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Trader Talk with Bob Pisani

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  Monday, 18 Aug 2008 | 4:54 PM ET

Tricky Market: Weak Financials, Wobbly Tech & Housing

Posted By: Bob Pisani

Weakness in financials -- particularly over concern that the equity in Fannie Mae and Freddie Mac could go to zero -- was the primary driver of today's activity.

Traders in tech stocks -- the market leader -- took advantage of the market weakness to lighten up on their positions.

Finally, even energy stocks saw a late-day selloff. The Amex Oil Index closed at a new low.

The housing news from southern California is illustrative of the elusive nature of this housing crisis: a little good news, but still mostly bad.

The good news, according to AP, is that bargain hunters are out: sales hit a 16-month high.

The bad news:

1) Prices keep dropping: to a median of $348,000, down from $355,000 in June and a peak of $505,000 in July 2007 (down 30 percent from peak);

2) Foreclosures were still huge, at 43.6 percent of all sales, up from 41.8 percent in June, and 7.9 percent in July 2007. Most of these distressed sales were in newer neighborhoods.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 18 Aug 2008 | 1:37 PM ET

Why Fannie, Freddie Are Spooking Markets

Posted By: Bob Pisani

New lows in Fannie Mae and Freddie Mac are what's spooking the markets today.

Here's the problem: many believe equity holders in these stocks are in a no-win situation. Consider:

1) Over the weekend, Barrons said it was increasingly likely the U.S. Treasury might take over Fannie and Freddie; both stocks open weak.

2) Late in the morning, a spokesperson for the Treasury says it has no plans to use its authority to backstop Fannie or Freddie. Both stocks drop more, this time also bringing down the broader market -- but particularly other financials, as well as techs.
(Contd.)

_________________________________
Read about these banks in danger :

- Merrill Lynch

- Wachovia Bank

_________________________________

See what I mean? If the Treasury takes them over, it's likely one of the terms will be equity holders get wiped out; if the Treasury refuses to take them over and the situation continues to deteriorate, the equity will still go to zero.

In other words, bailout or not, equity can go to zero here.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 18 Aug 2008 | 9:30 AM ET

Dollar Down -- But Asia Weakness May Still Help

Posted By: Bob Pisani

The Shanghai Composite dropped another 5 percent today, to a new low, but they are not the only ones. Hong Kong, Singapore and Malaysia are also at new lows.

The dollar is down for the first time in 11 days.

The bottom line, though is that the dollar has been rallying on weakness in Europe and Asia, not on any obvious signs of a turnaround in the U.S. The argument from the bulls last week was that the U.S. will pull out of the global slowdown before anyone else.

Elsewhere:

1) Lowe's did what every retailer except WalMart has done: they beat for the quarter just ending, but guidance for the third quarter is below expectations.

However, full-year guidance was raised slightly, so they obviously feel the fourth quarter will not be a disappointment. Same store sale comps were only down 5.3 percent, better than most analysts expected. Lowe’s up 4 percent pre-open.

2) The Journal noting that Lehman may be in line for its second quarterly loss; the current quarter is ending in less than two weeks. The hope had been for a modest profit. Banks in Europe are generally weak this morning. Merrill noted in a note this morning, "We believe European banks are facing a period of further earnings downgrades as the economy slows."

3) UnionBanCal is selling the rest of itself to Mitsubishi UFJ Financial Group; Mitsubishi already owns only 65 percent of the company. The price is $3.5 billion, or $73.50 a share, a 12 percent premium to Friday's close. UB stock has held up well as it has avoided much of the subprime debacle.

4) Hersheys announced they raised prices after the close on Friday, in some cases 10 percent, all in an effort to offset higher costs. In January they raised prices an average of 13 percent.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 15 Aug 2008 | 4:22 PM ET

There Was A Change In The Markets This Week

Posted By: Bob Pisani

Don't let the relatively flat performance of the major indices (Dow down 0.6 percent, S&P up 0.1 percent) lull you into thinking nothing happened this week.

Remember what the Smart Money trade was up until a couple weeks ago:

--Long: oil stocks, fertilizers, iron ore

--Short: financials, retailers, small caps

--Short: dollar

What a difference a few weeks make. Once again this week the above trade is unwinding:

--Small cap Russell 2000 outperforms big cap S&P 500 (up 2.5 percent vs. up 0.1 percent, respectively)

--Oil stocks again underperform

--Retailers hold up despite poor guidance

--Financials mostly sideways

--Dollar at highs for year

On top of that, techs are outperforming on hopes for a seasonal rally and positive comments from key names like Cisco. Rightly or wrongly, there has definitely been a change.


Questions? Comments? tradertalk@cnbc.com

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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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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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