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Trader Talk with Bob Pisani

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  Monday, 22 Sep 2008 | 12:00 PM ET

The Horse-Trading Has Begun

Posted By: Bob Pisani

The Dow dropped about 70 points as Sen. Chris Dodd said Democrats wanted shares (warrants) from companies from whom they would be buying assets.

The Street is asking: if we sell you an asset at a fair market price, why would we give you warrants? Dems will argue, "Wait a minute: if it's such a fair market, why did you need us in the first place? We are facilitating this, and we want something for it."

    • Senate Democrats want pay limits, equity in bailout
    • A $1.8 Trillion Bailout: Where the Money's Going
    • Should Homeowners Be Bailed Out Too? Take Our Poll
»Read more
  Monday, 22 Sep 2008 | 11:16 AM ET

Valuing Assets The Government Is Buying

Posted By: Bob Pisani
For many assets, pricing is already being done, and this is the value of that rule last year that required mark-to-market accounting. We have recently seen marks on many portfolios of CDOs. »Read more
  Monday, 22 Sep 2008 | 9:11 AM ET

Fundamentals Will Again Matter--Soon

Posted By: Bob Pisani

Morgan Stanley popped 14 percent at about 8:30 ET on word that Mitsubishi will buy up to 20 percent of MS.

Regardless, futures are practically unchanged, with many traders noting this morning that hedge fund and mutual fund companies are continuing to see redemptions, and the profit outlook is still poor. As a result, there is debate about how strong buying interest will be here.

Remember, this craziness will eventually subside, and fundamentals will matter again. Soon.

We start the week with several regional banks at or near new highs, including PNC Financials, US Bancorp, BB&T, and Wells Fargo. With the nice pop in prices, don't be surprised if some banks issue new equity or even merge in the next few weeks.

Most financials are trading lower pre-open.

Elsewhere:

1) The addition of 30 new companies to the list banned from short selling includes one curious choice: General Motors. The reason is that you don't have to be a company that is in the financial business exclusively; you just have to have a majority ownership in a company (subsidiary) that is a bank, savings association, registered broker or deal, insurance company, or something "similar." GMAC fits the bill, apparently. Pretty loose criteria, and it seems there may be many other companies that fit this criteria. GM ip 6 percent pre-open.

Our parent company General Electric, which has also been added to the list, up 3 percent pre-open.

»Read more
  Monday, 22 Sep 2008 | 8:43 AM ET

New Companies On "Short" List Ban

Posted By: Bob Pisani

NYSE-listed companies added to the list as of Monday morning, Sept. 22, 2008:

LG GLG Partners, Inc.

GE General Electric Co.

OCN Ocwen Financial Corporation

KBW KBW, Inc.

GFG Guaranty Financial Group Inc.

MFG Mizuho Financial Group, Inc.

FMR First Mercury Financial Corporation

STC Stewart Information Services Corporation

FCF First Commonwealth Financial Corporation

MTB M&T Bank Corporation

DFS Discover Financial Services

BMO Bank of Montreal

TD Toronto Dominion Bank

CM Canadian Imperial Bank of Commerce

FMD The First Marblehead Corporation

BBV Banco Bilbao Vizcaya SA

CIB BanColombia SA

LM Legg Mason, Inc.

NFP National Financial Partners Corp.

AXP American Express Company

CIT CIT Group Inc.

GM General Motors Corporation

HIG The Hartford Financial Services Group

ADS Alliance Data Systems Corporation

ALD Allied Capital Corporation

RAS RAIT Financial Trust

DRL Doral Financial Corporation

FSR Flagstone Reinsurance Holdings

MCO Moody's Corporation

COF Capital One Financial Corporation

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 5:01 PM ET

One Historic Week: Dow Moves 1,000 Points In Two Days!

Posted By: Bob Pisani

For all that, the Dow, S&P, and NASDAQ ended unchanged! (all right, Dow was down 0.3 percent).

We saw the mother of all short coverings at the open, fueled by the government's proposed RTC-type bailout, the ban on short selling in financials, and a quadruple witching expiration.

But after the initial short covering, financials quickly came off their highs. Morgan Stanley,for example, opened near $34 but quickly moved as low as $26 in the first 40 minutes, before trading in the relatively narrow range of $26 to $30, closing at $27.21.

Most other financials also came off their highs at the open and then traded in a fairly narrow range. Result: another day of near-record volume, 9.3 billion shares traded in NYSE listed securities.

In general, traders have been in favor of some kind of "brake" on short selling (bring back the uptick rule, etc.) but they are NOT generally in favor of banning short selling.

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New from CNBC.com:

- The Dow 30 at a Glance

_____________________________


Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 3:18 PM ET

Why Bankers Group Hates Money Market Insurance Plan

Posted By: Bob Pisani

The American Bankers Assocation has objected to the plan to guarantee money market funds on the grounds that it will REDUCE deposits in the nation's banks.

Huh? I just got off the phone with them, here's their reasoning:

1) investment bank money market funds pay higher yields because they are not insured, but now they ARE getting insured;

2) banks have been paying premiums into the FDIC for years -- THEIR money market funds ARE insured and always have been, but their yields are a little lower;

3) investors in bank money market funds may start switching to investment bank money market funds because: a) the yields are higher, and b) there appears to be no limit to the amount of insurance you get.

