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Thursday, July 16, 2009

Monster Accumulation Day

FN: A really monstrous "Major Accumulation Day" occurred yesterday. Everything that could move up, did move up. Volume was decent as well. This puts the markets right at resistance around 6000 and the declining 200 day EMA (green line) for the NYSE Composite (NYA), but the same goes for the S&P 500 (SPX). Equities are now extremely stretched after this huge three day sprint.

It looks like CIT will be left to die now. Bailout talks collapsed yesterday... again. This should put equities under pressure a bit. The failure of CIT is important because CIT did receive TARP money. The US taxpayer is likely to lose the entire TARP amount in a bankruptcy. The whole TARP plan was presented with the promise that the US taxpayer would not lose any money. Slowly reality will sink in and this could spike US Treasury yields.

CIT Fails to Win U.S. Bailout as Bankruptcy Looms (Update2): " CIT Group Inc., the 101-year-old commercial lender running short of cash, said the U.S. government would not rescue the company, fueling speculation that it may be forced to file for bankruptcy.

Talks with regulators have broken off and “there is no appreciable likelihood of additional government support being provided over the near term,” the New York-based firm said yesterday in a statement. CIT, once the biggest independent commercial lender, may seek court protection if no U.S. aid emerges, Standard & Poor’s said this week. The company said it is “evaluating alternatives.”

CIT Chief Executive Officer Jeffrey Peek failed to convince regulators that fallout from a collapse would threaten the rest of the financial system. Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp. have resisted putting more taxpayer funds at risk, on top of the $2.33 billion granted to CIT in December, to keep the lender afloat.

“Maybe they can put together a last-minute deal and try to sell themselves,” said Adam Steer, an analyst with CreditSights Inc. “The most viable alternative once the government decides to not step in is a trip into bankruptcy.”

CIT is seeking $2 billion in rescue funds from owners of its debt and has given them 24 hours to put up the money, the Wall Street Journal reported today, citing unidentified people familiar with the matter. CIT told investors that without the cash, it will probably file for bankruptcy, the Journal said."

Treasury Bets U.S. Financial System Can Weather CIT Collapse: "The U.S. spurning of CIT Group Inc.’s aid request suggests officials are betting they’ve fixed the financial system enough to withstand the bankruptcy of a mid-sized lender.

“I hate to say this, but it was probably expendable,” said Dennis Santiago, chief executive officer of Institutional Risk Analytics, a Torrance, California, research firm that studies systemic risk. “It may have just missed the boat” on federal rescues, Santiago said.

Yesterday’s decision to forego a lifeline for CIT came 10 months after Lehman Brothers Holdings Inc. filed for bankruptcy. Lehman’s collapse ushered in the depths of the credit crisis to date, and resulted in the establishment of a $700 billion bailout fund; officials yesterday indicated programs created with that money would help fill any lending gap left by CIT.

Treasury Secretary Timothy Geithner, en route to Paris as CIT acknowledged policy makers had turned it down, is also wagering the administration will weather any political fallout. Unlike Bear Stearns Cos. or American International Group Inc., which got extraordinary aid last year, New York-based CIT specializes in loans to smaller firms, counting 1 million enterprises, including 300,000 retailers, among its customers.

A Treasury official said the department anticipates losing the $2.3 billion of taxpayer funds that it had already injected into the company from the Troubled Asset Relief Program should it file for bankruptcy."

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