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Trader Talk with Bob Pisani

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  Friday, 29 Aug 2008 | 2:24 PM ET

Dell/Tech Stocks, Gustav Nerves Weigh on Market

Posted By: Bob Pisani

CNBC producer Robert Hum is filling in for Bob Pisani Friday.

Markets have headed lower late in the morning and into the afternoon, primarily on the Dell and Gustav news.

Tech stocks have been struggling all day and lead the decline following Dell’s disappointing earnings report after the close yesterday.

While sales came in above expectations, the company’s margins were pressured by substantial price cuts, causing total profit to fall 17% from Q2 last year. Dell’s stock is paying the price, declining 13% today -- its worst 1-day percentage decline in nearly 8 years.

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Crude oil prices and natural gas futures were higher this morning, but the markets have not had any help from energy stocks. Rising shortly after the open, energy stocks have fallen from their highs, as energy companies continue to prepare for tropical storm Gustav.

Sen. John McCain’s choice of Alaska Governor Sarah Palin as a running mate came as a surprise to many. Despite the morning weakness today, traders don’t attribute the triple-digit decline to the announcement.

While markets typically don’t like surprises, many noted that with the light trading volume today (and during the entire week for that matter), it’s difficult to immediately draw any conclusions on Wall Street’s reaction to the news. They advise to let the dust settle over the weekend and see what happens when most people return to work next week following the holiday weekend.

Keep in mind it’s also the last day of the month today. For the month: Dow up 1.9%, S&P up 1.7%, Nasdaq up 2.0%.

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CNBC's Names in the News:

Wachovia Bank

General Motors

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Questions? Comments? tradertalk@cnbc.com

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  Friday, 29 Aug 2008 | 9:50 AM ET

Energy Climbs on Gustav Fears; Japan's $18B Stimulus Plan

Posted By: Bob Pisani

CNBC Producer Robert Hum is filling in for Bob Pisani today.

Despite a lukewarm start Friday, stocks look to extend a 3-day winning streak today -- despite the Dow’s 240 point decline on Monday, the Dow is still up 0.75% (up 87 points) for the week.

Crude oil and natural gas futures are also up about 1.5% as Tropical Storm Gustav will likely be upgraded to a hurricane later today.

Overseas, India reported slower economic growth in Q2, but that was widely expected. Its growth of 7.9% was down from 9.2% in Q2 2007 and is now at its slowest pace since 2004.

Amid a stagnant economy and rising inflation, Japan’s government announced an $18 billion stimulus plan. With no announced tax breaks, however, this plan failed to impress many economists. The plan included proposals that ranged from expressway toll discounts to assistance to farmers and to part-time workers seeking jobs.

Elsewhere:

Fannie Mae and Freddie Mac each climbed about 6% pre-open. This extends the momentum they have had during their 4-day winning streak. On the week, Freddie is up 88% and Fannie is up 59%.

Deal or no deal? Hedge funds and Huntsman family members propose to provide at least $500 million to help finance Hexion’s stalled $6.5 billion bid of Huntsman.

However, Hexion, the affiliate of the Apollo Management private equity group, still maintains that the proposal would still fail to improve the solvency of a combined company. It has been a contentious past few months for the two companies after Hexion dropped its July 2007 bid a few months ago, and a Huntsman lawsuit against Hexion ensued.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 28 Aug 2008 | 4:45 PM ET

Confusion: Market Rally vs. Dell Disappointment

Posted By: Bob Pisani

The markets have staged an impressive two-day rally on:

--stronger GDP and durable goods
--lower oil, natural gas
--stronger financials

Still, the disappointing showing from Dell (down 10 percent after the close on a disappointing earnings report, noting that IT spending in the U.S. is conservative, and that conservatism is spreading to Europe) is a reminder that the global economic slowdown is not going away.

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If you are not confused, you're not paying attention. Traders are bitterly complaining that volumes on both equity and options exchanges are at pathetically low levels, levels that some haven't seen in years. This is more than seasonally slow trading, this is because the data is confusing.

