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Trader Talk with Bob Pisani

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  Thursday, 28 Aug 2008 | 9:23 AM ET

Recession Talk Over on GDP Growth

Posted By: Bob Pisani

Futures popped about 6 points at 8:30am ET, as preliminary second quarter GDP of 3.3 percent seems to have ended talk of a "formal" recession.

MBIA up 17 percent pre-open, as it agreed to reinsure $184 billion of municipal bond risk from FGIC (its competitor). MBIA gets $741 million in premiums. Ambak up 13 percent in sympathy.

Elsewhere:

1) retailers continue to report very mixed results. A few were quite good:

a) Tiffany up 6 percent pre-open, reported earnings of $0.63, well above consensus of $0.55, and raised guidance for the full year. Foreigners continue to crowd into the flagship New York store: comp store sales were up 10 percent in the first half of the year at the flagship; outside of the New York flagship, U.S. sales were down 5 percent.

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b) Fabric shop Jo-Ann Stores up 10 percent, had a smaller loss than expected, and gave full-year guidance above expectations. The take here is that more people are making their own clothes and doing their own decorating, and the company is the beneficiary.

Still, it seems that most retailers are continuing to either disappoint or bring down estimates for the full year:

a) Sears is really having problems. Earnings came in at $0.21 vs. expectations of $0.33 (last year they made $1.15). Sears U.S. comp store sales down 6.7 percent; Kmart down 5.6 percent.

b) Men's Wearhouse beat by a penny, but third quarter guidance at $0.36-$0.40 is well below consensus of $0.53.

c) Williams-Sonoma reported earnings about in line with expectations, but guidance of $1.03-$1.15 was well below expectations of $1.31.

2) Hey, worried about falling stock prices? Do what the Pakistanis did: decree that prices cannot fall. In response to a 36 percent decline in the Karachi Stock Exchange this year, the board of directors of that Exchange announced that shares would not be allowed to trade below their closing level as of Wednesday.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 5:34 PM ET

Fannie Mae Mgt. Shakeup; Oil Shrugs Off Gustav

Posted By: Bob Pisani

The big issues today are Fannie/Freddie and Gustav.

After the bell, Fannie Mae was halted as it announced several management changes, including a new CFO (David Hisey, previously Sr. VP and Controller), Chief Risk Officer (Michael Shaw, formerly Sr. VP-Credit Risk Management), and Chief Business officer (Peter Niculescu, formerly Exec. VP of Capital Markets).

Note that there are no outsiders being brought in. They need to show that they are serious about the two most important issues: conserving capital and controlling credit losses.

The larger issue today: How serious is Gustav? Assuming a Category 3 hurricane in eastern Louisiana, RBC Capital today estimated it would involve a loss of production of 3 percent of total U.S. crude inventories and 2 percent of natural gas inventories. That is a fairly modest loss. Obviously, if the storm strengthens the damage could be more severe.

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Outside of Gustav, most traders do not feel that the facts are bullish for oil in the near term, absent a major international crises of some sort:

1) Oil remains in $112-$117 range despite Gustav, Russia this is the best it can do?

2) Energy stocks are up modestly but:

--fundamentals weak

--demand down

--domestic production and imports up

Finally, there is an OPEC meeting September 9; don't be surprised if some of the more aggressive members (e.g. Iran) argue for cuts based on oversupply.

One final note: property/casualty stocks, some of which would be directly impacted by Gustav, were up today.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 11:54 AM ET

Solving the Fannie/Freddie Mystery

Posted By: Bob Pisani

Lots of discussion about the "Fannie/Freddie mystery," i.e.: Why, if the common is worthless, have the stocks rallied 22 percent (for Fannie Mae ) and 57 percent (for Freddie Mac ) this week?

A couple of points:

1) Merrill Lynch, in a sensible report this morning, noted that capital depletion is not likely for several quarters and that it was "premature" to consider the Treasury recapitalization plan;

2) There is less anxiety about the more radical total bailout: Rep. Barney Frank said he doesn't know if a bailout is "inevitable", and Goldman Sachs said yesterday that even if there was a bailout it would be "manageable";

3) Both companies appear to be scaling back on mortgage portfolios, that is they are making some effort to improve their balance sheets;

4) Perhaps most importantly, there are short-term trading patterns that are very favorable in the past few days: higher highs and higher lows, the kind of pattern that attracts momentum traders.

