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Trader Talk with Bob Pisani

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  Tuesday, 14 Oct 2008 | 12:59 PM ET

Traders Ponder ... To Buy or Not?

Posted By: Bob Pisani

To buy or not? That's the question facing traders today. Note that while financials are strong, the rest of the market is quite erratic. Only 4 of the 10 S&P sectors are up. That's due to questions about the global economy and earnings.

As examples, we saw three well-known companies gave lower earnings guidance today: Pepsi , Ingersoll-Rand , and Supervalu .

Simply put, the fear is that earnings are going to put a cap on how much the market can realistically rally.

That's not preventing the bulls from being optimistic, particularly in financials. Citigroup upgraded all the banks to "Buy," calling the new plan a "deal changer."

In general the bulls are arguing:

1) That the trend is now changing to a slow drift up

2) That the mentality is changing from "sell the rally" to "buy the dips"

3) That the system is being flooded with money and it's best not to play against that trend.

The bears are arguing:

1) Things will get worse

2) We haven't seen the cycle lows, even if this is an interim low

3) There is much more deleveraging to come.

As for the all-in argument, that traders must go all-in now because they are down for the year and have little choice, there is much debate about that.

Most traders argue that if you are down 20 percent for the year, for example, the responsible thing to do is roll up and go to cash. Doing anything else is irresponsible.

But there are plenty of risk takers out there.

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

Wells Fargo Sues Citi to Head Off Liability Claims

J&J Profit Beats Forecast, Shares Jump

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 14 Oct 2008 | 9:14 AM ET

What The New Bailout Plan Will Do

Posted By: Bob Pisani

Futures, already up overnight, moved up again after 8 am ET as details were presented about the latest government rescue effort.

All of the major European economies, and the U.S. now have a similar plan.

The US government will 1) take a $250 billion equity stake in the form of preferred shares which cannot be redeemed for three years, 2) guarantee bank-to-bank lending, and 3) remove deposit insurance levels for non-interest bearing accounts.

The $250 billion investment will include four banks (Citi, JP Morgan, Bank of America, Wells Fargo), 2 brokers (Goldman, Morgan Stanley), and 2 processing banks (Bank of New York, State Street), and other smaller banks.

The investment of preferred shares on an equal level to existing preferred shareholders preserves the investment of those shareholders. If the rescue plan succeeds, the shares can be sold for more than the government paid, which would make a profit for the government and shareholders.

    • US Details Revised Bank Rescue Package

The hope is that this will result in a decline in LIBOR rates and elimination of counterparty risk. Several LIBOR rates are lower, CDS rates are lower across the board, while commodities are higher. In addition, the Fed will begin funding purchases of commercial paper on October 27th.

What happened to all the toxic mortgages? They're still there.

Elsewhere:

1) Financials are notably higher: Citi up 15 percent, Morgan Stanley up 19 percent, Goldman Sachs, Credit Suisse and Deutsche Bank up 12 percent. Some regional banks are even higher: KeyCorpup 21 percent, Regions Financial up 20 percent. Citigroup upgraded most of their banks to a Buy.

2) Johnson and Johnson beat estimates and raised guidance for the remainder of the year

3) Diversified manufacturer Ingersoll Rand down 8 percent as they lowered guidance for the third quarter, saying the economic slowdown has been more significant than expected.

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

Johnson & Johnson

Pepsico

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Questions? Comments? tradertalk@cnbc.com

»Read more
  Monday, 13 Oct 2008 | 4:27 PM ET

Good Rally Today But Will Tomorrow Bring Buying Investors?

Posted By: Bob Pisani

Stocks staged a convincing comeback today, despite doubts about the validity of the rally due to the bond market being closed.

There was an attempt to sell off the market right after the open, but once the terms of the Morgan Stanley-Mitsubishi deal came out just prior to 10 am ET the credit default swap market improved and the market turned around, never to look back.

We appear to have had a rare 90 percent upside day, where 90 percent of the volume was to the upside, and 90 percent of stocks to the upside.

The Dow has moved nearly 1,500 points from its Friday intraday low of 7882. A 11.1 percent gain would make this the 5th biggest day ever, the largest gain since 1933. It was the 4th biggest percentage gain for the S&P 500.

The big issue is tomorrow: will retail investors will be buying into the 9,300-9,600 level that professionals will be selling at?

The biggest gainers today were energy stocks, up 14 percent as a group, but many commodity stocks were also up in double digit territory, including Alcoa ,US Steel ,Nucor , and Freeport-McMoran .

Financials had a split personality: Morgan Stanleywas again the stock of the day, up 85 percent, and beaten-up insurance stocks like Prudential and Genworth rallied big.

  • Facing an 'Inflation Holocaust': Rogers
  • UK Bails out 3 Major Banks
  • Money Markets Ease on Unlimited Dollars Pledge
  • Lloyds Renegotiates HBOS Takeover Deal
  • Most other banks were up mid-single digits, but a small but persistent group of regional bank stocks again were in negative territory: Huntington Bancshares, Zions , Regions Financial , Sovereign(despite Banco Santander negotiations) and Comerica . We are likely to hear more announcement of mergers in the near future.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Monday, 13 Oct 2008 | 3:08 PM ET

    The Parade of Big Ideas Continues

    Posted By: Bob Pisani

    Big CEOs (Lloyd Blankfein from Goldman, John Mack from Morgan Stanley, and Vikrim Pandit from Citigroup) are all meeting with officials from the Fed and Treasury at this moment to agree on a financial market stabilization initiative.

