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Trader Talk with Bob Pisani

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  Monday, 11 Aug 2008 | 9:30 AM ET

Russian, Chinese Stocks Look Even Weaker

Posted By: Bob Pisani

Bob Pisani has the day off. This post is from his producer, Robert Hum.

U.S. stock futures point towards a flat open this morning, following the market’s best week since April. The dollar index is a bit higher this morning, while commodities are slightly lower. The dollar index has been up for six straight days, prior to today.

Keep an eye on more weakness in Russian and Chinese stocks today. Over the weekend, tensions escalated between Georgia and Russia, as fighting continued. In China, the Shanghai composite hit new lows again, falling 5 percent as inflation worries remain in focus. The country’s PPI came in with a greater-than-expected gain of 10 percent from a year ago. China’s benchmark index is now down more than 9 percent over the past two trading days.

Elsewhere:

Waste Managementraised its all-cash offer for Republic Servicesto $37 per share, a 9 percent increase from its prior $34 per share bid. Republic Services had previously spurned the initial offer as it remained committed to its own $6.2 billion offer to acquire rival Allied Waste.

After the close on Friday, Berkshire Hathawayreported Q2 earnings fell 7.6% on weak insurance results. Insurance underwriting operating earnings fell 43%. Despite the weakness, earnings still beat analysts’ estimates.

The president of UPS’s international business shot down reports that the company was weighing a bid for the Dutch package delivery company TNT. The executive told Reuters that such an acquisition would be “something that devalues our shares.” However, others believe acquiring TNT would provide UPS with a greater presence in the European and Asian markets

Diebold announced preliminary Q2 results that beat analysts’ estimates. It saw strong demand for its ATMs and raised its full-year guidance. Diebold’s stock is up 3 percent pre-open.

Finally, FBR lowered its price target for Fannie Mae, as it believes the company would need to raise $5-$10 billion in additional capital.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 4:14 PM ET

Winners And Losers For The Week

Posted By: Bob Pisani

For the week, the Dow up 3.6%, Transports up 5.4%, S&P up 2.9%, NASDAQ up 4.5%. Best week for all four since April.

Many cross-currents:

--lower commodities help, but concerns about slower global growth persist

Winners this week:

--autos, retailers, airlines

Losers:

--energy, materials

Things have changed. Consider that one month ago:

--oil was at $145
--commodity stocks were slowly coming off historic highs
--the dollar was near historic lows against the euro
--financials were at their lowest levels in over 10 years

All of these conditions have now reversed:

--oil is 21 percent off its high
--commodity and energy stocks are down more than 20 percent on average
--the dollar is at 6-month highs
--financials are off their lows

Financials may be off their lows, but they are not outperforming. What is? Of big cap stocks, the big winners this week were Consumer dscretionary stocks (retailers and autos), as well as techs. Consumer discretionary are benefiting from lower oil, but why techs? Sector rotation: with financials still a mess, energy a tough call, techs are a relatively safe rotation, but even here the strong dollar makes it tougher for firms like Hewlett-Packard.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 3:18 PM ET

Why It's A Different Market One Month Later

Posted By: Bob Pisani

There are notable shifts occurring in the stock market on the dollar rally/commodity drop this week.

1) lower oil has been a notable help to retailers and airlines

2) lower commodity costs in general, from copper to grains to plastics, have been a big help to consumer and material stocks, many of whom have bitterly complained of rising raw material costs

3) the dollar rally has helped small cap stocks. Again today the Russell 2000, the main small cap index, is outperforming the S&P 500. In fact, since the dollar hit its recent low (July 15, the market bottom), the Russell 2000 has rallied 10 percent, while the S&P 500 is up only 5.6 percent.

Why small caps? They are not dependent on exports to grow, as multinationals are. The strong dollar makes exports more expensive and less competitive.

As for the large caps, modest rallies in airlines, autos, and retailers is to be expected on the lower commodities, particularly oil.

However, it's one thing to unwind the "long commodity trade"--that's already being done. It's another entirely to unwind the "short financial" trade. After a brief rally in mid-July, most big financials--Citi , JP Morgan , Bank of America , have gone nowhere. Indeed, those perceived to be weakest--Wachovia , Washington Mutual , and many regional banks--are all down this week.

That's because traders are passing around bearish analysts reports like this one from UBS: "the availability of credit is declining-even for good customers. For example, BAC [Bank of America] is cutting credit lines for home equity and card-especially in the weakest housing markets. And many other banks are in the process of reducing commercial credit lines."

Bottom line: this is a very different market than one month ago, with the Dow and S&P at 6-week highs, but we are not out of the woods yet.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 9:20 AM ET

Dollar Gains Hurt Overseas Profits

Posted By: Bob Pisani

Happy start of the Olympics! The Shanghai Composite Index hit a new low this morning.

