Thursday, November 29, 2007

Another Bail Out



Among today's headlines is another bailout. This time its Etrade (ETFC). Citadel provided $2.55 billion, and got 20% of the company. Great deal for Citadel. They get CEO Mitch Caplan out and a seat on the board. This will give them a lot of leverage on the direction Etrade will take. The bottom line is that Etrade needs to focus on their brokerage business, an area where they have had a lot of success. Its been tough for shareholders, but things will come around. This is better for them then getting taken out by a competitor at too cheap of a price.

The decline is oil prices was halted due to a pipeline explosion in Minnesota. I think that the swift decline in crude really helped fuel the stock rally that we saw. The reasoning for the rally was the things I've been talking about the last week or two. Settling of the news headlines for financial stocks, crude oil dropping, and stocks being oversold. The potential for a rate cut made headlines, but a quarter point didn't do much for us last time. I think there is some major debate over rates at the December meeting, and I wouldn't count on the cut just yet.

I continue to believe there is room to the upside as the volatility subsides. If things get worse, the combination of a poor housing market along with a weaker consumer and higher inflation would spell a combination that would lead us substantially lower. We'll continue to look for clues on which direction we are headed.

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