Citigroup's Chief Economist Warns "Severe Market Correction" Now Likely

Discussion in 'Wall St. News' started by ByLoSellHi, Mar 30, 2007.

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    Citigroup's Rhodes urges lending restraint

    Thu Mar 29, 2007 4:12AM EDT

    FRANKFURT, March 29 (Reuters) -

    Recent market turmoil serves as a warning that a significant market correction is likely within the next 12 months, Citibank chairman William Rhodes said, urging restraint in lending and investing.

    Writing in the Thursday edition of the Financial Times, Rhodes, who also is senior vice chairman of the world's largest lender, said economic expansions tend to last five to seven years and the United States now is entering its sixth year.

    "Against that background, I believe over the next 12 months a market correction will occur and it will be a real correction," said Rhodes, a veteran of emerging market debt crises.

    The primary worry for market makers and regulators is the possible destabilising effect of new participants, namely hedge funds and private equity, when liquidity in markets recedes, he said. Conversely they may provide relief for markets facing liquidity shortages.

    "Either way, this clearly is the time to exercise greater prudence in lending and in investing and to resist any temptation to relax standards," Rhodes concluded.

    He said investors should not be complacent after sailing through the short-lived market upset of May 2006 caused by debt downgrades.

    "Market developments in the last few weeks should be seen as a warning. What has been evident for a number of months is that, in the U.S., we are seeing lagging inflation and slower growth.

    "Whether this means that we are going to have to fend off recessionary tendencies is not yet clear. However, what is clear to me is that in the next year a material correction in the markets will occur," Rhodes wrote.
  2. Of all the gloomy articles I've posted OR read, this one has me most concerned.
  3. less money goes around then one day...


    nan, there really nothing new under the sun..
  4. this obviously means they have turned their general portfolios and group positions into bearish scenario.

    get short - pump the info out - sit and wait.
  5. dhpar


    they are in such a deep sh*t already with no management vision that - relatively speaking - any market shake up can make things only better for them. I have them in my portfolio for ages for exactly this reason - zero beta (in fact beta of C is 0.9 vs SPX but this is still one of the lowest big banks' betas around...)
    Frankly, I can't say it was money well spent... :D
  6. dhpar, you've turned negative on the markets, right?
  7. dhpar


    not at all. I did not want to say I agree with Rhodes. I just tried to explain why Citi would not necessarily mind a recession.

    I am quite stubborn with my market views, i.e. bearish on bonds, bullish on commodities, neutral on US real estate in the short term, slightly positive on equities, neutral to slightly bearish on USD (vs EM currencies). Of course all backed by quite a bit of money :)

    P.S. of course I got a bit spooked today by these new US tariffs - if they proved to be carried into reality this softens my outlook especially for equities....
  8. duard


    Dude you're so scarin' me. Did you write this or me......

    Except the equities part depending on the timeframe in mind.
    #10     Mar 30, 2007