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Trader Talk with Bob Pisani

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  Friday, 15 Aug 2008 | 3:14 PM ET

Why Traders Think There's A Bottom Of Sorts

Posted By: Bob Pisani

On a week that has seen light trading, there has nonetheless been a change in outlook. In the last two weeks, I have seen money moving AROUND and INTO the stock market, rather than money moving OUT of the stock market.

Specifically, many now believe that a bottom is in for financials, retail, and some big-cap energy stocks, and that techs have a reasonable run at a rally.

Why do some traders feel this way? For months, traders have adopted extremely short-term technical trading methodologies to deal with a market that could turn in either direction on a dime. But this week bulls argued that it may now be possible to envision a longer-term play:

--with the commodity markets clearly in decline, the inflation cycle has peaked;

--the news from the U.K., the Eurozone and Hong Kong indicate that a global slowdown is now underway, and that many countries would be lowering interest rates soon;

--that the United States was much further along in the economic cycle than the rest of the world;

--that this argued for strength in the dollar, which would help the balance of payments.

The implications:

--the U.S. stock market will be the preferred market in the coming months

--small caps will outperform large caps on the dollar strength

--play U.S. tech stocks on seasonal strength

Of course, bears put out that the global slowdown and the dollar's strength will create headwinds for big-cap U.S. multinationals. This is undoubtedly true, but for the moment the bulls are ignoring this fact, just as they ignored that their “de-coupling” theory was all wrong.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 15 Aug 2008 | 9:17 AM ET

Hong Kong Follows Europe On Slow Growth

Posted By: Bob Pisani

Yesterday it was Europe announcing weak economic growth, today it is Hong Kong, where Q2 GDP fell by 1.4 percent quarter-over-quarter. Year-over-year, GDP rose 4.2%, the slowest gain since Q3 2003. Higher costs from China, as well as weaker demand, was the culprit.

The dollar rally continues, oil sitting right on that $112-$113 support level where it's been for the past five days, gold and platinum are at their lows for the year. Gold stocks are down 2-4 percent.

Stock futures rose a few points as an index of manufacturing activity in New York state unexpectedly rose.

Elsewhere:

1) With the exception of Wal-Mart, all the retailers are following a similar pattern: all did well for the quarter that was finished, but Abercrombie, JC Penney, Kohl'sand Nordstromall said earnings for the current quarter would be below analyst expectations.

Nordstrom lowered their own guidance for the full year, and their situation is also somewhat typical: comp store sales were down (6 percent, in this case), and there seems to be a more promotional atmosphere that is pressuring margins.

2) George Soros' hedge fund raised his stake in Lehman to 9.47 m (worth about $187.7 m, or 1.36 percent of outstanding shares) as of June 30, from 10,000 shares on March 31.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 14 Aug 2008 | 4:06 PM ET

Bulls "Put One Over" On The Bears?

Posted By: Bob Pisani

It didn't start out promising: CPI stronger than expected, jobless claims stronger than expected, but the market rallied quickly as bulls argued that inflation was peaking, that the U.S. is further along this weak economic cycle than anywhere else in the world, and the dollar rally would be helpful as well.

Beaten-up financials rallied, as did consumer discretionary names like autos, housing, and retailers. We are waiting for Nordstromand Kohlsafter the bell.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 14 Aug 2008 | 1:32 PM ET

Bulls To Bears: Here's Your Wake Up Call

Posted By: Bob Pisani

Bullish traders are urging the bears to "Wake Up" today, they say to notice that:

1) Stock pullback this week has been modest, techs have been leaders

2) Bonds keep rallying

3) Oil does not rise, despite Georgian conflict

The story from the bulls:

--inflation is peaking, and that will ease P/E pressure on stocks;

--the U.S. economy is weak, but Europe is weaker;

--the U.S. is further along the economic cycle than anyone else in the world; the U.S. lowered rates before everyone, and the U.S. will eventually raise them before everyone else

--the dollar rally continues; traders are buzzing that longtime dollar bear Goldman Sachs put out a note this morning titled, "Calling a bottom in the dollar."

As a result, consumer discretionary stocks are up today, so autos, home builders and retailers are up, as are financials.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 14 Aug 2008 | 9:10 AM ET

Bulls Say Wait Till Next Month For Drop In Energy Prices

Posted By: Bob Pisani

Futures dropped as jobless claims were a bit higher than expected, and the Consumer Price Index was higher than expected on both the headline number and core (ex-food and energy). Bulls are arguing that these numbers are backward-looking and that the recent drop in energy prices will be reflected in the next month's numbers.

