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Trader Talk with Bob Pisani

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  Monday, 20 Oct 2008 | 3:52 PM ET

Does France's Sarkozy Seek 'State Capitalism'?

Posted By: Bob Pisani

Is a second Bretton Woods coming? Mr. Sarkozy, the French president, met with President Bush over the weekend. They agreed to a series of summit meetings in the next few months to discuss common strategy for the global economy, but don't kid yourself: behind that innocuous goal, Mr. Sarkozy is clearly pushing for a change in the way capitalism is practiced.

"Those who led us to where we are today should not be allowed to so once again," Mr. Sarkozy told Mr. Bush. "This sort of capitalism is a betrayal of the sort of capitalism we believe in," he also said.

What kind of capitalism does he believe in? A highly regulated state capitalism — and now he will be pushing for new international bodies to regulate financial institutions.

This is likely to take two forms:

1) a new global fund that will invest directly in financial institutions in exchange for preferred stock; and

2) a global, likely Brussels-based regulator for all international banks, including U.S.-based.

Proponents say that ad hoc national solutions have not worked, that in an era of globalism we need global regulation.

Opponents say that national regulators were not effective, why would global ones be? Why not strengthen existing national regulation, in coordination with other nations?

But the most important point is that we are now going in the other direction: having erred on the part of diffuse or too little regulation, we are now getting to the other extreme.

Mr. Bush agreed to a series of summits, which will apparently start in November. No word on what the exact dates are, but they are likely to involve most developed and many developing countries.

For those of you with bad memories: Bretton Woods was the 1944 meeting held in Bretton Woods, New Hampshire, that established the economic face of the post-World War II world. It set up the General Agreement on Tariffs and Trade (GATT) (later replaced by the World Trade Organization) and the International Monetary Fund, as well as the International Bank for Reconstruction and Development (IBRD).

Out of these agreements came, among many thing, convertible currencies and the espousal of open markets, specifically lowering barriers to trade and the movement of capital.

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CNBC's Names in the News:

- Apple - Mac Sales Leap in Sept.

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  Monday, 20 Oct 2008 | 1:03 PM ET

Dow Weakness: Are Bernanke or Paulson to Blame?

Posted By: Bob Pisani

The Dow has swung in a 250-point range this morning, but it barely feels like it. We did see the usual short, sharp rally which took the Dow up 200 points — followed by another short, sharp decline that took it back down 200 points. Get the message? It's very difficult to sustain a rally.

Don't blame it on anything Ben Bernanke or Hank Paulson said. Both emphasized that the purpose of all these plans is to shore up capital in the banking system and, as Mr. Paulson said, "to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital."

Meanwhile, the White House says it is open to the idea of a second stimulus package, but it depends on the details proposed by Congress.

For the record, the mid-morning selloff was led by techs and financials like IBM , JPMorgan Chase , and Microsoft .

Energy stocks are having a great day, as Oppenheimer upgraded all the big oil and gas names this morning with a bullish piece entitled, "Now Is The Time to Buy Oil and Gas Stocks."

Expect more attempts to call bottoms, as long as the credit markets continue to show signs of improving.

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- The Dow 30 Today

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  Monday, 20 Oct 2008 | 9:38 AM ET

Oppenheimer Likes Oil, Gas; Europe Backs Its Banks

Posted By: Bob Pisani

Recapitalization of European banks is continuing: ING took a 10 billion euro ($13.5 billion) cash influsion from the Netherlands and is up 10 percent in the U.S. pre-open. French banking giant Societe Generale was down in early trading on concerns it may be too thinly capitalized. Sweden outlined a $205 billion plan to support its banks.

Secretary of the Treasury Paulson will speak at 11:30am ET, giving details of the application process for the capital purchase program.

Elsewhere:

1) We are seeing some signs of bottom-picking emerging: Oppenheimer is upgrading all the big oil and gas names this morning, with a bullish piece entitled, "Now Is The Time to Buy Oil and Gas Stocks." They upgrade Anadarko , Apache , Cabot , Exxon , XTO , Sunoco , and others. Oppenheimer believes the upside potential of the shares in the next 12 months could significantly exceed the downside risk from a further decline in oil and gas prices.

At the same time that Oppenheimer is encouraging traders to buy commodities, Deutsche Bank, Credit Suisse and UBS are lowering their targets on various commodities. Deutsche Bank, for example, cut its crude oil price outlook for 2009 from $92.50 to $60, and said it could go as low as $50.

2) Speaking of commodities: oil services giant Halliburton beat estimates by a small amount ($0.76 vs. $0.74), but like its competitors, the stock is sitting near 52-week lows on concerns that capital spending will slow significantly in 2009. CEO Dave Lesar acknowledged this in his reporting, noting that the announced reduction in some customers' capital spending will result in a decline in rig counts below those previously anticipated.

