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Trader Talk with Bob Pisani

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  Tuesday, 22 Jul 2008 | 4:36 PM ET

Financials Rally A "Violent" One

Posted By: Bob Pisani

A wild trading day in financials. How confusing was it? After the close, Washington Mutual reported what initially looked like disappointing earnings (the stock traded down), then when everyone looked a little more carefully, noting the company said it had “sufficient capital”, with $40 billion of available liquidity at the end of the quarter, and that 2008 would be the peak year of provisioning, the stock turned around and is now trading up.

For the trading day, there was two separate rallies, one early in the morning on oil dropping to 6 week lows, a dollar rally, and a move up in financials, was followed late in the day by another broad rally that lifted stocks to their highs of the day.

Banks had held their gains since mid-morning, when Wachovia Bankturned around as the CEO said he was not going to issue more common stock as a capital raising plan (no word on preferred).

Financials gained a bit of steam late in the day as influential bank analyst Mike Mayo at Deutsche Bank put out a note where he seemed to get a little less bearish: "We now would reduce the degree of our underweighting on the group," he said.

The reason:

1) no new capital issuance for most banks in Q2

2) margins improved more than expected

3) problems have not spread as much as feared

Still, the rally in financials was a violent one: the Bank Index, for example, moved in a nearly 15 percent trading range from its low to its high.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 11:24 AM ET

Repeat Of Financials Selloff Seems In Doubt

Posted By: Bob Pisani

Stocks are rallying, as oil has come down on a growing sense that Tropical Storm Dolly will miss the Gulf oil refineries.

Financials are also moving up; for all the disappointments associated with

Wachovia

missing big and cutting dividends, there is a sense that the downside might be limited here, a sense that financials are in buy the dip mode.

There's no doubt last week's trifecta of financial news (bank earnings above expectations, new limitations on naked short selling for select financials, and the Fed/Treasury helping out Fannie/Freddie) was the major factor in this new line of thinking. So today, for example, we are seeing considerable buyers on weakness in financials.

Will we see the kind of selloff in financials we saw in June? Not clear, but some are again betting we will not.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 9:12 AM ET

Earnings: Glass Half Empty Or Half Full?

Posted By: Bob Pisani

A very mixed earnings picture in the last twelve hours. Yes, AmEx, Apple, and Merck and Texas Instruments disappointed. But DuPont, Suntrust and Packaging Corp. were better than expected. But UPS hit the estimate, and Caterpillar's strong report helped turn the futures up at 7:30 am ET, though we are still down.

Banks:
Wachovia,as feared, slashed its quarterly dividend 86 percent , however there was no capital raise. The Golden West deal has turned out to be a mess, as there are large losses there. Down 9 percent. They weren't the only ones cutting the dividend. Regions Financial cut their dividend, to $0.10 from $0.38. They reported earnings below expectations, $0.39 vs $0.43 analyst estimate.

KeyCorp reported a loss, though not as great as expected. They had previously cut their dividend.

Bottom line: as expected, the regional banks are continuing to increase provisions for loan losses.

Elsewhere:
1) With the disappointment from AmEx, expect the rest of the credit card companies--Visa, Discovery, Capital One, Mastercard--to trade down, at least at the open.

2) Not great news for the communications sector this morning, as Texas Instruments disappointing results and guidance below expectations, combined with Vodaphone cutting its revenue outlook, is weighing on the whole sector. Vodaphone and TI down 13 percent pre-open, Erickson trading down.

3) Caterpillarbeat on top and bottom line , and raised full year guidance. Again, the mix of sales is continuing to move overseas: sales outside North America increased 30 percent, while sales in North America increased 7 percent. The 2008 guidance reflects "considerable strength in sales to the developing world."

4) DuPontbeat ontop and bottom line, and raised their full year guidance slightly, though the gain seems to be coming from the beat in the second quarter. How much are higher costs hurting them? Local selling prices increased 7 percent, but energy, raw material and freight costs increased 15 percent.

5) Our parent company GE announcing an $8 billion joint venture with Abu Dhabi investing agency Mubadala Investment; says they see becoming one of GE's 10 biggest shareholders; stock trading up pre-open. CEO Jeff Immelt will be on "The Call" at 11 am ET.

6) UPScame in in-line, but guidance had already been lowered . The new guidance for the full year is $3.50-$3.70, but they had given $3.90-$4.20 previously.

