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Trader Talk with Bob Pisani

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  Wednesday, 16 Jul 2008 | 11:19 AM ET

Energy, Material Stocks Appear To Have Topped Out

Posted By: Bob Pisani

The build in oil inventories is providing a rare, two-day drop in oil and a modest boost to stocks midday. Oil is down nearly 10 percent in the past two days.

On the decline in oil, airlines are rallying, and energy stocks are dropping notably for the second day in a row.

ENERGY STOCKS HAVE TOPPED OUT. As a sector, it is now safe to say that energy has topped out. Since hitting its historic high on May 21, the S&P Energy Sector is down 16 percent.

MATERIALS HAVE TOPPED OUT AS WELL. Material stocks are also looking toppy; since hitting its historic high on May 19th, the S&P Materials Sector is also down 16.6 percent.

BEATEN UP SECTORS LOOKING MORE ATTRACTIVE. At the same time, some beaten up sectors are starting to get attention. There is a lot of chatter about financials again today. Much was made of the fact that the Financial Select SPDR (the main basket of financial stocks) had its highest volume day in its history yesterday (started in 1999). Bulls obviously hoping this is some kind of bottom, but that's not at all clear. Volume is again very strong in the XLF and may again be a record.

It's not just financial stocks. Drug stocks, which endured a bear market of their own this year, have come off the bottom in the last month; on a strong earnings report, Johnson & Johnson is at a new high today. Other stocks like Schering-Plough are also strong in this sector.

Still waiting for some signs of life in retailers, autos, builders, and most industrials.

Finally, are mutual fund investors finally starting to panic, and if so what does that mean? According to Charles Biderman, who tracks fund flows at TrimTabs, they are. He says U.S. equity funds are seeing daily outflows of $1.5 billion in July. Is that a lot? Yes. There were outflows of $1.7 billion in the entire month of January. In the first nine trading days of July, there have been outflows of $13.4 billion. Mutual fund panic is often noted at market bottoms.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 16 Jul 2008 | 9:06 AM ET

Inflation, Stock Prices Worry Market

Posted By: Bob Pisani

Which is the Street more worried about--declining stock prices, particularly for financials, or inflation? It's both, and this morning's action illustrates that concern.

It's been a roller coaster of a morning, up on Wells Fargo, down on consumer inflation higher than expected.

Futures rose at 8 am ET as Wells Fargo announced earnings better than expected , and they raised the dividend 10 percent. They noted that their Net Interest Margin (the difference between the interest on assets and the interest paid on liabilities like deposits) increase, offsetting higher charge-offs. Up 13 percent pre-open.

Then the CPI report comes in hotter than expected , and we give up much of our gains.

Still, financial stock prices are a big worry. How bad is it? Consider that, according to one trader I spoke with, Lehman has raised $12.1 billion in capital in the past 3 months, but now has a market cap of only $9.18 b.

Dollar weak again today. Freddie Macand Fannie Mae both up about 8 percent pre-open.

Elsewhere:
1) Another large merger: iron ore producer Cleveland Cliffs is buying coal producer Alpha Natural Resources for $10 b in cash and stock. It amounts to about $128 a share, about a 35 percent premium to Alpha’s closing price of $94.92. The combined company will be called Cliffs Natural Resources, and will be one of the largest U.S. mining companies.

This is the THIRD fairly large deal done at a substantial premium in the last week after Dow Chemical-Rohm and Haas and Ashland-Hercules.

2) Mortgage applications rose for a third consecutive week , with a 30-year fixed rate mortgage at 6.22 percent.

3) Abbott Labs($0.84) was 6 cents ahead of expectations , and is also raising its full year guidance.

4) As noted yesterday, healthcare now has a higher market cap than financials in the S&P 500, for the first time since 1992.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 4:14 PM ET

The Good And Bad From Today

Posted By: Bob Pisani

The good news is that oil finally cracked, which created a notable morning rally just about the time the market was heading south in a serious way.

