US governments helps CitiGroup - who will be next?

Yesterday US government officials announced that the state will help another US banking group - Citi Group. Firstly, the government will directly invest $20 billion in the company (CitiGroup will issue preferred stocks). Secondly, US state will secure over $300 billion in securities and loans.

This is another “try” to calm the markets and fight the impact of the financial crisis on the economy. Previously we had a big financial help for AIG, then the “Paulson Plan” with $700 billion, and now this. Citi Group losses caused its price went down sharply on Wall Street. Now the bank gets “free money”. The question is - who will be next and how long it will last…

Of course in short term the market will be satisfied. Stock markets will go up a bit… but in fact it won’t change the the overall feeling about the situation. Probably there are many banks and financial institutions that still haven’t revealed their real financial status. There are probably many hidden losses and the question appears - will the government help next companies who will publish bad news? And if not - how the government will distinguish between banks that will be rescued and those that will not. And is it fair?

It seems US government concentrates on helping the biggest financial institutions, whose bankruptcy would have the biggest impact on the market. The smaller ones probably will be left alone. Anyway, even if this uneven treatment may be understood from the global point of view, there is another problem. Government still floods the market with billions of new dollars. Additionally, the interest rates are very low. Politicians are doing what they can to avoid the recession but I’m afraid it just can’t be avoided. And what we can see in the result will be recession combined with inflation…

Dow Jones reached 6-year low, stock market crisis continues

Today Dow Jones Industrial Average closed at 7,552.29 points. It is around the lowest level in more than 10 years, which was achieved 6 years ago in 2002 (it was around 7,500 points).

In 2002 we had a beginning of the 5-year bull market. The top was reached in 2007 at around 14,000 points. It means that in 5 years US stocks gained over 86%. It’s funny that all this 5-year profit diminished in just 1 year. Last 12 months were enough to come back to the bottom.

This situation shows exactly how the crisis works. Good times last long and are misleading. Crisis is sudden and quick and anihilates all we accumulated in the “happy years”. One can think that in last 6 years the economy didn’t move forward. BUT, the truth is, the economy HAS moved forward. Stock exchange index does not reflects exactly what happens in the real world. Stock market is mainly driven by psychology and always exaggerates. Investors exaggerated in optimism in last 5 years, now they must overreact and exaggerate in pesimism. That’s all. The crisis is what we have now but we WILL be back to normal. Just have to survive upcoming year or two. This may be hard but these are normal economic rights.