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Trader Talk with Bob Pisani

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  Friday, 1 Aug 2008 | 9:13 AM ET

GM's Loss: Not A Record But Hardly Trivial

Posted By: Bob Pisani

We have had triple digit moves every day of the week: down 240 Monday, up 266 Tuesday, up 186 Wednesday, down 205 yesterday? What's it all mean? Nothing--Dow is unchanged for the week!

Futures moved up a couple points as the nonfarm payroll came in with losses slightly less than expected.

GMlost $15.5 billion, $27.33 a share (ADJUSTED LOSS WAS $11.21 A SHARE, analyst estimate was a loss of $2.62--think analyst estimates have any meaning when it comes to autos and financials? I don't). Significant losses in GM North America, the strike at American Axle, and continued losses at GMAC Financial were just a few of the problems. They say they have access to $26 billion in liquidity, and insist that they have enough liquidity to last through 2009.

This is not a trivial loss: the total earnings for the S&P 500 in the second quarter is now down 19.4 percent; a hit of this magnitude will bring that number down significantly.

Bad as it sounds, it is not a record: the biggest single quarterly loss of all time was AOL Time Warner's loss of $44.9 billion, in the fourth quarter of 2002. In fact, it's not even the worst for GM: it was worse in the third quarter of 2007, when they lost $39 billion ($68.85 a share).

Elsewhere:
1) What an ugly week for Irish drug maker Elan. It's down 40 percent as they revealed two new brain disease cases in patients taking their Tysabri multiple sclerosis drug . Its U.S. partner Biogen Idecalso down as well. Earlier in the week Elan got hit hard on disappointing data on an experimental Alzheimer's drug.

2) Specialty equipment maker Oshkosh down 6 percent, beat on the topline, but guidance for current quarter is well below estimates, citing weak residential and non-residential construction in North America AND "certain areas of Western Europe." This is the second time they have cut their guidance.

3) Boydeliminated their dividend, and delayed the Echelon Place project in Las Vegas due to "capital markets and the challenging economic conditions." Sound bad? Stock is up 25 percent because the Street is happy the project was delayed because it reduces the near-term funding demands on the company. They also authorized a $100 million share repurchase.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 31 Jul 2008 | 4:49 PM ET

Greenspan Comments On CNBC Help Markets Fade

Posted By: Bob Pisani

The markets held up well until the last hour, when Former Fed Chairman Allan Greenspan made what some are interpreting as negative comments about Fannie/Freddie and the U.S. economy . Also, remember that this was the final trading day of the month.

Poor economic data in the form of the GDP and jobless claims did not help prior to the open, but mid-morning oil came down and financials rallied, and suddenly the Dow and the S&P were only a few points from going positive.

Mr. Greenspan, in an interview with our Maria Bartiromo, speculated that the U.S. would likely end up nationalizing Fannieand Freddie, and made it clear he was critical of their overall structure, a point he had made in the past. Both closed down about 6 percent.

The popular media will no doubt note that Exxonmade more than$11 billion in profits , and shake their heads in disbelief that anyone could make that much money. What they will not note is that Exxon's earnings were disappointing and the stock closed at a 52-week low because profits are being squeezed on both sides: the lucrative oil production, as well as the refining side.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 31 Jul 2008 | 9:17 AM ET

GDP, Jobless Claims Just Plain Disappointing

Posted By: Bob Pisani

Futures dropped 10 points as jobless claims were higher than anticipated (448,000, the highest since Apr '03), while second quarter GDP, at 1.9 percent,was a bit below the expectations of 2.3 percentage growth . GDP is particularly disappointing given that the tax rebate did give the economy a one-time shot in the arm. Dollar dropped, oil rallied.

Two oil stories:

1) ExxonMobilhad a record quarter for revenue , but earnings were below expectations, $2.22 vs. $2.52 expected. Production volumes were a bit light, possibly due to a strike in Nigeria and other issues. Remember total revenues for Exxon are very much tilted toward the downstream side, but profit margins are much higher on the upstream side.

2) Marathon is up 7 percent pre-open after announcing it is evaluating separating the company into two parts, one focused on Exploration and Production, the other on Refining and Marketing. But look, this is mostly a refining company: 86 percent of 2007 revenues were from refining and marketing; only 14 percent from E&P. Their stock has suffered as refining margins have dropped on the high oil prices.

Elsewhere:

1) Bristol Myersmaking an offer to buy the rest of ImClone for $60 a share, which would give it control of the cancer drug Erbitux. They currently own 17 percent. This is another attempt to take over a biotech company, following on the heels of the Roche-Genentch deal.