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CNBC's Financials in the News:

- Citigroup
(Story: Citi Limits Color Copying)

- Goldman Sachs
(Story: Authorities Probe Fidelity, Goldman Link)

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 10:08 AM ET

Oil Ignores Gustav, Russia; Oil Cos. Sell Gas Stations

Posted By: Bob Pisani

Futures popped nearly 10 points as durable goods jumped more than expected. Dollar rallies a bit but is still down, bonds decline.

  • CNBC Video: Dollar to Lose 40%

Commodities up as the dollar is a bit weaker today. While oil prices are up $1.82 to $118.09, it is a fairly poor response to Gustav and the tensions with Russia. Airlines are weaker.

Elsewhere:

1) Fannie Mae & Freddie Mac were most actively traded pre-open; both up about 10 percent.

2) Borders Group reported a loss that was less than expected. They are doing what many retailers are doing: keeping costs under control with, among other things, lower inventories. Same store sales were down about 9 percent from the same period a year ago.

3) J Crew down 10 percent pre-open, not only missed on top and bottom line, but their guidance for the current quarter and full year is well below consensus. The company is blaming a systems upgrade that disrupted its phone and internet sales.

4) IKON Office Solutions is being bought by Ricoh: $17.25 a share, $1.6 billion. Closed yesterday at $15.56 a share.

5) The Mortgage Bankers Association reported that applications for mortgages rose for the first time in three weeks. OK, it's only up 0.5 percent, but it is up; last week it was at the lowest levels since December 2000. How poor are applications? They were 31 percent below their levels of a year ago. Mortgage rates remained relatively stable at 6.44 percent; while this has been up recently, it is not far from where it was a year ago, but the concern is that rates may increase further.

6) Will the last place that sells gas please turn off the pumps: ConocoPhillips said they would sell the remainder of their 600 company-owned gas stations to PetroSun West for $800 million. They will continue to produce gasoline. In June, ExxonMobil said it would sell its stations, and BP said it would sell its U.S. stations.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 26 Aug 2008 | 4:04 PM ET

Housing: The Good & Bad News

Posted By: Bob Pisani

The monthly S&P/Case Shiller index of home prices in 20 cities showed a 15.9 percent drop from the same period a year ago. Both new and existing home sales indicate that price declines continue, although the severity of the decline seems to be moderating.

Inventories remain stubbornly high -- in fact, new home inventories are at 10.1 months; it has remained over 10 months for four months now.

The real estate news today, from the Case Shiller Index of home prices to new home sales (a bit weaker than expected, when revisions are considered), showed there are still significant strains in housing.

Here's the good news:

--there are some small signs of sales increases in a few markets like central California.

Here's the bad news:

--for the most part, prices at best remain at their bottom, even though the rate of declines appear to be slowing down; and

--inventories remain high.

Much is made that cheaper housing will make the markets more affordable and ultimately help the consumer. There's a problem with this analysis: there's more than lower prices when considering affordability. There's home prices, mortgage rates, and income growth.

Only one of these components are helping affordability now. More declines in prices are good news. But mortgage rates are rising, and income growth is being eroded by inflation, reducing the positive effect of lower prices.

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Housing Stocks in the News:

Fannie Mae , Freddie Mac
(Story: Fannie, Freddie May Avoid Bailout)

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 26 Aug 2008 | 9:26 AM ET

Europe Looks Worse; Dollar Hits '08 High

Posted By: Bob Pisani

The German business confidence index (Ifo) declined to the lowest levels since August 2005, increasing concerns about a weakening Europe.

The dollar has popped to its highest levels of the year.

Russia's stock market is down 5 percent to its lowest levels in six years, as most European countries are signaling they will not recognize the breakaway states of Georgia.

Elsewhere:

1) American Eagle was a penny below expectations, and guidance for the third quarter, $0.31 to $0.36, is below expectations of $0.39. August comp store sales were down 6 percent.

2) Restaurant giant Darden (Red Lobster, Olive Garden, LongHorn Steakhouse) down 13 percent pre-open, as they are updating full-year guidance, saying full-year fiscal EPS will be flat to up 5 percent, compared to the previous target of up 9 to 10 percent. Darden is in the first quarter of its fiscal year.

