Citigroup may be the perfect proxy for an economy that has been running on smoke and mirrors, and it therefore behooves us to pay close attention when the stock reverses sharply, as it did yesterday -- especially when the reversal comes precisely at a hidden pivot, as indeed it did. Citi shares have been in a short-squeeze since late August, with only a couple of minor corrections along the way. The stock’s adroit handlers have applied their usual feather-light touch, allowing widows, orphans and pensioners to delight in the rally at increasingly unattractive prices. Yesterday, though, endgame buyers got punk’d when the stock sold off on word the Fed had raised interest rates for an eleventh consecutive time.

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Few could have been surprised by the Fed’s action, although that hardly stopped sellers from reacting as though loaves of gooey, mysterious black stuff had rained down on New York, Washington and L.A. In any event, the Fed had little choice about tightening, notwithstanding the fact that repairing the damage done by Katrina will be to fiscal restraint what a 1% federal funds rates is to tight money.

We’d Been Warned

Only a day earlier, just about every commodity on which there is a futures contract surged – orange juice, lumber, coffee, cattle, copper, gold – you name it. This happened too recently to have played a role in Tuesday’s decision to tighten. Regardless, it’s not as though the commodity markets haven’t been warning us for months that explosive money growth around the world would at some point produce a sympathetic reaction in commodity prices.

Yesterday’s stock-market reversal will be said to have reflected investor disappointment over the central bank's stinginess in the wake of a national disaster. Not that there was any genuine disappointment in the human sense of the word; rather, it was the sort of “disappointment” we impute to the herd when a stampede needs to be explained by the pundits. But Citi shares may be expressing something more than mere disappointment. Bear-rally exhaustion, perhaps? No matter. We exited our remaining stock precisely on the high tick of the day, 45.87, a hidden pivot, leaving ourselves with some December puts that are now half paid-for with gains already booked on long stock. With any luck, Citi will fall even further, permitting us to spread off what remains of our premium risk. If the decline does indeed have farther to go, you can bet that the broad averages won’t be far behind.

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Fidel’s Heir Apparent

Hugo Chavez, the Commie nut-case who runs Venezuela, has demonstrated once again that perhaps Pat Robertson’s plan for dealing with him was not such a bad idea. Here’s Chavez, giving capitalists still more reasons to treat Venezuela as though its soil were radioactive:  

Venezuelan President Hugo Chavez said the South American country will stop granting mining concessions to foreign companies. Stocks of foreign mining companies operating in the country plummeted.  “There are no more mining concessions,” Chavez said, according to a Communications and Information Ministry statement. “We have to do an about face.” Chavez didn't say whether existing concessions would be revoked.

A Mining Association spokeswoman declined comment on the president's remarks. Canadian shares of Crystallex International Corp., which is developing the Las Cristinas gold deposit, fell C$1.51, or 48 percent, to C$1.65 before trading was suspended. The company's U.S. shares fell $1.32, or 48.5 percent, to $1.40. Shares of Gold Reserve Inc. fell 27.3 percent to $2.56, while shares of Hecla Mining Co. fell 8 percent to $3.91.