2) Motorolahad a smaller than expected loss, guidance was breakeven to $0.02, vs. estimate of $0.01. The handset business looks more stable, but is still losing money. Up 13 percent pre-open.

3) Visa came in above expectations. Yes, the economy is slowing, and the volume growth is not quite as great as it was, but the company is still growing, as Buckingham noted: "growth of payments volume, transactions, and revenues are likely to slow, but even at mid teens growth rates, are still very high relative to GDP."

4) As for Disney, they beat slightly, and while everyone thought their theme parks would be slow, they surprised here: park revenues were up 5 percent; Morgan Stanley attributed the relatively strong performance to international attendance and positive foreign exchange. Park bookings were flat, and while that may be disappointing to some, flat is no disaster in this economy. On top of that, the cable networks were strong, particularly ESPN, and even ABC did fairly well. A slowdown in advertising remains a concern.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 30 Jul 2008 | 4:23 PM ET

Dow AND Oil Both Up: Here's Why

Posted By: Bob Pisani

What's up with this: Dow up big, with oil up big? For months, the markets have struggled against the oil juggernaut, often moving in inverse step with oil. Today, the Dow closes at its highs with oil up nearly $5?

Traders are looking for reasons, which include:

1) Short covering in front of employment data?

2) GDP tomorrow: setting up for 2 + % growth? We are expecting 2.3% growth in the GDP, but some think it will be stronger.

3) End of month gyrations?

Financials have bottomed! (we think). Energy stocks led, but financials reversed their losses as well. This is bolstering the bull position that Merrill'sactions yesterday represented a watershed event. Under this thesis, Merrill demonstrated subprime CDO's are not a bottomless pit, there is actually a number where there is a buyer.

As for energy stocks, after being beaten up all month they roared back: Oil service up 5.7% (best since 3/00), Amex Oil index up 5.4% (best since 6/06).

Still, this was a strange trading day: 2 stocks advancing for every 1 declining, with oil up nearly $5.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 30 Jul 2008 | 9:19 AM ET

The Street Remains A Bear

Posted By: Bob Pisani

Futures rose pre-open as the July ADP private sector employment report showed a gain of 9,000, much better than the expected drop of 60,000.

Not all the economic news was good:

1) The weekly Mortgage Bankers report showed a sharp decline in refinancings , as well as a 7.8 percent drop in purchases. This even though interest rates are at 6.46 percent, not historically high. Tighter lending standards and lower demand is the likely problem.

2) The Street remains bearish. The weekly survey of financial newsletter writers by Investors Intelligence shows only 30 percent bullish, 50 percent bearish, the first time bears were at 50 percent since 1995.

Elsewhere:

1) Drug make Elandown 38 percent pre-open, and U.S. partner Wyethdown 16 percent, as clinical results on Elan's new Alzheimer's drug has been disappointing. They are, however, moving the drugs to late-stage trials.

We'll have the Elan CEO on at 9:40. (read our Pharma's Market blog as well)

2) Engine maker Cumminsup 8 percent as both top and bottom line were both well above expectations; non-U.S. sales were particularly strong and are now 61 percent of total sales. It wasn't all good news: engine sales for the Chrysler Dodge Ram pickup dropped 60 percent from a year ago; RV engine sales were down 40 percent. Despite this, they are raise their sales forecast to a gain of 15 percent, from a gain of 12 percent.

3) Office Depotcontinues to post weak results, posting a loss as sales in North America declined 6 percent; comp store sales were down 10 percent. The initial weakness in Florida and California has spread to the rest of the country.

4) Corning was in line with expectations; the company said the LCD market was expected to grow at the upper end of the 25 to 30 percent range because LCD product demand has remained strong.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 29 Jul 2008 | 4:07 PM ET

Four Factors That Made A Difference Today

Posted By: Bob Pisani

A much better tone to the market as four factors made a collective difference today:

1) oil at 2-month lows

2) dollar rallies to 5-week high

3) consumer confidence stronger

4) Merrill puts a price on CDOs

The good news is that with the S&P closing at 1260, the lows of 1200 or so a week ago seem like a firmer bottom than a few days ago.

The problem: outside of oil, much of the fundamentals have not changed. Traders are not expecting much from the jobs report on Friday, but that's what leaves upside in a down market. With a loss of 75,000 jobs expected, anything near that is likely to help the market. So many traders are expecting another 5 percent move to the upside, but no one is expecting the S&P to return over 1,400 where it was during its recent highs in May.

Bottom line: up is path of least resistance for now.

