Still Holding 50% Cash

I did commit the last of the cash that is in the brokerage accounts today.

The immediate results, of course, was for the prices to decline on what I had bought.   Luckily, I make it take an extra step and an extra few days to allocate any more money to the brokerage (casino) accounts.

The most questionable addition, a very small piece of the pie, was the Citibank flyer taken at $3.24 a share.  I suspect that will be close to the price the Salomon traders get their stock awards as bonus payment.

I also suspect that absolutely nothing will be done to make Citi small enough to fail at this point.

For all the lip service paid to preventing future bailouts of these behemoths, the gumming up of the works looks so thorough that I seriously doubt any meaningful taxpayer protection will come out of the latest round of banker-bashing on Capitol Hill.

As we saw with cap-and-trade, a partisan issue can be made out of anything, even something that was hailed as a job-producing free market solution in the last few years by such liberal luminaries as Newt Gingrich, George Bush’s White House, and John McCain.

That some of the same voices are now heard vehemently opposing that solution to our pollution tells me that meanigful restriction of gigantic banks from being gigantic will never happen.  Once I accept that premise, it follows that Citi will eventually sport a market capitalization commensurate with its size.

That should be in the same ballpark as JPM, WFC and BAC, which all have market capitalizations 30% to 60% larger, and suffer some of the same problems C has today.  If they all survive, they will probably all increase in enterprise value, so owning the cheapest of the bunch is worth some IRA money to put it away and wait.

The fact that C trades at a discount to book value may or may not imply additional upside, as book values at all these banks are still suspect.

What I do with half my money (keep it in insured bank accounts) should tell you all you need to know about my opinion as to future risk for all these financials, but I thought you might want to know.

I think our political process is hopelessly dysfunctional, so now I’m looking for ways to make a profit off it not working.


PS I also added again to my ANH position, making it very overweight.


3 Responses to Still Holding 50% Cash

  1. W.Kinsolving says:

    Whew! Hope is withering everywhere, and although I know that hope is not a good investment strategy, it seems to me that it’s needed somewhere in the bullring. If I find some, I’ll let you know.

  2. SRG says:

    I’ve also been adding to ANH. Trading at a discount to BV and looks like they have some high rate swaps comming off over the course of this year. I’m not sure how to explain the continued weakness at these levels, maybe a big seller.

    • hhill51 says:

      I agree that they are currently suffering from their long-term determination to be robustly hedged as to funding costs.
      Since the overall portfolio has been paying off slower than they would have projected back in ’05 and ’06 when those high-rate swaps were put on, I expect that the principal amount of the portfolio hasn’t declined as fast as the face amount of the swaps have.
      Today, a two-year swap is trading at 1.09%, and the 3-yr is at 1.70%, so the funding of the “tails” of those MBS will lock in huge spreads vs. 4% + now being paid for LIBOR funding associated with those MBS.

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