Industrial output from China was weak, up only 14.7 percent. That's pretty robust by western standards, but it was the slowest gains since February 2007. The Shanghai Composite Index is down every day since the Olympics began.

Eurozone GDP contracted, though the drop of 0.2 percent was in line with expectations.

Elsewhere:

1) Wal-Mart beat on the bottom line , though unfortunately did not provide much color. Sales grew 10.4 percent with international sales up 17 percent. Guidance was raised for the remainder of 2008. Once again, Wal-Mart proves its value as a low-cost retailer in a weak economic environment.

2) Estee Lauderup 6 percent pre-open, they beat on the top and bottom line. Guidance for the current quarter is below expectations, but full year fiscal guidance is about in line with expectations.

3) Briggs and Strattonmissed, and it's not surprising: "engine shipments for lawn and garden applications were significantly impacted by lower retail sales caused by depressed home sales and weak consumer confidence." Down 11 percent.

3) Finally, an article on the All Things Digital web site makes an interesting observation: Apple now has a larger market cap than Google ($158.8 b vs. $157.2 b). Appleis now the 10th largest stock in the S&P 500, bigger than Cisco and Intel.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Aug 2008 | 4:09 PM ET

No Accurate Sense Of Supply Demand Fundamentals

Posted By: Bob Pisani

The big debate midday was on commodities: energy, metals, and grains were up 2%-4%. Energy, steel, coal and metal stocks rallied. Bulls were saying the commodity trade was back on, that demand destruction was yesterday's story.

That is highly unlikely; what is more likely is that this is a one or two-day opportunistic trade. Yes, House Speaker Nancy Pelosi's comments at the close yesterday made an impact on energy traders. She said she was will to schedule a vote in the House of legislation to expand offshore drilling, if the bill addressed other energy issues. I know several traders that went long energy on her comments.

Still, don't kid yourself. Commodity stocks were at their lowest levels since February yesterday. With weakness in Europe, as well as the U.S., there is nothing fundamental to change the global slowdown story, the best you can do is get a brief rally that will attract new shorts to commodities. At most, you can say that nobody has an accurate sense of what the supply demand fundamentals are.

Elsewhere, the news flow on financials continued negative. Consider the problems with the following companies:

1) AIG: what are they going to do with all the toxic collateralized debt obligations (CDOs) they have? They also have credit default swaps that are also protecting other CDOs. Bernstein had an interesting suggestion today: write down the value of more subprime CDOs (currently at $0.64 on the dollar), sell part of the subprime portfolio at a reduced price, and raise $20 b in capital. That would go a long way toward reducing uncertainty. The big hope, of course, is that the actual losses among the portfolio they keep will not be as big as the accounting losses.

2) Lehman: had its numbers cut again by Guy Moszkowsi at Merrill Lynch (he also cut Goldman and Morgan Stanley) as "conditions have deteriorated significantly from July", in Lehman's case due to deterioration in mortgage related assets. Mike Mayo at Deutsche Bank also reduced estimates on Lehman.

Moszkowski reflected much of the frustration with financials in general when he wrote, "The tremendous volatility and unpredictability of asset prices has caused pain for both longs and shorts and, we believe, has caused many market participants to just give up for the time being..."


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Aug 2008 | 12:17 PM ET

Welcome To The Downside Of The ETF Revolution

Posted By: Bob Pisani

Sign of the times? Charles Biderman at TrimTabs tells me that Natural Resource Exchange Traded Funds (ETFs) have redeemed 5.8% of their assets ($2.1 billion) in the first 7 days of August.

What's up? The commodity selloff. Commodity ETFs like the PowerShares Deutsche Bank Commodity Fund (DBC) saw big inflows from the beginning of the year into July as everyone sought to get long energy, grain, and metals. Many professional traders use the ETFs to get long not just commodities, but the stocks underlying them as well.

Here's the problem: not only did commodities drop, but many traders long say, oil futures contracts, got repeated margin calls as oil went from $147 in July to $114 today. Some were forced to sell the ETFs they were long to cover their margin calls.

Remember how margin calls with oil contracts work: a single futures contract is 1,000 barrels. You can control a single contract for about $10,000. So if oil is $125 a barrel, you can control $125,000 worth of oil for just $10,000. Not bad.

As long as prices are stable or moving up, but if it drops just $10 a barrel, then your $10,000 investment is wiped out completely ($10 x 1,000 barrels = $10,000). Long before that, though, you will have received margin calls.

Welcome to the downside of the ETF revolution.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Aug 2008 | 10:33 AM ET

NYSE's Insider Trading Surveillance Agreement: Why Now?