The ABA thinks this is a threat to their deposit base.

Just one more little effect. Is it worth abandoning the insurance program for this? No, but some oxes are getting gored a little here.

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CNBC's Names in the News:

- Morgan Stanley

- General Electric

- Wachovia Bank

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Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 1:11 PM ET

Volume: We Should Pass All-Time Record Of NYSE-Listed Stocks

Posted By: Bob Pisani

What a stew!

Throw into the pot a:

1) ban on short sales in financials, with

2) an announcement of an RTC-type organization to buy the bad debt;

3) sprinkle in a quadruple-witching expiration, and you have a stew of volume and volatility like no one has ever seen.

Record volume: just under 1 billion shares were traded on the NYSE floor in the first half hour of trading today. The previous record was about 808 million shares in the first half hour.

We will almost certainly pass the all-time record volume of 10.2 billion shares of NYSE-listed stocks changing hands, a record which we hit...yesterday!

Specialists saw volume 5 to 20 times normal at the open, depending on the stock. One last stat and I'll go: the Dow moved 1,025 points from its low yesterday to it's high this morning.

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New from CNBC.com:

- The Dow 30 at a Glance

_____________________________


Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 11:30 AM ET

The Knock-On Effects Of Banning Short Selling

Posted By: Bob Pisani

Here is one small example: two well-known ETFs, the ProShares UltraShort Financials (SKF) and ProShares Short Financials SEF) have been halted. The company will be issuing a statement shortly, but here, I believe, is the problem:

1) these funds do not actually short stocks. They use swaps. Money goes in, they arrange a swap with a counterparty to pay returns to them that are the inverse of the index.

2) With restrictions on the short side, firms either cannot provide the swaps or the price of providing them have increased dramatically (dealers who sell the swaps hedge by shorting).

3) there may be fewer counterparties available (I understand there were four).

There will be other effects from this ban. Stay tuned.

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New from CNBC.com:

- The Dow 30 at a Glance

_____________________________


Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 9:09 AM ET

It's Going To Be One Wild Open

Posted By: Bob Pisani

Remember, it's a quadruple witching expiration (expiration of stock and stock index options, and stock and stock index futures).

The S&P 500 options stopped trading at the CLOSE last night, however the settle price is at the OPEN this morning.

And there is going to be a big gap open.

The effect: traders who are LONG CALLS are ecstatic; market makers and others who sold them the calls are getting run over.

Elsewhere:

1) Important: SEC suspends buyback restrictions!

A little-notice provision in the short-sale announcement by the SEC is a clause that is suspending restrictions that prevent companies from buying back their stock around the open and close, and removing volume restrictions.

This allows companies much more flexibility in buying back their stock. This is significant: there will be additional buyers at the open and close.

This was done before, after the 1987 crash.

2) Financials pre-open: Morgan Stanleyup 50 percent, Wachovia up 44 percent, Goldman Sachsup 30 percent, Merrillup 27 percent, Citigroup up 24 percent.

Regional banks: Sovereign up 23 percent, KeyCorpup 21 percent, Wells Fargoup 18 percent.

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New from CNBC.com:

- The Dow 30 at a Glance

_____________________________


Questions? Comments? tradertalk@cnbc.com

»Read more
  Friday, 19 Sep 2008 | 8:50 AM ET

What's Next, Banning Long Buying?

Posted By: Bob Pisani

We have banned SHORT SELLING in financial stocks! And if that doesn't work, traders say, SEC Chairman Cox will next week announce that they are banning LONG BUYING as well.

Here's the sweet part: it's a quadruple witching expiration!!

Options desks are frantic, because everyone has to cover their short calls in financials.

Remember how it works: when a trader buys a put, it means a seller (a dealer) sells him the put. The dealer is now LONG the stock (selling a put means you are long the stock at the strike price). To protect themselves, the dealer SHORTS the stock.

What's the effect of this ban? Market makers can't short directly? There appears to be no exemption for market makers. I find that hard to believe.

The bottom line: higher prices for puts (if anyone will sell it to you!), and a lot more volatility.

And here's a post from 8 pm last night:

S&P futures, which have already moved up 15 points in after hours trading, moved up an additional 5 points or so after 7:30 pm ET, when word broke that the SEC intends to implement a temporary ban on short-selling, and that the Feds are considering an FDIC-type plan for money market funds.

Aside from that news, there was considerable debate at the close among traders about how the Congress was going to pull off an RTC-style rescue, or any rescue, when they are planning to wrap up their work in a week or so and hit the campaign trail?

We got the answer this evening: House Speaker Nancy Pelosi said they are willing to go beyond the September 26th adjournment date to consider legislation.

Which is what they needed to say, but as usual, politics creeps in here: some traders think the Republicans would be glad to tie up the Democrats in Washington, since they are fearful the Dems are itching to get on the campaign trail to beat up the Republicans on the economy.

Seems to me like the Dems, who control the Congress, are not exactly standing tall themselves.

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

HSBC

Washington Mutual

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Questions? Comments? tradertalk@cnbc.com

»Read more

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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