3) Mining giant Rio Tinto reported outstanding results, with profit more than doubling. They also increased the dividend 31 percent. Remember, BHP Billiton has made an offer to acquire Rio Tinto, which was rejected by the company. Rio Tinto itself acquired Alcan in 2007.

4) Sign of the times: we used to pass around Warren Buffett's annual report. Now, trading desks are passing around the annual report from Singapore wealth fund Temasek.

Chairman S. Dhanabalan said he sees "value" in the U.K. and the U.S., particularly in financials. The fund already holds a 9 percent stake in Merrill Lynch and a 2 percent stake in Barclays . The firm has a 40 percent of its holdings in financials as of the year ending in March.

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CNBC's Top Investing News:

Video: Why Commodities Will Fall Another 10%

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Questions? Comments? tradertalk@cnbc.com

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  Monday, 25 Aug 2008 | 5:24 PM ET

Financials Bad Now -- Worse in September?

Posted By: Bob Pisani

Mary Thompson is in for Bob Pisani Monday.

It was a "Meltdown Monday" on Wall Street today. People might pooh-pooh today's action because of the light volume, but it is hard not to be a bit awestruck at the breadth of the decline. All of the Dow Jones Industrial's 30 components fell, toward the close 472 of the S&P 500 Index were lower, and 97 of the Nasdaq 100.

The end result, a 241.81 point decline for the Dow, a 25.36 point slide for the S&P and a 49.12 point loss for the Nasdaq.

Why the decline? There were plenty of reasons cited, but the most common was concerns about the financials.

Keep in mind, until last autumn, this was a leading group among S&P 500 members. As banks and insurance companies work through balance sheet problems that have cropped up in the wake of the decline in the housing market and the resulting liquidity crisis, investors are looking for new leadership to emerge.

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  • Forbes on Fannie, Freddie, Democrats and the Dollar

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Some might say energy and commodity stocks have taken firm hold of this mantle. But with a look back at the market action that followed the bursting of the tech bubble, one knows it takes a long time for investors to fall out of love with former star performers. Now reality is sinking in, meaning the problems at the nation's banks aren't going away tomorrow and are likely to be with us for a couple of more quarters at least.

So without the former leaders and without new leaders that don't look as long in the tooth as energy does, investors are moving to the sidelines.

Or at least they were today. Keep in mind when volume is light, the swings are sudden and swift. So, good news tomorrow might change the market's mind. Still, September is around the corner and historically, this is the toughest month for the stock market.

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CNBC's Financials in the News:

- Fannie Mae

- Freddie Mac

- Lehman Bros.

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Questions? Comments? tradertalk@cnbc.com

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  Monday, 25 Aug 2008 | 2:49 PM ET

Financials Overshadow Rest of Market

Posted By: Bob Pisani

Mary Thompson is filling in for Bob Pisani Monday.

Ask a trader why the market is down today and you'll get a whole host of different answers. Among the ones I have been told: concerns about the financials, the lack of resolution about Lehman's future, the lack of volume which makes the market more vulnerable to sudden swings, and the tensions between Russia and the U.S. over Russia's support of breakaway regions in Georgia.

The most common answer, though, is the concern about the financials.

Take a look at today's news: My colleague and co-host of Power Lunch, Bill Griffeth, maintains that on any other day, the good demand for Freddie Mac's sale of three and six month bills (even though it had to pay a higher rate to attract buyers) and the 3.1 percent increase in July existing home sales would be enough to drive the Dow up 200 points -- not down 200 points where it stands as I write.

I disagree. The report on existing home sales shows that median price of a home here in the U.S declined from last July. Until home prices stabilize, the declines in housing prices are going to have a negative effect on the value of the residential mortgage related securities held by the banks. This is likely to lead to more writedowns at these firms.

Then, a lot of regional banks, insurance companies and big banks own common and preferred shares of Fannie Mae and Freddie Mac. And while shares of these government sponsored entities are up today, they are down more than 90 percent over the last year.

In fact, in a filing with the SEC, JPMorgan said today its holdings in both firms have fallen by $600 million in the third quarter, a decline the banking giant said could affect its earnings. Keep in mind just a couple of weeks ago, it was JPMorgan which said the value of its mortgage-backed securities and loans declined by $1.5 billion earlier in the quarter, because of wider credit spreads and a lack of liquidity in the markets.

