CIT Rescue Shows Credit Isn’t Dead
by The Investment U Research Team
We may not be out of the woods yet in terms of the global economic picture, but the news from CIT Group (NYSE: CIT) is a big indicator that things are getting (slightly) better.
CIT announced that it would take a $3 billion loan from their bondholders to save the company from bankruptcy. Shares had plummeted 80% in a crash last week that was eerily similar to Lehman Brothers and Bear Stearns.
Rescues like this are a part of normal market where at some point there are buyers for assets. When assets can fall well below their value without buyers stepping in – as we’ve seen over the past six months – its unusual and mean the markets aren’t operating efficiently.
CIT’s demise was almost certain, enough so that the S&P 500 had already replaced it with Red Hat (NYSE: RHT).
The fact that buyers had stepped in for the assets of CIT and that they were willing to risk that much in a last minute rescue shows that credit markets, while still shaky, are much more confident and stable.
It’s a far cry from the hot potato attitude we saw earlier this year with few player wanting to hold anything hot for long and, more often than not, dropping the “potato.”
Confidence is rising, and economic indicators like housing starts have booked some improvements. As traders and investors alike digest a more stable credit environment, these emotional up days will help us build a base for a new long leg up in the indices.
As an interesting aside, investors who bet that CIT wouldn’t go under and bought at .31 are looking at a 300% return in three days. Not a bad feat of contrarian investing.
Symbols mentioned in this article: CIT and RHT.
- Pull Back Continues Through Mixed News
- LNG Makes It A Really G’Day, Mate
- Money Markets With Negative Returns
|
The Single Best Investment for 2009
Forget another stimulus package. Or retreating into "safe-havens" like cash and gold. All you need in 2009 is a small exposure to the "secret" White Cap Index.
It's up as much as 171% straight through Wall Street's meltdown. And one of the latest stocks to be added - an Internet-related venture capital company - is up over 100% since its inclusion into the Index.
Just weeks from now, we'll add another White Cap stock to this market-trouncing index. To get a sneak peek, click here for full details.
Comments
**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.Check out our selection of daily Investment Research:
 |
 |
Investment U RSS Feed