Dow Enters Correction, Abu Dhabi Buys Citigroup, Consumer Confidence Sinks, and More!

by Addison Wiggin & Ian Mathias

  • The Dow officially enters “correction”…
  • How Middle Easterners just became the largest shareholders in the U.S.’s biggest bank
  • Citigroup to fire up to 45,000 souls… some perspective on that “massive” cut below
  • Home prices fall at yet another record rate… is any city safe from the housing crisis?
  • OPEC delays $100 oil… Kevin Kerr on the real driver behind the latest oil prices

After a morning filled with strong gains and post-holiday optimism, markets took quite a turn for the worse yesterday and fell steeply in unison. The Dow fell 1.8% yesterday, pushing it more than 10% below its all-time high set on Oct. 9 — a textbook “correction.”

Year to date, the Dow is up 2.2%. But that’s a gain worthy of your envy, if you’re an S&P 500 investor. The S&P, which already “corrected” back in August, fell an additional 2.3%. It’s now down 0.8% for the year.

The Nasdaq took a 2.1% haircut on the day. But it’s holding up rather well, considering, with a whopping 5.2% gain in 2007.

Today’s big news… ought to bring protectionists out of the woodwork.

Citigroup, the largest bank in the U.S., sold $7.5 billion of its own shares to the Abu Dhabi Investment Authority this morning. This massive trade accounts for 4.9% of Citigroup’s entire enterprise, making the folks in Abu Dhabi the bank’s largest shareholder.

The “equity units” purchased by the ADIA will be converted into shares in 2010. But Citi is so desperate for cash right now that it offered an 11% annual yield on those units until then — double the yield Citi offers its bond investors.

Citi also let slip to CNBC yesterday it’s planning “massive” job cuts. The total number could reach as high as 45,000, “people in the know” estimate.

Let’s put that number into perspective, shall we? Imagine filling every seat in Wrigley Field…

and then firing all of them… plus a few thousand more.

“Selling a 4.9% stake in Citigroup is a step that is not taken lightly,” comments Mish Shedlock. “Nor is another round of massive layoffs.

“Monday’s news reports on Citigroup raise more questions than they answer. The one thing we do know for certain is that Citigroup was (and likely still is) severely capital-restrained. On Nov. 5, I said that Citigroup was fighting for its financial life. It still is.”

Mish has made some pretty shocking predictions about how this new round of bank bleeding will play out in 2008. Our legal team is pouring over them as we speak. Given his forecasts this year on the subprime market, housing and specific companies like Countrywide… you’re not going to want to miss this report. He’s got a hot hand and his fingers on the pulse… Watch this space.

“American-style capitalism has evolved into a bizarre marriage of financial gimmickry and governmental coddling,” writes Eric Fry this morning. “Very few companies produce much of anything other than derivatives and press releases. This situation would not be so bad if the derivatives possessed a bit of value and the press releases possessed a bit of truth. Instead, the U.S. economy lurches from greed to deception to disaster, and back to greed, without ever eliminating all the flaws and the felons that cause all the problems.

“When we should be lopping off heads (so to speak), we dispense multimillion-dollar severance packages; when we should be marking to market, we mark to markup; when we should be allowing idiotic speculations to fail, we devise new ways to finance idiotic speculations.”

Sovereign wealth fund Dubai International Capital bought a “substantial” stake in Sony yesterday, its first venture into the Japanese market. Neither the DIC nor Sony officials revealed what “substantial” means in dollar terms, but word on the street is that Dubai now owns about 1% of Sony, worth nearly $500 million.

According to the Free Market Investor’s Chris Hancock, these investments by big sovereign wealth funds could save your retirement. If you’re not familiar with his strategy, check it out here.

Home prices fell in every region of the U.S. in September. At least, if you’re inclined to believe the Case-Shiller price index, which published its monthly press release this morning.

“Consistent with prior 2007 reports, there is no real positive news in today’s data,” reports a depressed Robert J. Shiller, the index’s steward. “Most of the metro areas continue to show declining or decelerating returns on both an annual and a monthly basis.”

All 20 cities followed by the group saw a decline in home values during the month.