7) Friedman Billings Ramsey making an interesting call on Microsoft,noting that the current buyback is expiring, and urging the company to consider a leveraged buyout, which would take advantage of its $23 billion cash balance and be nicely accretive.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 5:03 PM ET

Bulls Find No Joy In After Hours Session

Posted By: Bob Pisani

Not a great after-hours session for bulls:

1) American Expressreported a notable miss ($0.56 vs. expectations of $0.83), and it's not hard to see where the bulk of the miss came from. a $600 million ($374 after-tax) addition to U.S. lending credit reserves.

"Credit indicators deteriorated beyond our expectations, CEO Kenneth Chenault said.

More from the release:

--"we are no longer tracking to our prior forecast of 4-6 percent earnings per share growth"

--"we do not expect to meet or exceed our long-term financial targets until we see improvement in the economy"

--the environment has weakened considerably since January, particularly during June

--"the scope of the economic fallout was evident even among our longer term, superprime Cardmembers"

AmEx down 10 percent after the close.

2) Apple beat estimates, the Mac and iPod sales were strong , but gave typically conservative guidance. Traders know they typically lowball the guidance by 5 to 8 percent; problem is that the guidance for the current quarter (about $1.00) is well below the analyst estimates for the current quarter ($1.24). Down about 5 percent after the close.

3) Merckhas suspended guidance to assess the effect of the Vytorin announcement today ; down 6 percent after the close after being down 6 percent during regular trading hours.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 1:36 PM ET

What Happened To Market? Financials Run Out Of Steam

Posted By: Bob Pisani

If you're wondering what happened to the stock market today, it's simple: financials are running out of steam. Yes, Bank of America had a great report, but we are now going into a whole raft of lesser-quality financial names in the next two weeks (I'm talking regional banks) and that clearly has the Street nervous.

On top of that, where's the support from the rest of the market? Techs, consumer staples and telecoms have done nothing for several days. Last week's move up in retailers, autos and home builders also lasted two days (Wednesday and Thursday) and then died.

Skeptics correctly point out that last week's trifecta of news (bank earnings above expectations, new limitations on naked short selling for select financials, and the Fed/Treasury helping out Fannie/Freddie), primarily benefited financials. What's changed for everyone else since then, skeptics ask? Not much.

Finally, skeptics point out that there may still be tougher times for financials...not just writedowns, but there has been a lot of talk about a Financial Times article over the weekend quoting Sheila Bair, FDIC chairman, that it is "likely" they will be raising premiums for deposit insurance due to the FDIC takeover of IndyMac.

Some are calling this a "stealth tightening" because it increases costs and lowers the amount of money that could be lent out.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 9:13 AM ET

Are Banks Overbought?

Posted By: Bob Pisani

Bank of Americamade it four in a row with big banks beating expectations, and beating big: $0.72 is 40 percent higher than the $0.53 expected . Revenues were a knockout as well: $20.32 billion, 10 percent above the estimate of $18.37 billion.

Highlights:

--Net interest margin (the difference between what you pay out and what you charge) expanded because loan growth grew and there was migration from higher cost CDs into lower cost money market deposits;

--There was loan growth and a well as higher income from service charges, mortgage banking, and investment/brokerage services

--Average retail deposits up 12 percent, half from organic growth and half from the acquisition of LaSalle Bank.

--The dividend was covered, and there was no word on whether it would be cut.

On the downside:

--Credit quality continued to weaken, "particularly in markets that experienced the most significant home price declines."

None of this reflects the Countrywide acquisition, which closed on the first day of the quarter. BofA up 11 percent pre-open. With financials up again this morning, a lot of traders are asking, are banks now overbought? Lots of nervousness about Wachoviatomorrow. Writedown $1.2 billion, less than some analysts expected.

Elsewhere:

1) Bonds are down again on the B of A earnings.

2) Roche bidding for the rest of Genentechthat they don't already own; $89 a share in cash. Roche acquired a majority Genetech way back in 1990; they currently own 55.9 percent of the outstanding shares.

3) Oil service giant Weatherford missed earnings expectations by a couple pennies and is down 4 percent pre-open.

4) Target's2008 and 2009 estimates were lowered at Bank of America, traffic continues to be weak.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Jul 2008 | 4:08 PM ET

Big Three Financials Deliver

Posted By: Bob Pisani

I know, it wasn't exciting, but exciting wasn't what most traders were looking for. After a wild week, a quiet stable day was fine. There was no concerted attempt to sell off financials, and that is why it was a successful day for bulls.

The financial rally this week is a tough call. The good news is that the big three--Wells Fargo

, JP Morgan , and Citi --all delivered. There were no capital raises, no dividend cuts. Will that continue? Many regionals next week may challenge that assumption. Wachovia is the stock to watch, with earnings on Tuesday. There is new leadership there, but also problems: heavy exposure to housing, and there have been concerns about the possibility of a capital raise and/or a dividend cut.

