By Dan Denning

America's largest bank, Citigroup, continues to hemorrhage capital as fast as it can raise it, writes Dan Denning for The Daily Reckoning in Melbourne, Australia.

The good news last week was that America's largest bank only lost $5.1 billion in the first quarter less than analysts at other banks had expected. Less good, Citigroup wrote down $16 billion in assets.

Worse still for the bank and those investors brave (or oblivious) enough to recapitalize it is that you could not find a US bank more exposed to the housing and retail busts unfolding. Citigroup has reported some $40 billion in losses already, more than even the bumbling UBS in Switzerland.

One begins to wonder how Citigroup faced with mounting losses and forced to beg for new capital to stay above regulatory requirements has lasted this long. Investors funded by Asian and petro Dollar wealth funds have been happy to give the bank big new chunks of capital, if only at the prodding of the US Treasury Department. But those chunks of cash seem just as quickly to go down the housing black hole.

How many lifelines does a bank get? When it's as big as Citigroup, probably as many as it needs. Citigroup is much more than America's Northern Rock it's much too big to fail. But that doesn't mean we'd want to be a shareholder.

Keep an eye on the existing and new US home sales data that comes out this week. A parade of CEO's on Wall Street took to the airwaves last week to announce the end of the credit crunch. But then you'd expect them to say this, considering it's their credit (and stock option assets) that are getting crunched.

Home sales can't have improved by much in the United States. And if they are worse than expected, the turnaround investors who are loading up on home builders, banks, and brokers may be in for a rude surprise.

This is how it has to be in a bear market.

Buyers have to have enough nerve and optimism to buy in the face of an obvious decline in business conditions. Only when they capitulate will it be time to buy, and that could be years away yet.

The US Dollar ended last week slightly up against the Euro and the Yen. But pay it no mind. With the housing slump still rolling downhill, the Dollar had just made a record low against the Euro, with the European currency rising above $1.59.

Euro zone policy maker Jean Claude Juncker has warned market participants that the G7 group of finance chiefs was serious when they met in mid April like, really really serious and they tried to talk up the Dollar.

Seriously. We're serious. We mean it. Really.

But lacking any conviction from the US Treasury, and lacking all consensus on intervening in the markets directly, the G7 saw what traders thought of those comments by bidding oil up to $117 per barrel. Yes, oil will correct sooner or later. The Dollar will rally some against the Euro. But in the grand scheme of things, investors still consider tangible assets and resources as superior alternatives to owning particular national currencies especially Dollar denominated stocks and bonds.

Short term, that can change for two reasons. One, traders in oil and real assets will take profits and sell. The second reason is that the authorities will do everything they can to punish investors who put their money into commodities.

Raising margin requirements in the futures market is one way to do it. (Investors holding real assets such as Gold on a fully paid cash basis wouldn't be affected, but the price would.) Another way is to raise the political heat on hedge funds, which will probably be blamed for rising food prices.

Hedge funds don't kill people, though. It takes a government to do that.

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