Consider:

1) Two weeks ago, the economic news was grim and we were anticipating continuing poor data into 2009. Now durable goods and GDP have come in stronger than expected, and some are hopeful that next week's retail sales will provide better commentary on back to school than many have expected.

2) Two weeks ago, Fannie Mae and Freddie Mac equity was worthless, and the Feds were likely to bail out the company.

Today there's considerably less anxiety and many are now hopeful that if the two entities can successfully refloat a large amount of paper that is due in the next month, a final decision on federal involvement could be put off until after the election.

The hope for the bulls is that September (worst trading month of the year, and infamous for crushing rallies) will prove to be a turning point:

--that retail sales will actually surprise a bit on the upside, confirming the stronger numbers from GDP and durable goods, and most importantly

--fourth quarter EPS estimates, which have slowly been coming down, will stop their decline.

Bears say this is laughable, that this is the classic bull trap that has sucked traders in all year. The real estate market is about to take a leg down on higher rates, and the credit crises will deepen as delinquencies on credit cards, auto loans, and commercial real estate rapidly increase.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 28 Aug 2008 | 9:23 AM ET

Recession Talk Over on GDP Growth

Posted By: Bob Pisani

Futures popped about 6 points at 8:30am ET, as preliminary second quarter GDP of 3.3 percent seems to have ended talk of a "formal" recession.

MBIA up 17 percent pre-open, as it agreed to reinsure $184 billion of municipal bond risk from FGIC (its competitor). MBIA gets $741 million in premiums. Ambak up 13 percent in sympathy.

Elsewhere:

1) retailers continue to report very mixed results. A few were quite good:

a) Tiffany up 6 percent pre-open, reported earnings of $0.63, well above consensus of $0.55, and raised guidance for the full year. Foreigners continue to crowd into the flagship New York store: comp store sales were up 10 percent in the first half of the year at the flagship; outside of the New York flagship, U.S. sales were down 5 percent.

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b) Fabric shop Jo-Ann Stores up 10 percent, had a smaller loss than expected, and gave full-year guidance above expectations. The take here is that more people are making their own clothes and doing their own decorating, and the company is the beneficiary.

Still, it seems that most retailers are continuing to either disappoint or bring down estimates for the full year:

a) Sears is really having problems. Earnings came in at $0.21 vs. expectations of $0.33 (last year they made $1.15). Sears U.S. comp store sales down 6.7 percent; Kmart down 5.6 percent.

b) Men's Wearhouse beat by a penny, but third quarter guidance at $0.36-$0.40 is well below consensus of $0.53.

c) Williams-Sonoma reported earnings about in line with expectations, but guidance of $1.03-$1.15 was well below expectations of $1.31.

2) Hey, worried about falling stock prices? Do what the Pakistanis did: decree that prices cannot fall. In response to a 36 percent decline in the Karachi Stock Exchange this year, the board of directors of that Exchange announced that shares would not be allowed to trade below their closing level as of Wednesday.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 5:34 PM ET

Fannie Mae Mgt. Shakeup; Oil Shrugs Off Gustav

Posted By: Bob Pisani

The big issues today are Fannie/Freddie and Gustav.

After the bell, Fannie Mae was halted as it announced several management changes, including a new CFO (David Hisey, previously Sr. VP and Controller), Chief Risk Officer (Michael Shaw, formerly Sr. VP-Credit Risk Management), and Chief Business officer (Peter Niculescu, formerly Exec. VP of Capital Markets).

Note that there are no outsiders being brought in. They need to show that they are serious about the two most important issues: conserving capital and controlling credit losses.

The larger issue today: How serious is Gustav? Assuming a Category 3 hurricane in eastern Louisiana, RBC Capital today estimated it would involve a loss of production of 3 percent of total U.S. crude inventories and 2 percent of natural gas inventories. That is a fairly modest loss. Obviously, if the storm strengthens the damage could be more severe.

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Outside of Gustav, most traders do not feel that the facts are bullish for oil in the near term, absent a major international crises of some sort:

1) Oil remains in $112-$117 range despite Gustav, Russia this is the best it can do?

