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Two Ways: Government Making Bank on Citi


Strengthen your portfolio in good times and bad.

It appears the US government made a nice trade on Citigroup (C). Its $45 billion investment into the troubled bank returned 7.5% for US taxpayers, over three times as much money as the government invested in the S&P 500 index during the same period, according to Bloomberg.

The government first injected $25 billion in funds last October and added another $20 billion just a month later. It reaped about $1.6 billion on that investment due to dividends on preferred shares. The government also plans to convert about $25 billion of its preferred shares into common stock giving taxpayers about a 34% stake in the company. The conversion price is set at $3.25 per preferred share and would yield a profit of $1.77 billion given yesterday's closing price of $3.48.

Meanwhile, the S&P 500 index including dividends has returned 2.4% for the same time period beginning last October.

See related article on Bank of America (BAC), Professor James Kostohryz's BAC to Break $30?

From the Bull Pen: If bulls are looking for a trade in the banks, Professor Kostohryz's gives compelling reasons to buy Bank of America (BAC). But for short term traders, identify support areas near gapfill at $13 and the breakout near $12. Sell stops can be set below those levels.

From the Bear Cave: Bears can look elsewhere like Harley-Davidson (HOG). Its 20 day moving average appears to be overhead resistance and $16 support looks like it's ready to give way making the next target $14. A buy stop can be set above $17.35.

I hope you all had a great week and a happy Fat Friday. Have a good weekend!
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No positions in stocks mentioned.

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