Finally, what does Merrill's CDO selloff mean for other financials? Is everyone going to have to sell CDOs at $0.22 on the dollar, as Merrill has? Guy Moszkowski at Merrill Lynch says maybe not. A good part of Merrill Lynch’s CDO portfolio is 2006 vintage and above, whereas the largest portion of Citi's CDOs is pre-2006. Citi's portfolio appears to be performing better. As for most other financials, they do not have the large subprime exposure that Merrill has.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 29 Jul 2008 | 1:22 PM ET

What Merrill's Selloff Means For Financials

Posted By: Bob Pisani

Midday observations:

1) What does Merrill's CDO selloff mean for other financials? Is everyone going to have to sell CDOs at $0.22 on the dollar, as Merrill has? Guy Moszkowski at Merrill Lynch says maybe not. A good part of Merrill Lynch CDO portfolio is 2006 vintage and above, whereas the largest portion of Citi's CDOs is pre-2006. Citi's portfoilo appears to be performing better.

2) Housing still murky. The bad news on the Cash-Shiller home price index is that the 20-city index fell by a record 15.8 percent in May. The good news is that the rate of decline may be slowing down, and--believe it or not--that's the first thing that has to happen. Michael Darda MKM Partners had a good point: "While the rate of house price deflation may slacken soon, the actual bottom for home prices (and housing in general) is probably a ways off."

3) The restaurant business is having serious problems. The privately-held firm that controls Bennigan's has announced a Chapter 7 bankruptcy (that's liquidation) of its company-owned restaurants, while DineEquity,the publicly traded company that owns Applebees and IHOP, announced earnings well below expectations and is trading down 9 percent. Operating profit, however, was roughly in line with expectations.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 29 Jul 2008 | 11:25 AM ET

What's Moving The Market Up

Posted By: Bob Pisani

Several pieces of good news are helping stocks today.

First, Merrill Lynchhas put a price on CDOs and sold them. Yes, it's $0.22 on the dollar, but at least it is a price, and that is what the Street is looking for.

Second, the Conference Board consumer confidence index was up , particularly the futures expectation component was up, off the record lows, which dovetails with the uptick in University of Michigan confidence numbers.

Third, the dollar has rallied to a five week high, and many traders now believe the dollar put in its lows in March and April.

Finally, and perhaps most importantly, oil has broken below the June lows of $121 and change, and energy stocks have been down—in fact Exxonand BP are near new lows (!) And not just oil: natural gas, gold, and copper are all significantly off their highs of just two weeks ago.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 29 Jul 2008 | 9:11 AM ET

Merrill: Why It's The Big Story

Posted By: Bob Pisani

Merrill Lynchis far and away the big story today.

Two weeks after reporting huge losses, Merrill Lynch has surprised the Street with significant sales and capital raising. They are:

1) selling $30.6 b in CDOs. They were carried on the books at a value of $11.1 b; buyer Lone Star is paying $6.7 b ($0.22 on the dollar), but Merrill is financing three-quarters of the sale;

2) recording a writedown of $5.7 b;

3) will raise $8.5 b in new capital from common shareholders, including $3.4 b from Temasek, the Singapore investment arm that is already Merrill's biggest shareholder.

The capital raising was a surprise, particularly since the Street believed management had signaled that further capital raises were unlikely.

The good news here is that Merrill is actually selling assets, rather than just marking them down.

The bad news is that Merrill's peers will be under pressure to write down more assets. Indeed, Deutsche Bank lowered earnings estimates for Citigroup following the moves by Merrill.

This is a significant dilution of shareholder equity, but reaction on the Street has been generally positive. Meredith Whitney at Oppenheimer said, "the stock is getting closer to fairly valued levels" and "we applaud this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise towards growth."

Who is the winner here? The firms who have money to buy these distressed assets at pennies on the dollar. Goldman has just raised a $10B fund to invest in distressed securities.

Merrill is up fractionally, as other financials like JP Morganand Lehman; Citi however is trading down.

Elsewhere:

1) U.S. Steel up 8 percent pre-open, earning $5.65, way above expectations of $3.91, revenues also above expectations.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 28 Jul 2008 | 4:06 PM ET

Fundamentals Not Changing Despite Gov't Help

Posted By: Bob Pisani

One third of decline in the Dow today was due to the five financials stocks. This is the second time in the last three trading days this happened (Thursday was the other day). To a lesser extent, the same situation applies to consumer discretionary stocks--builders, retail, and autos, as they too are underperforming the markets today and Thursday.

The reason is that bears are betting that despite attempts to help the markets by the federal government, it is not changing the fundamentals: 1) consumer spending & labor will remain weak, and 2) financials will trouble growing their business even if housing bottoms, due to capital constraints and weak demand.

Take special note of Merrill Lynch, the first of the financials to hit new closing lows.


Questions? Comments? tradertalk@cnbc.com

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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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