2) Energy stocks are up modestly but:

--fundamentals weak

--demand down

--domestic production and imports up

Finally, there is an OPEC meeting September 9; don't be surprised if some of the more aggressive members (e.g. Iran) argue for cuts based on oversupply.

One final note: property/casualty stocks, some of which would be directly impacted by Gustav, were up today.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 11:54 AM ET

Solving the Fannie/Freddie Mystery

Posted By: Bob Pisani

Lots of discussion about the "Fannie/Freddie mystery," i.e.: Why, if the common is worthless, have the stocks rallied 22 percent (for Fannie Mae ) and 57 percent (for Freddie Mac ) this week?

A couple of points:

1) Merrill Lynch, in a sensible report this morning, noted that capital depletion is not likely for several quarters and that it was "premature" to consider the Treasury recapitalization plan;

2) There is less anxiety about the more radical total bailout: Rep. Barney Frank said he doesn't know if a bailout is "inevitable", and Goldman Sachs said yesterday that even if there was a bailout it would be "manageable";

3) Both companies appear to be scaling back on mortgage portfolios, that is they are making some effort to improve their balance sheets;

4) Perhaps most importantly, there are short-term trading patterns that are very favorable in the past few days: higher highs and higher lows, the kind of pattern that attracts momentum traders.

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CNBC's Financials in the News:

- Citigroup
(Story: Citi Limits Color Copying)

- Goldman Sachs
(Story: Authorities Probe Fidelity, Goldman Link)

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 27 Aug 2008 | 10:08 AM ET

Oil Ignores Gustav, Russia; Oil Cos. Sell Gas Stations

Posted By: Bob Pisani

Futures popped nearly 10 points as durable goods jumped more than expected. Dollar rallies a bit but is still down, bonds decline.

  • CNBC Video: Dollar to Lose 40%

Commodities up as the dollar is a bit weaker today. While oil prices are up $1.82 to $118.09, it is a fairly poor response to Gustav and the tensions with Russia. Airlines are weaker.

Elsewhere:

1) Fannie Mae & Freddie Mac were most actively traded pre-open; both up about 10 percent.

2) Borders Group reported a loss that was less than expected. They are doing what many retailers are doing: keeping costs under control with, among other things, lower inventories. Same store sales were down about 9 percent from the same period a year ago.

3) J Crew down 10 percent pre-open, not only missed on top and bottom line, but their guidance for the current quarter and full year is well below consensus. The company is blaming a systems upgrade that disrupted its phone and internet sales.

4) IKON Office Solutions is being bought by Ricoh: $17.25 a share, $1.6 billion. Closed yesterday at $15.56 a share.

5) The Mortgage Bankers Association reported that applications for mortgages rose for the first time in three weeks. OK, it's only up 0.5 percent, but it is up; last week it was at the lowest levels since December 2000. How poor are applications? They were 31 percent below their levels of a year ago. Mortgage rates remained relatively stable at 6.44 percent; while this has been up recently, it is not far from where it was a year ago, but the concern is that rates may increase further.

6) Will the last place that sells gas please turn off the pumps: ConocoPhillips said they would sell the remainder of their 600 company-owned gas stations to PetroSun West for $800 million. They will continue to produce gasoline. In June, ExxonMobil said it would sell its stations, and BP said it would sell its U.S. stations.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 26 Aug 2008 | 4:04 PM ET

Housing: The Good & Bad News

Posted By: Bob Pisani

The monthly S&P/Case Shiller index of home prices in 20 cities showed a 15.9 percent drop from the same period a year ago. Both new and existing home sales indicate that price declines continue, although the severity of the decline seems to be moderating.

Inventories remain stubbornly high -- in fact, new home inventories are at 10.1 months; it has remained over 10 months for four months now.

The real estate news today, from the Case Shiller Index of home prices to new home sales (a bit weaker than expected, when revisions are considered), showed there are still significant strains in housing.

Here's the good news:

--there are some small signs of sales increases in a few markets like central California.

Here's the bad news:

--for the most part, prices at best remain at their bottom, even though the rate of declines appear to be slowing down; and

--inventories remain high.