The early bet is that we will be seeing a bifurcation, with companies with greater leverage undperforming higher quality names.

At the close, the CFTC reports that the net spec long position in the S&P 500 rose to the highest level since Dec '06.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Jul 2008 | 11:16 AM ET

Crunch Time for Financial Rally

Posted By: Bob Pisani

Is there any doubt that big-cap financials are the key to this market?

What's worked for two months? Sell the rally in financials. This is crunch time for the two-day rally...and not surprisingly, they are pushing the old trade hard today.

The two most important stocks are Citi and Merrill . Citi had a loss, but better than expected, and since the fourth quarter they have progressively cut the losses in half (from a loss of $1.99 to a loss of $1.02 to a loss of $0.49). Bad by historic standards, but a steady improvement.

Merrill took bigger writedowns than expected, a bigger loss than expected, and already bulls are arguing that this is another "kitchen sink" quarter for the company (they said that last quarter). Still, the overall numbers are still so weak it's hard to argue for any kind of rally here.

What is likely to happen here is a bifurcation of financials: those that are considered the best-managed, lowest-risk, like JP Morgan , will outperform the others, and this is how it should be. But this time, they may outperform by a wide margin.

Already, regional banks like Huntington Banc shares , Zion , Fifth Third are back to their Sell on Rally mode, down 5-9 percent. However, brokers are clearly looking to hold their gains, Merrill is trying to go positive, and Lehman is up nearly 5 percent.

Finally, I don't want to act like I'm ignoring tech. There are problems here. I won't do fundamentals, I'll make it simpler. Consider that:

1) tech was considered a safe haven;

2) tech is now the largest sector of the S&P 500 (16.4 percent);

3) Google and Microsoft make up about 18% of the tech index.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Jul 2008 | 9:07 AM ET

Key To Market? Big Cap Financials

Posted By: Bob Pisani

Is there any doubt that big-cap financials are the key to this market? Despite earnings below expectations for Microsoft and Google, and a large writedown from Merrill Lynch,it was Citigroup beating expectations that moved futures up almost 15 points this morning.

This is crunch time for this little mini-rally--since the earnings news is mixed, it will be critical for the market to move sideways or up today, and avoid retracing any of the last two days gains.

Options expiration today.

Citi'sloss of $0.49 was better than the loss of $0.66 expected. Doesn't sound great, but things are getting better: they reported a loss of $1.02 in the first quarter, and a loss of $1.99 in the fourth quarter. Yes, there was $7.2 billion in writedowns, but even that is an improvement. As with Wells Fargo, net interest margin was a bit higher than expected. Up 9 percent pre-open.

Elsewhere:

1) Freddie Mac still trading up, despite the fact that the WSJ reported they were considering raising up to $10 billion in equity through a sale of common and preferred stock.

2) Meantime, Honeywellbeat on topline and revenues, and raised their guidance (it's in-line with estimates).

Aerospace sales (about a third of sales) were strong. Remember, all the aerospace companies got slammed in June on concerns that aerospace sales would be slowing globally. Up 4 percent pre-open.

3) Mattelalso beat expectations, up 12 percent.

4) Bank and credit card giant Capital Onereported earnings below expectations, down 2 percent pre-open.

5) Barr Labs, which had been a speculated takeover target for a couple days, is being bought by Teva for $7.46 billion , about $66.50 in cash and stock, a 42 percent premium to Barr's closing price on Wednesday. Teva is the largest generic drug maker in the world.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Jul 2008 | 5:15 PM ET

IBM "Feels Goods" - The Rest of the Techs Do Not

Posted By: Bob Pisani

It wasn’t great after the close. Merrill had losses greater than expected, Google missed, Microsoft missed. Only IBM beat and says they "feel good" about the full year outlook. All trading down after the close.

As for Merrill, writedowns of $9.7 billion, as well as earnings well below expectations (loss of $4.95), was disappointing but perhaps not surprising. Already, some are arguing that this was the kitchen sink quarter (but some said that about the last quarter).

As for techs, traders note that there has been less focus on that sector, because everyone is still in the process of unwinding the Long Energy/Short Financials trade. These numbers will reinforce the bear position that we are in a poor market for tech.

How bad is this cumulatively? Futures are down, but not dramatically--we closed at 1253.4, now trading at 1248.

Two points about tomorrow: Citigroup in the morning will be the key stock of the day, and remember that tomorrow is an options expiration


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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