The big story this morning is not Fannie Mae, it's the dollar--and if "going parabolic" is an overstatement, it's not too far a stretch. Dollar having best day against the Euro since 2004. What's up? No specific news today, but clearly concerns over a global economic slowdown is what's driving the move.

This has important implications for multinational companies--the majority of the S&P 500. Dollar strength for U.S. based corporations implies profits will be smaller when profits made overseas are repatriated back to the U.S.; does it mean the biggest multinationals are now partly for sale?

If so, what do you buy? Sherwin Williams? Housing stocks?

On the strong dollar, commodities are down, as are gold stocks.

Elsewhere:

1) Fannie Mae down 13 percent pre-open; like Freddie Mac, reported a loss far in excess of expectations: $2.3 b (following a loss of $2.51 b in the previous quarter), loss of $2.54 a share (loss of $0.69 is the estimate), as well as an 86% cut in dividend (to $0.20).

--while 2008 will be the peak year for credit-related expenses, the total amount for credit-related expenses will still be "significant" in 2009;

--due to volatile market conditions, they have less visibility into their capital position in 2009;

--credit performance continued to deteriorate into July, and charge-offs were higher than expected.

Bottom line: deterioration in the mortgage book is spreading into Alt-A loans (no or low-documentation loans), and it will take well into 2009 before the awful 2006-2007 mortgage vintages fully play out.

2) Hertz beat but guided below expectations, they complained about higher costs, but noted they had raised prices TWICE this summer.

3) Food manufacturer Hormelalso guided below expectations, noting that "while we hae continued to implement price increases in this segment, they have not been adequate to offset the higher input costs."

4) An IPO: Web hosting company Rackspace priced 15 m shares at $12.50 a share, at the low end of the range expectation of $12-$16.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 4:14 PM ET

Consumer Negatives Make A Rough Day For Market

Posted By: Bob Pisani

The markets had to contend with a raft of negative news, much of it centered around the consumer. Late in the day, Moody's said they may downgrade the debt of American Express; Moody's say they were concerned about AmEx's lending exposure to areas of the country that have experienced sharp home price declines. AmEx dropped 5 percent.

At the same time, consumer credit for June --a lagging indicator and not normally a market mover--came out much higher than expected--$14.3 billion vs. $6.3 billion estimate. May's reading was revised upward as well, from $7.8 billion to $8.1 billion. This statistic is very volatile and often revised heavily. Simply put, consumers are charging more on their credit cards.

Add in the weakness in retail sales, the disappointing weekly jobless claims report, and AIG--as well as a 360-point gain in the Dow in the prior two days--and you have all you need for a down day.

Financials were weak across the board, in fact they were far and away the weakest group; not just property and casualty firms on the AIG news, but also brokers like Lehman, Merrill and Goldman were weak.

Freddie Macclosed near its old low of $5.26; Fannie Mae reports tomorrow.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 1:58 PM ET

Why Dollar Is More Attractive

Posted By: Bob Pisani

A lot of cross currents today--on the negative side, we have AIG, the weakness in retail sales, the disappointing weekly jobless claims report.

On the positive side, we have 1) oil moving down midday which provided a modest boost to stocks, 2) the dollar rallying for the fifth straight day, largely on comments from the ECB's Trichet (he gave no indication that more rate hikes were coming), and 3) continuing outperformance from techs.

The good news for the U.S.--and the dollar--is that we do not need to cut interest rates, as they are already low. Other countries with heavy commodity-based currencies like New Zealand and Australia are likely to keep cutting rates; elsewhere the U.K. has not yet but probably will soon, and many are betting that even the ECB will be forced to cut rates soon. All this makes the dollar more attractive.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 9:31 AM ET

Retails Sink As Jobless Claims Rise

Posted By: Bob Pisani

Futures are down nearly 10 points, not surprising given AIG, a strange but generally disappointing retail sales report, and jobless claims higher than expected.

ECB and the Bank of Englandleft rates unchanged.

Very odd retail sales reports for July, though generally downbeat:

a) Wal-Mart trading down 3 percent pre-open; Wal-Mart's comp store sales were up 3.0 percent in July, below the estimate of 3.4 percent, a bit of a surprise given the effect of the stimulus checks. They had beat expectations for the past several months, so many were expecting them to beat again. August comp store guidance of up 1-2 percent is also conservative.

They said: "With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month. We also continue to see improvement in our customer traffic, relative to last year."

