Citi sells Phibro for Peanuts
Research for Online Investors

by John Dalt

10/12/09

I am working on our new recommendation for subscribers to our Long-Term Portfolio, so must cover the day in brief fashion.

Citigroup is selling Phibro, its commodities trading business, because Phibro's highest paid employee, Andrew Hall, makes too much money.  Mr. Hall is reportedly due a $100 million bonus this year.  Phibro has been one of Citi’s most profitable divisions, accounting for 10% of the company’s profits in 2007, but profits are not as important as not offending the political class.  Phibro has made tons of money for the shareholders since 1997, now it is going out the door to Occidental Petroleum.  Oxy has purchased the unit for $250 million.  What did they buy?  Phibro averaged $371 million profit per year for the last five years, which is a nice Return On Investment for Occidental!  Investment News has the story, “Citi sheds Phibro...”

A side note from researching this story, I am not the only one who makes typographical errors.  Investment News, New York Times, Associated Press, and others alternatively refer to the Citi division as “Philbro” or “Phibro”.  Whichever way you spell it, it is money, would you like to buy one of the best commodities trading firms in the world for eight months profits?

Precious metals continue to march higher along with the equities market.  What will break first?  I am wondering if the market is following or leading, and if one will follow the other.  The run higher in both is reaching the point where we have to anticipate it could end badly.  Based on experience, gold will follow the market as traders liquidate positions to raise money.  The market may not follow gold if it breaks first, the traders in precious metals have some nice profits to protect, so they will be quick to sell and sit on the sidelines.

As we have reported before, the world improvers have substituted “climate change” for global warming because the earth seems to be cooling.  Will Al Gore have to give back his Nobel prize?  BBC News has an article on the surprise coming out in global temperature readings; it seems the hottest recent year was 1998, with the earth cooling since.  I guess it is time to dust off the old Time magazines from the 1970’s asking what we are going to do about “the next ice age.”

This will not stop the drive for “cap and trade” legislation.  Exerting controls on our economy and raising taxes were conveniently attached to global warming and the need to address it, but the primary purpose was control and taxes.  The proponents will simply have to adjust their rhetoric and excite their base with cries, “We have to do something.”

Our political climate is becoming worse for capital creation and accumulation.  You should think about where you are going to be in ten years, and how to protect your future.  I expect the controls and restrictions to our financial freedom to tighten in the ‘name of fairness.’  Anticipation is only part of the key, action is required.  Continue to acquire some store of value in precious metals, on pullbacks.  In addition, we may want to look for off shore investment accounts.  I am trying to understand the ability of our government to penetrate our accounts, and if there is a way to move them off shore.  I will report to you what I find.  If you have any insight on this, please forward so I can share it with our readers.  Send me your comments at feedback@galtstock.com

S peaking of government intervention, these videos provide a reminder. Watch President Nixon end the gold standard, impose wage and price controls, and increase tariffs all under the guise of protecting us. In 1944, FDR held out his ‘Second Bill of Rights’ invoking patriotism while troops were overseas involved in WWII.

Scary stuff, if you love freedom and pursuing your individual dreams.

I checked on the gold contracts on the commodities exchange. Below are contracts on the commodities exchange for the last two weeks:

                                    9/29/09         10/06/09

Commercial:  Long—126,538          131,221
                         Short---414,845         435,802

Difference:                   288,307         304,581

Speculators:  Long---260,419           284,104
                       Short---  17,925              24,615

Difference:                   242,494          259,489

Each contract represents 100 troy ounces.

It appears both groups are becoming more committed to their positions.  An interesting note, while there are 232 speculators long the market with 284,104 contracts, the 435,802 short commercial positions are held by only 60 traders!  You can see the report at 321gold

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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