CitiGroup Flounders or SillyGroup and The Seven SIV's

Commericial Real Estate Joins In... Last month commericial real estate values declined for the 1st time in five years.

According to Real Capital Analytics: U.S. office sales fell 70% in October from a year ago, industrial sales declined 24%, and retail and apartment sales dropped 50%.

Citigroup Leaking in the Seven SIV's... U.S. banking giant Citigroup plans to rescue seven SIV's worth $49 billion from potential fire sale, a move that further strains its capital levels.

Moody's Investors Service downgraded Citigroup debt one notch to "Aa3," saying it doubted the largest U.S. bank would succeed in rebuilding its capital ratios any time soon as it wrestles with billions of dollars of assets whose market value has declined.

Citi's decision to move the SIV assets to its balance sheet further ties up its capital in assets likely to produce low returns, potentially hampering the bank's profitability and highlighting the balance sheet constraints hobbling some big institutions at the year end.

The SIV's have $58 billion in senior debt. Investors holding $2.5 billion in junior notes will absorb the first losses on the $49 billion in assets Citigroup is taking on.

Black, Blue & Flat on the Deck... Black & Decker Corp slashed its Q4 profit outlook on Friday, citing worse than expected conditions in North America.

Black & Decker has been suffering from a sharp slowdown in U.S. construction activity, the result of the two-year slump in the housing market. Stock down 10% on the news.

Hot Money Seeks Yield... China's investments in factories, real estate and other urban assets surged 26.8% in the first 11 months of this year despite government curbs meant to prevent runaway spending or misallocation of capital.

Total investment in fixed urban assets during the period was $1.4 trillion. Investment in real estate actually accelerated in November, with an increase of 31.8% over the year earlier.

Such trends are helping drive rising property prices that along with soaring food costs are raising worries over politically sensitive inflation.

After hitting 6.5% in October, inflation climbed to 6.9% in November, an 11-year high. The big culprits in the increase were food prices, up 18.2% from November 2006, and higher utility prices, up 5.6% from November 2006.

Beijing worries that rising spending on factories, real estate and other projects could ignite a debt crisis if a glut of unneeded projects leads to widespread defaults on bank loans.

Hmmm, now where has this type of capital misallocation behaviour been exhibited before??

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