Financials pound the Market/Apple's Jobs Shocker

Hello All!

Ouch! Retail and the financials took center stage on Wall St today as stocks closed down over 3%. The wheels are falling off the wagon folks. I could write 5 pages today based on the amount of news that came out today.

However, I need to keep it brief today because I have started working on a few new projects that will last throughout the year. I will continue to post when I have a chance, but I may miss a day or two each week. Sorry in advance folks, I gotta pay the bills!

Lets start with the retail numbers. December retail sales fell more than twice as much as forecast:

"Jan. 14 (Bloomberg) -- Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.

The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington. Labor Department data showed the global collapse in commodities caused prices of goods imported by the U.S. to fall for a fifth month.

Retail sales were projected to fall 1.2 percent after an originally reported 1.8 percent drop the prior month, according to the median estimate of 78 economists in a Bloomberg News survey. Forecasts ranged from declines of 3.5 percent to 0.3 percent."

Quick Take:

All of these analysts are such fools. How can they be this far off on estimates? The consumer has fallen off a cliff. haven't they read a newspaper in the past 6 months? Imagine how bad 4th quarter corporate earnings are going to be if retail was sales were this bad. This is the holiday season folks. Some retailers and companies live and die based on the holiday season. I guess we better start planning the funerals.

Citigroup Fiasco

Citigroup plummeted 23% today amid fears of solvency and massive 4th quarter losses:

"Jan. 14 (Bloomberg) -- Vikram Pandit is unraveling his empire to save his bank.
Citigroup Inc.’s chief executive officer said yesterday he would cede control of the Smith Barney brokerage to Morgan Stanley. Pandit may also dump the CitiFinancial consumer-lending unit, tag Tokyo-based Nikko Asset Management Co. for eventual sale and rein in trading with the bank’s own capital, people familiar with the matter said. Citigroup shares fell 23 percent in New York.

The bank, which today said it will report fourth-quarter results on Jan. 16 instead of Jan. 22, will probably say it lost $5.3 billion, according to the average estimate of six analysts surveyed by Bloomberg. Oppenheimer & Co. analyst Meredith Whitney estimated in a Nov. 24 note to clients that Citigroup may have a $12.4 billion net loss in 2009."

Quick Take:

In my eyes Citigroup is dead. If it wasn't for the government Citi would have been gone months ago in my view.

One reporter's quote said it all today: " Citi may be too big to fail but they sure are trying hard to do it!"

I think Citi will be nationalized before this is all said and done. That would of course zero out the equity holders. The above forced breakup of this massive bank is only the first step. They have no business model and they are bleeding cash like a trauma patient.

I have been warning on here the last few weeks that I think this whole sector is dead. None of the large banks are solvent, and their assets that they hold continue to drop in value.

Bottom Line:

Things continue to spiral downward folks. The market has been down 6 straight days. I still have yet to cover my shorts. I still own FAZ and SRS. Both were up big today. I also made a speculative play today. I bought some cheap Feb. $4 PUTS on Citi today when the stock was at $5. This is very risky play, but I am betting the stocks a zero. Even if it survives in its current form, C was down to $3 earlier in the year. I see no reason why it won't at least retest those levels if it isn't nationalized down to a zero.

Tomorrow should start off very rocky based on the after hours Steve Jobs news:

"Jan. 14 (Bloomberg) -- Apple Inc. Chief Executive Officer Steve Jobs, who said this month that he is being treated for a nutritional ailment, will take a medical leave of absence through the end of June. The shares fell 10 percent."

I feel very bad for Steve. My heart goes out to Steve and his family. The NASDAQ will most likely have another rough day tomorrow.

The other big news to pay attention to tomorrow is JP Morgan earnings report. The financial sector may swoon once again if they puke up massive losses. Traders are starting to think there is a solvency crisis developing in this sector. Previously they were only worried about a liquidity crisis. This is a big developement in my view. We last saw this psychology when AIG and Lehman went bust.

I believe traders are starting to think that some of the large banks are in such trouble that the government will be forced to come in and nationalize them. This risk here is that the government will issue themselves preferred shares or warrants which then wipes out the common shareholders or at least dilutes them to close to zero. Go take a look at Fannie and Freddie if you want a preview.

I think pretty much every bank will be in the single digits before this crisis is over.

I wonder how the bottom callers are feeling today? They have been screaming louder than usual over the past few weeks on CNBC. Their favorite line is "the stimulus should push the economy higher in the second half of the year so now is the time to buy equities". I heard this several times a day on "bubblevision" when stocks rallied 20% from the lows. Oooops! Guess that theory didn't work! Fools!

With all this being said, we are again approaching the 2002 lows. The Steve Jobs news could take us down close to these levels tomorrow morning. A nice play might be to try a long position after the drop. Don't hesitate to take profits on any big bounce back up. Remember, Options expiration is often charecterized by strong reversals. Huge down days followed by huge up days and visa versa are not uncommon..

Shorting the whole here is very risky at these levels.

Folks,

I just want to close buy saying I am very concerned about what I am seeing out there. I see nothing but massive carnage in all sectors. Earnings are dropping like a rock, the consumer has vanished, and our financial system appears to be broke. Oil and commodities continue to drop like a rock. Treasury yields continue to fall as investors run for cover.

On top of that, China's growth has been cut in half, Israel continues to stir it up in the middle east, and Russia appears to be at risk of defaulting with oil at $30-40.

My advice? Stick your head in the sand for now and hide in fixed income and treasuries. Trading at these levels should be done with money that you can afford to lose. I trade about 5% of my total portfolio right now.

I have never seen so many risks at once like this folks. My previous call was tha we will get one more push higher as Obama gets into office. I am now starting to question this thesis as I watch the economic Titanic taking on water from leaks that have sprung up virtually everywhere throughout the economy. I have not walked away from the Obama thesis...Yet. However, if we firmly break through the 2002 lows, all bets are off.

I think eventually we will retrace back to the 1995 levels on the DOW which puts us at around 4-5,000. There is strong resistance here and I think it holds.

We are headed straight towards a depression everyone. Buckle up and hold on.

I wish I saw it differently.