Here they come to save the day!!!
Stocks traded much higher today on news that Citigroup will be the next big bank being bailed out by the US Government. The plan includes guaranteeing up to $306 Billion worth of bad mortgage-related loans and investments against losses and injecting another $20 billion in capital from the $700 Billion TARP bailout program. In return, the government gets $7 Billion in preferred shares paying an 8% dividend and stock warrants for 254 Million common shares at a strike price of $10.61. Citigroup must also modify their distressed mortgages to help borrowers avoid foreclosure and are barred from paying more than one cent per share in quarterly dividends for three years. The government is at least starting to learn from their earlier mistakes by placing restrictions on Citigroup’s executive compensation and bonuses. This is an enormous financial commitment by the US Government, but over time this deal could be a profitable one for taxpayers.
Also helping Stocks move higher today, was the talks of a larger than expected stimulus plan by the Obama administration, which could top $1 Trillion. There was another dismal Existing Home Sales report, which failed to provide any boost for bond prices as traders were expecting another bad report.
With all of the action in the stock market lately, surprisingly the bond market has had little reaction. Since November 5th it has just hovered right around the floor of support at the 200 day moving average. Today was not much different with it ending 25bp lower at the last few minutes of trading. Most lenders have been adjusting their rates by only .125% over the last week. So we will remain in a float pattern for now as I am still expecting rates to fall lower over the next couple of weeks. Stay tuned for more as the market changes.
FDIC plan could help 1.5 million keep homes:
WASHINGTON - Publicly breaking with the Bush administration's official stance, the Federal Deposit Insurance Corp. proposed Friday to use $24 billion in government funding to help 1.5 million American households avoid foreclosure. See full story.