3) Diversified manufacturer Eaton also beat by a small margin ($1.95 vs. $1.88), but more importantly, they lowered fourth quarter earnings estimates to $1.55-$1.65, vs. estimates of $1.91. Eaton is a global player in manufacturing; they noted that while the North American markets were weak all quarter, Europe, Brazil and China weakened "dramatically" toward the end of the quarter.

4) Goldman downgrades insurers MetLife and Prudential (Pru to a "sell"), saying that a number of companies could face significant unrealized losses or impairments on various mortgage related assets.

5) Circuit City is considering closing 150 stores, according to The Wall Street Journal. They are in the middle of developing a turnaround plan but financing is proving difficult.


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  Friday, 17 Oct 2008 | 3:43 PM ET

Traders See Year Ending Around 10,000

Posted By: Bob Pisani

It is not surprising that today's rally has been met with selling: that has been the pattern for the past week and a half.

Few traders think we will be off to the races any time soon. In a poll of several dozen buy-side traders this week, most felt that we would end the year somewhere near 10,000, but no one was more optimistic than that, and a few were considerably more pessimistic.

However, if Libor continues to come down, and the commercial paper market continues to unfreeze, the odds become longer that the market will be able to hold modest gains.

If this happens, then by the middle of next week we can expect that shell-shocked fund managers and analysts will begin the process of distinguishing between those stocks and industries where dramatic selloffs may have been warranted and those where there are real values.

The theory being floated around is that some sectors are discounting dire circumstances that may not materialize, even if a notable recession is factored in.

For example: commercial real estate investment trusts have been clobbered under two theories: 1) companies have significant short term debt that they will have trouble rolling over in 2009, and 2) commercial real estate will slow down significantly, and rents will be dropping.

There is certainly something to 2), but the assumptions around 1) may be wrong if the commercial paper market starts going back to something near normal.

Corporate paper rates may be higher, but it may not be impossible to roll over debt. If that is the case, we are talking about a hit to margin, not a catastrophic event.

With big names like Brookfield down 50 percent this year, it is possible this group may show some improvement when the CP market improves.

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- The Dow 30 at a Glance

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  Friday, 17 Oct 2008 | 12:17 PM ET

Downturn In Oil Demand--Just How Much Worries Investors

Posted By: Bob Pisani

Sell on the news. Oil services giant Schlumberger, which reported earnings in line with expectations, down 10 percent this morning to a 3-year low, taking the whole oil services industry down.

What's the problem? 2009. We are at peak earnings now. The concern is that the global recession will dramatically reduce demand for oil services. Indeed, with some firms talking about $35-$50 oil next year, it's little wonder that investors are bracing for a downturn in demand.

Demand will turn down, but how much? Over 70 percent of their revenue is international. Analysts have noted that much of that is tied to offshore rig contracts that are unlikely to be terminated.

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Other parts are more problematic, however. Schlumbergerhas a unit that provides seismic services (Western Geco). They make a lot of money: while they are only perhaps 15 percent of revenue, they have margins of 35-40 percent.

These Western Geco guys are the advance guard of the oil services business: they're hired to prospect for oil. And it's this end of the business that could see the biggest turndown.

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New from CNBC.com:

- The Dow 30 at a Glance


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  Friday, 17 Oct 2008 | 9:15 AM ET

Why Traders Are Calmer--So Far

Posted By: Bob Pisani

Although futures are down (we routinely move in 50 point ranges in the morning), there is a calmer, more even tone to trader talk this morning:

1) Libor rates, both overnight and the three-month rates, are declining.

2) oil is declining

3) corporate and municipal bond issuance seems to beginning to unfreeze:

--Calif. raises $5 billion.

--PG&E doubled the size of its planned bond sale, from $300 million to $600 million.

--Occidental Petroleum increases size of its bond offering from $750 m to $1 b, and priced at Treasury plus 437.5 basis points.

And while housing starts and building permits were well below expectations (we are at the lowest levels since 1991), that is good news--we want construction down and we want sales up. Unfortunately, with a few exceptions, we have not seen a notable uptick in sales.

Option expiration today, the key number is the first print of the S&P 500, because that is the settlement price.

Elsewhere, earnings are light, but three major companies reported earnings in line or above expectations. This follows the trend from yesterday, when several big financial firms also reported earnings roughly in line with expectations. Boring is good.

1) Oil services giant Schlumberger came in in line with expectations. Still, we are at peak earnings for this group; in their report they said "we expect a slowing in the rate of increase of customer spending." This is wishful thinking: there is great concern that capital expenditures in the energy sector will be DECREASING compared to 2008, and that is why the oil services sector has underperformed both the S&P 500 and the Amex Oil Index.

2) Honeywellreported earnings slightly above expectations ($0.97 vs. $0.95 expected), full year guidance was narrowed slightly, from $3.76-$3.80, versus prior estimates of $3.75-$3.85, and consensus of $3.81

3) AMD also reported earnings better than expected, in fact much better than expected, on strength in graphics chips. Shares up 10 percent pre-open.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Thursday, 16 Oct 2008 | 4:09 PM ET

Welcome To The New Normal?

