Cash is King, Rubin is Master, so the Market is Hopeful

You can talk about debt and assets and all that good stuff, but at the end of the day cash is king. There is an important lesson in this for everyone. Why do I bring this up? All the news this morning has been regarding the large infusion of cash into the credit markets.

The market is cheering after Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. the nation’s largest bank in terms of assets. Stocks are rallying after this “vote in confidence”. My reading is that this is not a vote of confidence in Citigroup as much as in the genius of Robert Rubin (the new Chairman at Citigroup). Rubin is a master strategist when it comes to the financial world and I have no doubt he’s going to bring this crisis under control. It’s a good time to buy Citigroup stock.

The other cash infusion is coming from the New York Federal Reserve. They announced yesterday that they would be implementing several measures to increase liquidity. It appears their goal is to infuse the market with cash in time for the year end shopping season. Additional details from the AP:

The New York Fed’s moves included increasing the amount of funds that dealers can tap through the bank’s open market account securities lending program and making an unusual long agreement to buy back securities to cover the year end.

The changes will allow dealers to tap the New York Fed’s System Open Market Account program to borrow up to $750 million per issue — up from a prior cap of $500 million per issue. The New York Fed carries out monetary policy for the U.S. Federal Reserve.

The changes also will let dealers utilize the Fed program for funds to buy securities with maturities of more than six days. Previously, the program could be used only on assets maturing in more than 13 days.

There is still a lot of worry about how well banks will be able to weather the credit storm heading into 2008. That is why this is welcome news. However, the most we can expect from these actions is that it will calm the market down heading into the most important shopping season of the year. As the market eases up on its fears of a further deterioration in liquidity, things should pick up and carry forward into other sectors. At least that is the hope.

After all, nothing infuses hope and confidence like cash, even if it is a stash from the Middle East!