysts gulping.

Talbots down 22 percent all morning on poor Q4 guidance, high inventory levels. This is considered a turnaround story and as such there have been many analysts touting the stock for 2011. UBS issued a report yesterday on TLB with the headline "Poised to be Top Turn Story in 2011" but in a note this morning, headlined it with the line "Patience required."

Still, Talbots is indeed a turnaround story. Turnarounds take time, but there is no patience on Wall Street, analysts lament to me. "Why do you think Mickey Drexler [CEO of J Crew ] went private?," one trade said to me this morning. "He got tired of the silliness. 30% of JCG's float was shorted. Drexler screwed the shorts."

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