Citigroup: Dangerous Penny Stock

For decades, agencies like the SEC have warned investors about the dangers of “penny stocks.”  There is even a special statement your broker is required to give you before you can buy such a stock.  It tells you scary things like this:

“Penny stocks are low-priced shares of small companies. Penny stocks may trade infrequently – which means that it may be difficult to sell penny stock shares once you have them. Because it may also be difficult to find quotations for penny stocks, they may be impossible to accurately price. Investors in penny stock should be prepared for the possibility that they may lose their whole investment.”

Today the capstone of American finance, Citigroup (C), became a penny stock.  Citi shares traded as low as 97 cents but bounced back to close at $1.02.  Bank of America (BAC) is not far behind at $3.17.  Even mighty General Electric (GE) can be bought for $6.70.  Needless to say, all these stocks are valued at a fraction of where they were a year ago.  How the mighty have fallen.

For anyone who bought Citi today and didn’t get their SEC warning, let me summarize: YOUR MONEY IS GONE!  The shares you bought in exchange for cash give you nothing more than a place at the end of a long line of people who will be seeking their piece of the carcass when Citi goes belly-up, which will probably happen very soon.

Do not expect the government to come to your rescue.  If anyone gets rescued, it will be the big-time investors from whom Citi borrowed loads of money in a desperate attempt to convince the world it was not ridiculously insolvent.  They have friends in high places in Washington.  You don’t.  This is the financial reality of 2009.

Good-bye, Citi.  It was nice knowing you.