Are Your Assets Safe At The Banks?
The Dynamic Wealth Report
March 2, 2009
Citigroup's Nationalized... Will Your Investments Be Safe?
It’s starting to happen. Slowly the government’s nationalizing the
banks. They don’t want to admit it to the investing public… but slowly
they’re taking control of each big institution. Citigroup’s (C) a
perfect example.
First they gave them $25 billion to “increase lending.” Now the
preferred stock is being converted into shares. This effectively makes
the US government the largest shareholder out there.
Now remember, this money didn’t come for free. They had to pay a
regular dividend to the government. Then the government put limits on
what the money could be used for. Then the government changed the
corporate compensation structure.
I don’t know about you, but it seems to me the government’s making more
of the day to day operation decisions.
With the conversion of the preferred shares into common, the government
now owns about 36% of Citigroup.
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It’s not a big deal (if you don’t own any of the stock). But heaven
forbid you should own stock in this company. All the government is doing
is massively diluting the shareholders. As a shareholder, your slice of
the Citigroup pie just got a whole lot smaller.
Now, I’m not going to argue these government actions are wrong… the big
banks and insurance companies who over-leveraged themselves are getting
what they deserve. (In my opinion some should just be pushed into
bankruptcy… AIG). With Citibank, it’s just so much more painful because
of their once dominant size.
Now let me ask a critical question.
Can Bank of America (BAC) be far behind?
Picking a winner in today’s market environment is tough. I think short of
massive and catastrophic bank failures, we’re in the belly of the beast
on this recession. We’ve seen the worst of the news. Once a few more of
these big financial groups either fail or are split-up and sold off
(Citigroup and AIG), then we’ll see the market stabilize.
In times like these the biggest question investors have is simply: Are
my assets safe?
As far as the banks go… Yes. Provided you put your money with an FDIC
insured bank, and limit your account size to under $250,000. In those
cases, the government guarantees your money.
Now, your investments are another thing entirely.
If you hold Citigroup stock, don’t blame me. I’ve been saying it for
more than a year… get out of all the financial stocks. It’s really ugly
and everyday investors are being caught up in the crossfire.
So who wins in the financial industry? There has to be a winner or two
in the financial industry. Really, all the banks can’t go away. In my
opinion, we’re going to learn who the winners are in the financial
industry this year. I’m going to monitor the major banking institutions.
The strongest and healthiest are going to exit this market turmoil
bigger, stronger, and I believe more profitable than ever. Like vultures
in the desert, they’ll scoop up the good pieces of other failing banks. The new assets and business they purchase this year (on the cheap) will
be worth billions a few years from now.
To me the early winners will be Goldman Sachs (GS),
JP Morgan (JPM), and
Wells Fargo (WFC). I’m sure there will be others, but these are the most
obvious. Now, I’m not saying rush out and buy these right now. I’m
saying watch them closely. When we find a good entry point that’ll be
the time for action.
For now, keep your head down… and stay away from the financial industry.
• Airlines (Down 38%)
The airline industry is really being hit hard in this
recession. Businesses are cutting back on spending, and some of the most
profitable customers were business travelers.
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