Much is made that cheaper housing will make the markets more affordable and ultimately help the consumer. There's a problem with this analysis: there's more than lower prices when considering affordability. There's home prices, mortgage rates, and income growth.

Only one of these components are helping affordability now. More declines in prices are good news. But mortgage rates are rising, and income growth is being eroded by inflation, reducing the positive effect of lower prices.

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Housing Stocks in the News:

Fannie Mae , Freddie Mac
(Story: Fannie, Freddie May Avoid Bailout)

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 26 Aug 2008 | 9:26 AM ET

Europe Looks Worse; Dollar Hits '08 High

Posted By: Bob Pisani

The German business confidence index (Ifo) declined to the lowest levels since August 2005, increasing concerns about a weakening Europe.

The dollar has popped to its highest levels of the year.

Russia's stock market is down 5 percent to its lowest levels in six years, as most European countries are signaling they will not recognize the breakaway states of Georgia.

Elsewhere:

1) American Eagle was a penny below expectations, and guidance for the third quarter, $0.31 to $0.36, is below expectations of $0.39. August comp store sales were down 6 percent.

2) Restaurant giant Darden (Red Lobster, Olive Garden, LongHorn Steakhouse) down 13 percent pre-open, as they are updating full-year guidance, saying full-year fiscal EPS will be flat to up 5 percent, compared to the previous target of up 9 to 10 percent. Darden is in the first quarter of its fiscal year.

3) Mining giant Rio Tinto reported outstanding results, with profit more than doubling. They also increased the dividend 31 percent. Remember, BHP Billiton has made an offer to acquire Rio Tinto, which was rejected by the company. Rio Tinto itself acquired Alcan in 2007.

4) Sign of the times: we used to pass around Warren Buffett's annual report. Now, trading desks are passing around the annual report from Singapore wealth fund Temasek.

Chairman S. Dhanabalan said he sees "value" in the U.K. and the U.S., particularly in financials. The fund already holds a 9 percent stake in Merrill Lynch and a 2 percent stake in Barclays . The firm has a 40 percent of its holdings in financials as of the year ending in March.

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CNBC's Top Investing News:

Video: Why Commodities Will Fall Another 10%

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Questions? Comments? tradertalk@cnbc.com

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  Monday, 25 Aug 2008 | 5:24 PM ET

Financials Bad Now -- Worse in September?

Posted By: Bob Pisani

Mary Thompson is in for Bob Pisani Monday.

It was a "Meltdown Monday" on Wall Street today. People might pooh-pooh today's action because of the light volume, but it is hard not to be a bit awestruck at the breadth of the decline. All of the Dow Jones Industrial's 30 components fell, toward the close 472 of the S&P 500 Index were lower, and 97 of the Nasdaq 100.

The end result, a 241.81 point decline for the Dow, a 25.36 point slide for the S&P and a 49.12 point loss for the Nasdaq.

Why the decline? There were plenty of reasons cited, but the most common was concerns about the financials.

Keep in mind, until last autumn, this was a leading group among S&P 500 members. As banks and insurance companies work through balance sheet problems that have cropped up in the wake of the decline in the housing market and the resulting liquidity crisis, investors are looking for new leadership to emerge.

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  • Forbes on Fannie, Freddie, Democrats and the Dollar

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Some might say energy and commodity stocks have taken firm hold of this mantle. But with a look back at the market action that followed the bursting of the tech bubble, one knows it takes a long time for investors to fall out of love with former star performers. Now reality is sinking in, meaning the problems at the nation's banks aren't going away tomorrow and are likely to be with us for a couple of more quarters at least.

So without the former leaders and without new leaders that don't look as long in the tooth as energy does, investors are moving to the sidelines.

Or at least they were today. Keep in mind when volume is light, the swings are sudden and swift. So, good news tomorrow might change the market's mind. Still, September is around the corner and historically, this is the toughest month for the stock market.

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CNBC's Financials in the News:

- Fannie Mae

- Freddie Mac

- Lehman Bros.

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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.

 

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

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