2) other discounters were mixed: Costco was up 10 percent, more than the 7.5 percent expected; BJ's Wholesale were also better than expected, but they have a slightly more affluent consumer and also get more business traffic than Wal-Mart ; but Target was down 1.2 percent, below Target's own estimate of a loss of 1 cent to a gain of 1 cent.

b) teen retailers were also very mixed: Hot Topic , American Eagle , Pacific Sunware were weaker, as was American Eagle, which guided below consensus for the quarter.

Aeropostale , however, was higher than expected and they raised guidance.

c) Apparel, not surprisingly, had a tough time. Gap missed but guided higher ($0.30-$0.31 vs. $0.23 consensus). Abercrombie was also worse, and their guidance is below expectations. JC Penney had a lousy comp number but like Gap they guided higher, implying they are keeping their margins.

Bottom line: second half of the year will be tough, expect a lot of promotions. Inflationary pressure is high, but throw in job losses, credit card debt, tight credit, home prices still declining, and you have the makings of a worried consumer.

Elsewhere:

1) AIG down 13 percent pre-open as they reported a net loss of $5.4 billion. The operating loss was $0.51 a share, well below the expected gain of $0.63, the third straight quarter of losses. Big writedowns on credit default swaps ($5.5 b) and impairments on their investment portfolio ($6 b, for residential mortgage backed securities, or RMBS) were the primary problem, but results from Property and Casualty , a core business, were also disappointing. There is considerable discussion this morning about whether:

1) AIG will need to raise capital to protect its ratings, and 2) whether new CEO Richard Willumstad has really "kitchen sinked" the quarter.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 4:01 PM ET

Why Bulls Are Feeling Good

Posted By: Bob Pisani

Stocks staged a modest late day rally and gave back some of the gains late in the day, but still ended up. That is unusual, given that the usual trend is to reverse after a large gain.

The important development is technical: the Dow, the NASDAQ, the S&P 500 and the Russell 2000 are all at 5-week highs. In addition:

--oil at 3-month lows

--dollar index at 5-month highs

--Fed not raising rates (probably)

Are all making bulls feel notably better. Bears, of course, laugh at this, noting that housing has not bottomed, the balance sheet of financials will remain poor for the foreseeable future, and economic data is still deteriorating. To suggest that there will be some notable turnaround in the next few months is comical, bears maintain.

But much of this market has become technical in nature. Today’s development are positive for bulls.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 12:52 PM ET

Why There's Pressure On Consumers

Posted By: Bob Pisani

Two companies today are illustrative of the Consumer Under Pressure: Whole Foods and CarMax.

1) Consumers are cutting back on higher-end food purchases. Whole Foodsreported earnings well below expectations (about 30 percent below expectations); it's no surprise that consumers are cutting back purchases at higher-end stores like Whole Foods, but the decline is even greater than expected. And no, you cannot blame all their problems on the Wild Oats purchase, which has been expensive and dilutive. They have suspended their dividend and cut back on store growth, both prudent measures to preserve capital. Down 15 percent to a 6-year low.

2) Used car sales are down, and it's not just because of the "bad mix" of no demand for gas guzzlers and high demand for fuel efficient cars. How bad was it? CarMax said they saw used unit comp sales down 17 percent in June and July; according to RBC Capital, the worst prior quarter they could find was down 7 percent. Besides fewer people trading in their cars, vehicle prices are falling, and this is pressuring sales as the company is being forced to liquidate inventory at prices below estimates. Down 6 percent.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 9:24 AM ET

Freddie Mac Proving There's No Market Bottom?

Posted By: Bob Pisani

If you're wondering why we have been getting these triple digit swings in the Dow every since we hit bottom about July 15th, the answer is evident today with Freddie Mac's earnings. If housing is the key to the recovery, then Freddie's numbers do not indicate any imminent bottom.

Freddie Mac is the most actively traded stock pre-open, trading down nearly 20 percent on over 2 million shares changing hands.

They reported a loss of $1.63 (their fourth straight quarterly loss) a loss of $0.41 was expected. Revenues were $1.69 billion vs. expectations of $2.18 billion, so everything was well below expectations. They are cutting their common dividend but still paying the preferred dividend. Additional provisions for credit losses totaled $2.5 billion due to increases in delinquency rates and foreclosures.

They again said they planned to raise capital, but the timing of the raise depends on market conditions, which are "choppy."

Their CFO says it is still reasonable to expect a housing recovery in the first quarter of 2009.

Elsewhere:

1) Sprint down 9 percent, earnings of $0.06 vs. expectations of $0.03, but still trading down as wireline revenue was down 2 percent, wireless down 12 percent.

2) Used car sales are dropping fast. CarMaxsaid they had used unit comp sales down 17 percent in June and July; they are reducing inventory and halting most of their new store opening. Down nearly 20 percent on light trading pre-open.


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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