On 10 Feb 2009 I wrote about how the DOW was predictably crashing. On 18 Feb 2009 I wrote about the single digit midgets Citigroup and Bank of America. I am extremely surprised with how quickly these former behemoths are evaporating. Nevertheless, I probably should not be as this is the Information Age and such speed is to be expected.
THE CRASHING DOW AND S&P 500
The DOW has tumbled and breached 6,800 to close at 6,763. When I wrote the article it took about 8.671 ounces of gold per DOW unit. On 30 Jan 2009 in an interview with the Contrary Investor Cafe
I casually mentioned my prediction of 5-6 ounces of gold per DOW unit sometime in 2009. Currently the DOW is 6,763 and gold is about 925.20 resulting in a ratio of 7.31. The S&P has likewise tumbled. The great credit contraction continues.
SINGLE DIGIT MIDGETS
On 2 March 2009 Citigroup hit an intraday low of $1.15 per share. Perhaps Citigroup is performing stock buybacks with their $1.50 ATM fee. On 13 Sept 2007 Bank of America announced a $3 ATM fee. With an intraday low of $3.27 soon Bank of America can follow Citigroup's example.
Meanwhile, Citigroup's market cap has evaporated to about $6.5B while Bank of America's current $18B will soon become a single billion digit. I wonder how long it will take US Bancorp or Credit Suisse Group with their approximately $13 and $22 share price respectively and below $23B and $26B market cap respectively to join the ranks of the single digit midgets.
As the derivative illusion evaporates these former $300B market cap behemoths, Citigroup and Bank of America, are being revealed as the irrelevant fraudulent worthless institutions they are. As all bankers are liars and frauds how many more of these failed institutions will follow?
To help prop up the DOW perhaps Citigroup and Bank of America should be removed like AIG was? They are fast on the trail of receiving bailout currency just like the worthless AIG which recently posted a $61.7B quarterly loss. Bloomberg reported, "The agencies cited AIG’s role as insurer for 100,000 companies, municipalities and retirement plans, potentially affecting 100 million Americans, and as counterparty to some of the biggest financial companies."
This quarterly loss, nearly 50% larger than the previously largest quarterly loss in all of recorded history, is centered in derivatives and is like the minimum payment on a credit card. The massive poofing will only get larger and more dangerous vaporizing more institutions.
As Bloomberg cited Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore, who said, "The government has assumed almost all of the pain for itself thinking it will bring reassurance to the market.
The problem is we still don’t know the extent of the risk AIG has -- if the company says they need more money, guess what, we’ll have to do this again." The midlife inmates infected with the Financial Insanity Virus are running the asylum!
All the while silver remains backwardated entering its sixth week but the severity does appear to be calming. Vladimir Putin told Vyacheslav Shtyrov, president of Sakha, that the gold correction will not last.
The great credit contraction, which has only just begun, is continuing to strengthen and will only continue to gain intensity as counter-party risk escalates.
Disclosures: Long physical gold and silver with no positions other mentioned institutions.