Posted By: Bob Pisani

The NYSEis announcing an agreement with nine U.S. exchanges to consolidate the surveillance and investigation of insider trading.

The agreement gives the NYSE the responsibility for investigating all insider trading in NYSE and Arca-listed stocks. A separate regulatory agency, the Financial Industry Regulatory Authority or FINRA, will be charged with all investigations of insider trading at the AmEx and the NASDAQ.

Why now? In the old days most of the trading in NYSE listed stocks was done at the NYSE, so surveillance was easy. That has changed. The proliferation of electronic trading has allowed more trading in NYSE-listed stocks outside the NYSE. That has made it easier for those seeking to circumvent insider trading laws, because trading done on many different exchanges has created gaps in the ability of the exchanges to monitor insider trading.

Is more insider trading occurring? Insider trading referrals from the NYSE to the SEC have jumped this year: if current levels continue, the NYSE will refer 180 cases to the SEC, a nearly 25 percent increase from 2007. 2007 also saw a nearly 25 percent increase in referrals from the previous year.

The exchanges participating are the AmEx, CBOE, Chicago Stock Exchange, International Securities Exchange, NASDAQ, National Stock Exchange, NYSE, NYSE Arca, and the Philadelphia Stock Exchange.

We'll have an exclusive interview with Rick Ketchum, head of NYSE Regulation, Inc, on The Call.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Aug 2008 | 9:15 AM ET

Europe Facing Much Slower Growth

Posted By: Bob Pisani

Slower growth weighing on Europe. The Bank of England cut its GDP forecast and said inflation might hit 5 percent, well above the target rate.

Despite the inflation worries, the bet is still tilted toward the BoE cutting rates before they raise them. As a result, the Sterling is rapidly losing ground to the dollar. Japan's Q2 GDP contracted by 0.6 percent, though it was in line with expectations.

Retail sales were about in-line with expectations . Futures have weakened a bit in the last hour as crude has climbed a bit higher, and the dollar has come off its highs.

Elsewhere:

1) The Mortgage Bankers Association reported mortgage applications to purchase homes remained sluggish, as mortgage rates climbed to 6.57 percent, up from 6.41 percent the previous week.

Looking for that elusive bottom in housing. Toll Brothersreports preliminary Q3 revenues of $796 million vs. an estimate of $746 million. OK, that $796 m was down 34 percent from the same period last year, but it was above expectations. Signed contracts fell 27 percent, but the cancellation rate is showing some improvement (19.4 percent vs. 28.4 percent last quarter).

2) Deere was a bit light on top and bottom line , but more importantly guidance was below expectations. Material costs were higher than expected, and there was continuing North American construction and consumer weakness. Still, agricultural equipment demand remains strong. Down 8 percent pre-open.

3) Several retailers have given disappointing guidance this morning:

--Macy'sbeat if unusual items were excluded, but the guidance for the full year of $1.70-$1.85 was below their prior guidance of $1.85-$2.15.

--Liz Claiborne reported adjusted diluted EPS from continuing operations of $0.09, above expectations of break even, but again guidance for Q3 was below expectations: $0.37-42, est. $0.58 estimate. down 4 percent pre-open.

4) As reported yesterday, CVSbuying Longs Drugs for $71.50 a share in cash ($2.9 b), a 32 percent premium to the close yesterday.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Aug 2008 | 4:22 PM ET

Financials (And Housing) Remain Center Of Economy's Problem

Posted By: Bob Pisani

We were reminded today that lower commodities and a higher dollar were not going to solve all the world's problems. What happened is that financials again came to the fore and reminded everyone that:

--financials (and housing) remain the center of the economy's problem.

--their problems won't be solved by a decline in commodities.

Late in the day, Richard Bove at Ladenburg Thalman issued a report critical of the entire philosophical foundation of JP Morgan. Mr. Bove called his piece "The Original Concept is Not Working." He cited two specific problems:

1) JP Morgan buying BankOne year ago was supposed to combine a consumer finance bank with a capital markets company which was going to be contra-cyclical: if one was weak, the other would do better, and vice-versa.

It didn't work that way. Both the consumer finance bank and the capital markets company have been declining in tandem.

2) Buying Bear Stearns may have "accentuated the negative impact of the capital market downturn"

Combine this with negative comments from Deutsche Bank and Oppenheimer on Goldman, as well as a Bloomberg interview with value fund manager Michael Price where he state that he is still short Citi and Wachovia, and you have all the makings for a day when financials overwhelm the market.


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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