The problems in the financials cannot be solved by a single economic report or one strong debt sale by a GSE. So while we might see some one-day relief rallies in these stocks, the problems they face are still a long way from being solved. Until they are, being concerned about the financials is valid.

There are few bright spots today. Bonds are benefitting from the general aversion to stocks. Along with the financials, cyclicals and transports are big percentage losers. The transports are pressured by a downgrade of the trucking group by Wachovia, and that is offsetting the modest losses we are seeing in oil today.

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CNBC's Financials in the News:

- Video: Should Lehman CEO Fuld Be Fired?

- KKR Shows 'High' Interest In Lehman's Neuberger Unit

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Questions? Comments? tradertalk@cnbc.com

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  Monday, 25 Aug 2008 | 1:12 PM ET

Forget Politics -- Oil & Credit Still Main Stories

Posted By: Bob Pisani

Mary Thompson is filling in for Bob Pisani at the NYSE and wrote this blog post.

The markets have kicked off what is supposed to be a quiet week of trading on a down note. The decline is broad, volume is light, and financials and transports are the leading losers.

There is no shortage of news this week with plenty of data on tap and the Democratic National Convention kicking off tonight.

But Fred Dickson, chief market strategist at D.A. Davidson, says the main story for the stock market remains the same: What will push stocks around is either the movement in oil or the smouldering credit pressures that are keeping the financials down.

Dickson says with that backdrop, the markets are still keeping an ear open for a ratcheting up of Russian rhetoric concerning Poland and Georgia, will be listening for any gaffes or policy changes that might be unveiled at the DNC, and remains focused on what the future of Fannie Mae and Freddie Mac might hold.

Speaking of Freddie Mac and Fannie Mae, they received a vote of confidence from Citigroup today. In a note to clients, analyst Bradley Ball writes that while the recent decline in shares of the providers of mortgage funding could limit their financial flexibility, and prompt management and policymakers to take extraordinary action, he thinks shareholders' interests will be preserved. Translation: Ball doesn't think they'll be nationalized. Both stocks are trading higher midday Monday.

AIG is under pressure as well. The ratings agency Fitch says the insurer could face a downgrade, given uncertainty about CEO Bob Willumstad's plan to revive the company, and fears that AIG's mortgage related holdings will lead to further writedowns.

Willumstad is expected to unveil his strategy for AIG at the end of September.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 22 Aug 2008 | 5:22 PM ET

The Week: Stocks End Up; Oil Slides; Financials Level

Posted By: Bob Pisani

A big drop in oil provided nice support for stocks. Oil went from $114 to $121, then all the way back to $114, in two days!

Stocks were drifting lower midday Friday, on very light volume and a lack of energy, but when oil prices started moving down aggressively about 1pm ET, the market stabilized, and a few sectors like airlines and retailers had modest rallies.

Financials also stabilized today, though they are down for the week. The two weakest points -- Fannie/Freddie and Lehman Bros. -- were split, with Fannie Mae up 2 percent but Freddie Mac down 5 percent. Both were up again.

Fannie, which traded as low as $3.53 yesterday, traded over $5.00 today; most of the action is from short-term momentum traders. Lehman was as low as $12.54 yeterday, but almost broke $16 early in the day, until cautious comments from Korea Development Bank -- implying that they are considering other options in addition to buying Lehman -- and a selloff at the close dropped the stock down to $14.40.

One thing to watch out for: the CBOE Volatility Index (the VIX) , a measure of fear in the market, is sitting near the lowest levels since early June. However, futures in the VIX are trading much higher, implying that volatility traders expect are expecting higher volatility in September (i.e., selloff).

This week: Dow down 0.3 percent, S&P down 0.5 percent.

This was a Week of Reversals: techs have underperformed for the first time in a while, with the Nasdaq down 1.6 percent. Small-cap stocks, which had outperformed as the dollar strengthened, also underperformed with the Russell 2000 down 2.0 percent; oil stocks rebounded strongly, with Amex Oil Index up 3.7 percent.

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CNBC's Financials in the News:

-American Express , Wells Fargo
(Story: Buffett Says He's Buying AmEx -- OR Wells )

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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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