Here's the bad news:

1) Financials, which showed a little bit of life early in the morning, sold off into the close, with both Fannie and Freddiedown about 25 percent;

2) Internals were poor: there were more than two stocks declining for every one advancing, and the nearly 600 new lows at the NYSE was the highest level since January. In other words, the rally wasn't so great, particularly into the close;

3) This did not feel like the bottom of the market. Rightly or wrongly, traders are dying to buy the market, but they are looking for some apocalyptic sign, some remarkable down day (500-600 points on the Dow) with massive volume, which has not come.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 2:17 PM ET

Cox Confuses Traders On Naked Short Selling Of Fannie, Freddie

Posted By: Bob Pisani

SEC chief Chris Cox made a statement that is puzzling traders today.In verbal comments to the Senate, Mr. Cox said that he will institute an emergency order that will prohibit naked short selling in Fannie Mae and Freddie Mac.

Naked short selling is shorting a stock without actually borrowing it.

There are two reasons this statement is puzzling:

1) the rules are already in place regarding naked short selling; and

2) there is no evidence that naked short selling is widely practiced regarding Fannie and Freddie.

First, the government appears to be trying to enforce rules that are already in place. In general, it is a violation of federal securities law to short a stock without first borrowing it. There are some exceptions to this, for example in the case of broker dealers, but in general you cannot short a stock without first borrowing it.

While this may have been lightly enforced, it is strongly enforced by prime brokers.

With that said, how big a problem is it with naked shorts in Fannieand Freddie? These are among the most liquid stocks in the country; it is not difficult to borrow the stock to short it, fully covered.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 12:31 PM ET

What Brought The Market Off Its Lows

Posted By: Bob Pisani

Markets have come well off their lows on two developments: 1) a rally in financials, which have brought stocks like Citigroup from positive to negative territory, and 2) a notable move down in oil, which has brought down energy stocks but rallied the overall market. GM, for example, has moved from a low of $8.81 to nearly $10, and up 6 percent.

The two most significant financial stocks of the moment--Fannie Maeand Freddie Mac, both remaining down but are also well off their lows.

Still, this is still a weak day, with three stocks declining for each advancing.

Among many issues, Mr. Bernanke addressed the widely held belief that speculators are somehow to blame for the recent runup in commodity prices. While acknowledging that investor interest in commodities has increased, he noted that if speculators really were pushing prices up beyond which supply and demand would dictate, inventories of oil should be increasing, but we are seeing the opposite: inventory levels are down. He also noted that many commodities, like iron ore, that are not traded on futures markets, have had very large increases in prices, so the evidence for manipulation is "very weak."


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 11:31 AM ET

Bernanke's Important Points On Solving Problems

Posted By: Bob Pisani

We are seeing a modest rally, led by financials. Lehman, for example, has gone from $12 at its bottom shortly after 10 am ET to just about $14, up 11 percent, though most other financials remain in negative territory. Fannieand Freddie remain down over 20 percent, but off the lows of the day.

The recent weakness in oil is causing energy stocks to drop; GM however has rallied as oil has declined.

Mr. Bernanke is making important points on how to find a way out of the current problems. He made it clear that stabilizaiton of new home construction in late 2008 or 2009 is the critical issue, though he made it clear that house prices may continue to fall because of the large inventory of unsold homes. He also made it clear that strengthening the GSEs is of vital importance.

When questioned on the global economy, Mr. Bernanke said he expects "some moderation, but still healthy growth." This might weaken the contribution of exports, but it might also reduce commodity prices, which would be a positive.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 10:16 AM ET

Bernanke Speak Sending Stocks Lower

Posted By: Bob Pisani

Mr. Bernanke's somewhat downbeat commentary on the economy is sending stocks to their lows for the day. In particular, the most vulnerable group--financials, are again under attack. Fannie Mae and Freddie Mac both down more than 20 percent, but other large financials like Citigroup and AIG are down 9 and 11 percent, respectively.

Large industrials like Cummins, Honeywell, and CSX are also weak.

The NASDAQ has also hit a new two year low.

If this continues, we are heading toward a 90 percent downside day, where 90 percent of the volume is on the downside, one of several that have occurred in the past few months.

