U.S. GOVERNMENT NOW OWNS 36% OF CITIBANK

The government announced today, as part of its bailout of Citibank, it is converting $25 billion of its preferred stock into common stock. This raises the common capital of the bank and apparently under regulatory previsions give the bank additional regulatory capital and hence able to borrow and lend more money. It is considered to be a sounder bank with the government owing 36% of Citibank. This process is somewhat confusing and at this point analysts are trying to figure out exactly what it means. The stock market has reacted poorly to it and has reacted poorly to the proposals for a budget next year that will have a deficit of $1.75 trillion. Add that to the Bush budget for the current year of about $1.2 trillion and we will be adding $3 trillion to the national debt in two years. It took George Bush eight years to add $4 trillion to the national debt. At this rate, this country will be pushing itself into a bankrupt position more rapidly than anyone would have previously imagined.

Gold is up $12 on the news, after a little profit-taking. Silver is up $.23. This seems to be a return to flight to safety buying, particularly as equities sagged. One trader told Dow Jones Wire Service, "What we have seen over the past week was simply a profit-taking correction." That analyst sees the metals moving higher again. On this bounce, gold has broken above a trend line on an hourly chart going back to Tuesday. With gold back above $950, it would be a positive sign to close in that range.

When you look at the Citibank deal, by virtue of the dilution, the common stock holders have seen ¾ of their existing equity stake wiped out. One has to wonder how many other banks will experience the same kind of dilution. Analyst Sean Brodrick of Weiss Research told Dow Jones Wire Service, "People are terrified, they are scared out of their wits, especially when you have a fourth quarter GDP number like we had." The government reported that GDP shrank 6.2% in the fourth quarter compared to an initially reported decline of 3.8%. More and more people are talking about the current event as a "depression." It is easy to understand that sentiment.

Over the next several days, we will see if gold generates sufficient safe haven demand to push up into the $1,000 level again. Several analysts including Walter DeWet of Standard Bank have been forecasting that we will see gold back at $1,000 within days. With stocks having broken down below key support levels, I would not be surprised to see that occur. The Dow is down 87 points and is trading at 7,097, and the S&P 500 has also broken down trading at 741. The dollar is stronger, up 58 basis points at 88.31 and oil is down $2.07 at $43.15 a barrel, on continuing economic worries.

As Jim Cramer said yesterday and the day before, investors need to be diversified with gold and they need to do that at once. He recommended that investors begin diversifying into gold yesterday. It's still not too late. This is a good opportunity to acquire some gold or silver for your portfolio. Some of you may wish to utilize Goldline's Price Guarantee Program or in the alternative receive free shipping. Call Goldline at 1-877-341-2646 and ask them about those special offers.

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