Posted By: Bob Pisani

The Dow again swung in a roughly 775 point range (about 9 percent), and yet the markets felt....stable.

But it's not stable, and it's not normal. Commodities got clocked again: oil at a new low, palladium down 10 percent, aliminium down 9, copper down 4.

Most importantly, gold was down 4 percent as hedge funds continued to liquidate even the "flight to safety" play of precious metals. This is a sign that sellers are still out...selling.

Financials again significantly underperformed the rest of the market.

Elsewhere:

There are some signs the municipal and corporate bond market might be getting easier:

--Calif. raises $5 billion

--PG&E doubled the size of its planned bond sale, from $300 m to $600 m

--Occidental Petroleumincreases size of its bond offering from $750 m to $1 b, and priced them today at Treasury plus 437.5 basis points.

1) Economic news. The economic news remains poor: industrial production was down 2.8 percent, the largest drop since 1974.

Combine this with yesterday's stats: 1) record low Empire Manufacturing Index, 2) 3-year low in retail sales, and what you have is a clear indication that the economy slowed notably in September.

2) Bank earnings today: poor, but not far from expectations. Citi,Merrill Lynch, PNC, and BB&T turned in numbers that, while far below a year ago, at least did not surprise dramatically on the downside.

I'm not trying to gild the lilly here. Citi, for example, lost money in credit cards, consumer banking, and investment banking. Credit costs and delinquencies rose, and writedowns continued. But it wasn't worse than the lowered estimates.

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New from CNBC.com:

- The Dow 30 at a Glance

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  Thursday, 16 Oct 2008 | 3:55 PM ET

Why Insurance Stocks Are Under Pressure

Posted By: Bob Pisani

I have been asked repeatedly why insurance stocks are again under pressure today and are underperforming even the other financials. In general, traders and analysts agree that:

1) these insurers have very little short-term debt;

2) do not use much financial leverage;

3) they receive new dollars every day that need to be invested.

So, what's up then? Concerns are very vague, but there are three that pop up:

1) pressure to raise capital (MetLife and Pru have already announced)

2) credit deterioration risks

3) equity market guarantees. These firms sell variable annuities which have equity market guarantees embedded in them. With the S&P 500 down almost 40 percent this year, there are concerns some of the firms will have to pay to cover shortfalls in the guarantees

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New from CNBC.com:

- The Dow 30 at a Glance


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  Thursday, 16 Oct 2008 | 9:17 AM ET

The Good News On Inflation

Posted By: Bob Pisani

At least there was some good economic news today:both CPI and core CPI were below expectations , so inflation concerns are indeed receding.

Futures rallied nearly 15 points on the news. S&P futures have swung in a 50-point range this morning.

Switzerland is taking a nearly 10 percent stake in UBS (6 billion francs); Credit Suisse said it would raise 10 billion francs from several investors, including Qatar.

Credit Suisse up 13 percent pre-open; UBS up 11 percent.

Remember, this is an options expiration week and it is definitely adding to the volatility.

Elsewhere:

1) financial company earnings are basically in line with expectations.

--Citireported a loss of $0.60, beating estimates by $0.10.

--Merrill Lynch reports a loss of $5.56, pretty awful but now far from the expectations of a loss of $5.22

The shareholder vole on the the Bank of America deal will come in mid- to late November, CEO John Thain said.

--PNC Bank, the largest bank in Pennsylvania, reported earnings below expectations, as revenues declined and bad loans increased.

--BB&T, one of the largest banks in the Southeast, reported earnings of $0.65, in line with expectations. They went out of their way to note that their risk-based capital ratios are "significantly" higher than an average of its peers.

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--Bank of New York Mellonreported earnings above expectations

2) Other earnings reports were basically in line as well:

--United Technologies was in line with expectations; they raised the low end of guidance for the full year but are still in line with expectations.

--Illinois Tool Worksreported earnings of $0.85, 2 cents shy of expectations; fourth quarter guidance was in line with expectations.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 15 Oct 2008 | 4:04 PM ET

No Let Up In Volatility

Posted By: Bob Pisani

The volatility continues. The Dow swung in a greater than 700 point range again today. The story is simple: most traders believe we will be in a trading range for the next several months and will test the intraday lows we saw on Friday. The bad news:

1) continuing, vague concerns that government efforts will not be effective

2) we saw this concern play out in the t-bill market, where huge T-bill auctions came off at lower yields. We are practically paying the government to lend them money

3) weaker economic data in the form of retail sales

4) which was born out by the Fed's Beige book: "economic activity weakened in September across all twelve Federal Reserve Districts."

There was some good news:

1) LIBOR rates lower

2) and the belief that a tidal wave of liquidity is coming

Once again, the commodity complex sold off the most: energy stocks down 15 percent, commodity stocks down 12 percent./ Defensive names like consumer staples and healthcare were down 5 percent. New low in the Dow Transports.

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New from CNBC.com:

- The Dow 30 at a Glance

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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.

 

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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