Year over year, Case-Shiller’s 20-city price index fell 4.9%, the largest drop in the index’s 21-year history. From a quarterly perspective, home prices fell a record 1.7% from the second quarter to the third, and down 4.5%, compared with the same period last year — also a record.

In 2008, real estate foreclosures will likely result in a $1.2 trillion decline in property values nationwide,
according to a gloomy report released by the forecasting firm Global Insight.

The group also expects a 7% drop in average home prices across the country; a $26.6 billion combined decline in economic activity in five of the nation’s biggest metro areas: New York, Los Angeles, D.C., Dallas and Chicago; and a decline in the national GDP to 1.9% — less than half our recent-history average growth.

Not by coincidence, the Consumer Confidence Index sank to a two-year low this month, reported the Conference Board this morning. The Board’s measure of consumer confidence fell from 95.2 to 87.3 — both the lowest level and the biggest monthly decline since Hurricane Katrina struck in the fall of 2005.

According to the survey, consumers believe that the economy and employment are taking it in the pants… and that inflation will continue to rise in 2008.

Gold traders have been ambivalent about the trends. The metal rallied up to $836 yesterday, but this morning, it’s back down to $815.

As oil stood a few cents below $99 yesterday, we were already dreaming up “Oil $100” headlines. But it didn’t happen. Oil trades at $94 and change this morning, following whispers from OPEC that it may increase production.

“There is immense global pressure on OPEC to increase output,” opines our Maniac Trader, Kevin Kerr. “But we won’t know the real answer until Dec. 5. Sentiment might bring prices down until then, but we just can’t know anything for certain until the next OPEC meeting.

“Until then, the dollar is my biggest concern when it comes to $100 oil. We saw oil pull back yesterday after the OPEC news, but then it rallied as the dollar fell again… the dollar is a huge driver for oil prices right now.”

The dollar had it tough yesterday and overnight. It sunk to a two-and-a-half-year low versus the yen… going as low as 107. The pound rallied back to $2.07. The euro eked ever closer to $1.49…

“I just spent a week in Uruguay,” comments a reader on the fate of the dollar in global markets. “I was hiring workers to make improvements to my home there. Guess what? They refused to provide quotations in dollars and wanted to make sure they were paid in Uruguayan pesos. When Uruguayans value pesos more than the dollar, it is a sad day.”

Goldman Sachs downgraded the entire auto sector yesterday to “cautious.”

“The automotive industry in the USA stinks,” writes a reader. “It is all on the verge of bankruptcy. It’s not that the industry is producing junk. Its product is of high quality. It’s just that its long-term liabilities will eventually drag it under.

“It needs to do something different to get the customer back. ‘Different’ is the key word. Right now, it’s the ‘same old, same old.’ When is one of the companies going to come out and say, ‘By the year 2012, all new Chrysler cars will average 60 miles per gallon. We are doing this to show our customers we are the LEADERS in the automotive industry. We will do whatever we can to help our country reduce its dependency on foreign oil’?

“Einstein stated that insanity is doing the same thing over and over again but expecting different results. Aren’t the sources of our problems in this country pretty obvious?”

The 5 Responds:
Last month, Canadians bought more U.S. cars than ever in history, presumably because their dollar is kicking ours in the cojones. How’s this for a mission statement:

“By 2012, GM promises that every car will be worth way less than it was in 2007.”

We can reverse-engineer the auto industry… and produce Yugos and Daihatsus by the middle of the next decade. How’s that sound?


Addison Wiggin
The 5 Min. Forecast

P.S. We’ve received word this morning that nearly 300 seats at our Vancouver event in July 2008 are already spoken for.
That’s a phenomenal response… nearly half of what’s available. The Fairmont is a beautiful old hotel, and as much as we’d like to take more attendees, we’d be really stretching the facility to do so.

Our suggestion: If you want to attend next year’s event, make your plans early. Discounts are still available, too, until January 15th. Don’t forget… if you are an Agora Financial Reserve member, you may attend our event for free.

The 9th Annual Agora Financial Investment Symposium
The Fairmont Hotel Vancouver
July 22-25, 2008

Citigroup to Raise $7.5 Billion From Abu Dhabi State
Massive Job Cuts Expected At Citigroup
Consumer confidence sinks to two-year low in Nov.


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