CIT and Market Panic

15 07 2009

CastleInternetPhotoTiniestBy Jon Castle, CFP®, ChFC®

Wow!  This has been a really interesting one to watch – if stark terror and really, honestly trying to make a good decision for your clients is what you are into! 

I became aware over the weekend (thanks to 24-7 Wall Street Journal service) that CIT (this is NOT CitiGroup the Bank, by the way) had hired a bankruptcy attorney.  Well, we are holding some short-term CIT bonds; we were able to buy them on an average of 70-80 cents on the dollar several months ago.  Clearly, if the company goes bankrupt, we won’t get 100% on the dollar on the bonds, so… as an adviser we jump in to action… what to do… what to do?  Hold or dump them?  Can we even sell them? 

Government said last year CIT was a pretty safe bet; at least enough to give them some TARP money.  Recently (after we bought the bonds, of course) they are saying that CIT is not “too big to fail” (ie – if they fail, the world won’t end as we know it) and so the feds have been dragging their feet on their conversion to a bank holding company, then transferring assets there, and FDIC insurance, et al. 

Long story short, CIT has a pile of bonds (essentially IOU’s) they have to pay off over the next couple of quarters and think they can’t pay because businesses are not paying up on their leases.  Everyone’s scrambling, maybe they’ll be bought out, maybe they’ll go bankrupt, etc, etc. 

Last news that we have is that they are in talks with the government; the market for their bonds has pretty much frozen up; looks like the only option is to hold the bonds for now.  My guess is that the Obama administration does not want the black eye of being labelled only willing to save big companies and companies with unions and willing to let companies which support small businesses wither and die.  We’ll see.

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor. 

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256   (904) 861-0093   www.WealthGuards.com  Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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3 responses

29 01 2011
Penny Stock Promo Review

Great post. I have enjoyed reading it. Is there a way I can stay updated with new posts? I have no clue how to do this… Thanks!

16 07 2009
David Venters

With so much talk about the U.S. dollar and the world thinking about changing to another currency, should we be looking at buying gold for example.

Thanks,

16 07 2009
wealthguards1

By Jon Castle:

I think this is an excellent question. Ultimately, I believe we are entering a true phase of globalization. Lately we have seen the US markets behave very similarly to the overseas markets, with few exceptions – such as emerging markets like Hang Seng. For our economy, some economists believe that one of the best things that can happen for us is a weak dollar – that way American companies that sell products overseas can sell the same amount of product, for the same amount of foreign currency – but get more dollars back so it helps them earn more. Ultimately, the true benefit of a weak dollar may boil down to how much of those higher earnings those companies put back to work in America – by way of hiring more American workers, paying more American taxes, and growing their business in the US. As far as buying gold, historically, gold, natural resources, and precious metals can have a place in a diversified portfolio – but these assets also tend to be quite volatile and can lead to some very unpleasant suprises if an investor is not careful or buys too much at the wrong time!

This blog is for informational purposes only. This is neither an offer to purchase nor sell any securities. All investing involves the potential of loss – including invested principal. Indices quoted are general barometers of security price movement. You cannot invest directly in an index. All information is obtained from sources deemed reliable but not guaranteed. Past performance is not a guarantee of future performance. No tax or legal advice is given nor intended.

Investment advisory services provided by Paragon Wealth Strategies, LLC, a registered investment advisor.

10245 Centurion Pkwy. N. Ste 105, Jacksonville FL 32256 (904) 861-0093 http://www.WealthGuards.com Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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