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Friday, December 14, 2007

Inflation and Citigroup SIV

Inflation rose .8% in November.  That's a 9.6% YOY jump in inflation.  But don't worry because the "Core" inflation was only .3%. 

While inflation was up, the treasuries yields are going down as investors are opting for safety.  The yield on 10-year note dropeed to 4.169% yesterday.  That means the real return on the treasuries is -5%!

I feel sorry for all the seniors and savers.  If you are a senior, this is hurting you from both sides.  On one side your yields are going down and inflation is going up.  If you rely on social security, your costs are going up 9.6%, but the government will increase your payment by only .3%!  So if you are finding it hard to make ends meet, it's only going get worse.

While we have inflation sky-rocketing, our fed is busy lowering rates. 
 

Citigroup - Citigroup today announced plans to bring $49 billion worth of SIVs onto it's balance sheet.  This was a  move that was long overdue.  It's going to hit their already depleted capital base.  Congratulations to Vikram Pandit for bringing all the issues out into the open.  I guess now we can say goodbye to Mr. Paulsons MLEC fund.

This leads to antoher point.  This morning on Bloomberg radio, an analyst thought Citi taking SIVs on it's balance sheet means this is the bottom.  I may not be as smart as the analyst, but I would think there is a long way to go before this whole mess is resolved.  Remember that this whole mess was created by easy credit mostly in housing.  I would think there is a long way to go before housing has bottomed out.

 http://online.wsj.com/article/SB119759010104328237.html?mod=hpp_us_whats_news

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