As a result of the battering in financials, healthcare stocks this morning have passed financial stocks in terms of their weighting in the S&P 500. Here's the weighting of the four largest sectors:

Techs 16.6%
Energy 15.9%
Healthcare 12.9%
Financials 12.8%


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 15 Jul 2008 | 9:10 AM ET

Bernanke Has Tough Job Today

Posted By: Bob Pisani

Humphrey-Hawkins testimony will be the key story today. Mr. Bernanke's job is to walk the fine line between acknowledging--and defending--the Fed's expanding role in the regulation of investment banking, and not appearing to be coddling excessive risk-takers.

The dollar is at a new low against the euro this morning, even though the German confidence index fell to the lowest level since the survey began in 1991. Oil and gold have both advanced this morning, gold stocks up 2-4 percent.

Producer Price Index hotter than expected, though core (ex-food and energy) was lighter than expected; retail sales were disappointing.

GM suspending dividend, cutting salaried employment costs 20 percent, and will sell up to $4 billion in assets. No surprise on suspending the dividend of $1 per share. Laying off some white collar workers, and suspending bonuses.

US Bancorpreported earnings that includes increased provisions for credit losses and securities losses. CEO Richard Davis said the additional net charge-offs and credit losses was "prudent." Down 7 percent pre-open.

Kimberly Clark is pre-announcing earnings below expectations, due largely to a "significant" increase in cost inflation; they are assuming that raw material and energy costs will remain at elevated levels and will continue to pressure their margins.

JNJbeat estimates ($1.18 vs. $1.12 consensus estimate), and raised guidance by a nickel: to $4.45-$4.50, from $4.40-$4.45. Consumer produce sales up 13 percent, medical device sales up 12 percent, pharmaceuticals up 3 percent. International sales up 17 percent, beat domestic sales up 8.5 percent.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 14 Jul 2008 | 4:09 PM ET

Financial Worries Now Include Credit Cards, Auto Loans

Posted By: Bob Pisani

We will start earnings in earnest tomorrow as banks like US Bancorp report, along with Inteland Johnson & Johnson. Banks are oversold and cheap by historical standards, and while a few that report decent numbers will definitely bounce, it is unlikely to eliminate worries over more capital raising.

There's additional worries, as now many are concerned with deterioration in other parts of the banks' portfolios, like credit cards, auto loans and commercial real estate.

The reason these banks are continuing to see selling is that the Street is now taking down estimates for the second half of the year AND 2009.

The failure of IndyMac, as well as the continued willingness to sell into any rally in financials, put pressure on regional banks, many of which were down double digits today.

President Bush's lifting of the Executive Order banning offshore drilling, as well as the usual trend toward staying long energy stocks, lifted E&P and oil exploration stocks today.

The stocks moving today are the ones that make sense: National Oilwell(makes components for oil rigs) and U.S. drillers like Transocean, Diamond Offshore, and Noble. Large oil service companies like Schlumbergerare also strong.

Here's two problems:

1) Fadel Gheit at Oppenheimer, as well as others, have pointed out that the cycle time for any discoveries is at least 3-5 years. In other words, in the best case scenario we will not see oil for at least 3 years.

2) Most stocks already trading at high multiples; for example E&P companies like EOG are trading at 12.8 times forward earnings; Chesapeake at 16 times forward earnings.

A company like Exxon? Only 8 times forward earnings, in fact Exxon is down 10 percent this year, while the E&P and oil service stocks are killing. Why? Because energy stock traders only go to Exxon when oil drops, as a safe investment.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 14 Jul 2008 | 1:42 PM ET

Weird Day When My Mother Asks About Tattoo Removals

Posted By: Bob Pisani

Three signs that things are a little weird with the stock market:

1) National Cityhalts trading in its stock midday to announce that...nothing is happening. Really. They are not seeing any unusual depositor activity. That was it.

2) Wachovia Banknow has a market cap of $21.4 billion. That is well below the $25 billion price they paid for Golden West in 2006. And remember, they also paid $6.8 billion for AG Edwards, in 2007. So Wachovia has paid nearly $32 billion in the last two years for two big purchases, and the combined company is now worth $21.4 billion.

3) My mother writes the following note to me:

"Dear Robert,
Just received my quarterly statement, and was that sad... Found the name of a stock I was interested in called Palomar Chemicals, supposed to help removed tattoos.
Love, Mom"


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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