    Expectations are that they will match the European initiatives, which include guaranteed interbank lending, and perhaps broader deposit insurance. We can also expect more details on how the U.S. plans to make capital infusions into banks.

    Meantime, the Congressional leadership is meeting to scratch out a second stimulus package, which may include a job creation component.

    Not surprisingly, there are a lot of plans for change floating around, some of them bad.

    Barack Obama's plan to allow 10 percent penalty free withdrawal from IRAs is bad for the stock market and bad public policy. We want more people to keep their savings, and we don't want to make it easy to withdraw. We did this with real estate this decade, making it easy to withdraw money from our homes. As a result, equity declined dramatically.

    One thing's for sure: this October is becoming the month of Big Pronouncements, but that will soon end, to be replaced by a long succession of implementation details. While important, they will not have the titanic weight the initial announcements had.

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    New from CNBC.com:

    - The Dow 30 at a Glance

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    CNBC's Names in the News:


    Questions? Comments? tradertalk@cnbc.com

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      Monday, 13 Oct 2008 | 10:26 AM ET

    Already Seeing Selling Into The Rally

    Posted By: Bob Pisani

    Stock traders for the first time are openly asserting that a bottom has been put in. Concerns about global bank failures and meltdowns are receding as global finance ministers are now coordinating their efforts.

    That doesn't mean a big rally, in fact most think we can move up only modestly before we will hit resistance.

    Some traders aren’t even waiting for that: we are already seeing selling into the rally. Big names that opened notably strong and are now negative include JP Morgan, General Electric (our parent

    company), JC Penney , Goodyear Tire , Newmont Mining .

      • Money Markets Ease on Unlimited Dollars Pledge

    Once we calm down we will be facing a global slowdown that appears more severe than even a month ago.

  • Poll: Which Plan is Better?
  • UK Sends 'Dear CEO' Letter on Pay
  • Iceland Mulls IMF
  • Morgan, MUFG Renegotiate Deal
  • European Nations Unveil Crucial Bank Rescues
  • _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    _______________________________________
    CNBC's Names in the News:

    Ford

    GM

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    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Friday, 10 Oct 2008 | 4:04 PM ET

    The First Tradable Rally In Three Weeks

    Posted By: Bob Pisani

    This is the first time the Dow has traded in a 1,000 point range, ever. Exciting enough for you? Look what happened today.

    First half hour:

    Dow down 621, rallies 688

    10-2 PM ET:

    drops 650 points

    2-3 PM ET::

    gyrates in 300 point range

    3-3:45 ET:

    Rallies 770 points

    3:45-4:00 ET:

    Drops 330 points

    Ends down 100 points. What happened? This was the first tradable rally in 3 weeks. There was no 3 o'clock selloff! Go home long or flat on a Friday? Who heard of such insanity? Many traders decided it was safe to do so.

    Helping:

    1) Hoping for joint statement from G7: expected tonight.

    2) Lehman credit-swap sellers posted collateral, no firms fail, according to the International Swaps and Derivatives Association

    For the week: dow down 17, s&p down 18 percent, NASDAQ down 15 percent.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Friday, 10 Oct 2008 | 1:34 PM ET

    Stock "Circuit Breaker": Will There Be One?

    Posted By: Bob Pisani

    Traders have been speculating for weeks that some kind of individual stock "circuit breaker" would be adopted by the SEC after they allowed the ban on short selling in financials this Wednesday.

    Desks are circulating a draft proposal that appears to be from the SEC, indicating that if the closing price of a security declines 20 percent or more, members and member organizations of the stock exchanges would be prohibited from short selling that security for three trading days, though would not apply to registered market makers or specialists.

    The NYSE has declined to comment. Awaiting confirmation from the SEC.

  • Doll: Bottoming Point Unknown
  • Lost Decade for US Stocks
  • Pros: Dow Going Below 7,500
  • Now's Not the Time to Sell
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    New from CNBC.com:

    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Friday, 10 Oct 2008 | 12:02 PM ET

    Was That The Bottom?

    Posted By: Bob Pisani

    After an amazing, nearly 700 point drop in the Dow, then a rally back into positive territory, it certainly had the FEEL of some kind of selling climax.

    Throughout the morning, much more volume has been going to stocks on the upside than downside. But trader after trader said to me that that this is an environment in which picking a bottom has resulted in nothing besides further losses. So let's let it be for the moment.

    What matters most is when we are going to see real buying; until we do, moving sideways does not have the feel of sustainability.

    There are many positives today, particularly that our parent GEsaid the corporate paper market was improving.

    There are negatives as well. Goldman Sachs and Morgan Stanley continue to trade poorly, and the entire energy complex (equities and commodities) continues to be sold aggressively. In fact, energy stocks as a group are the worst performers this month, down 33 percent; financials are down 32 percent.

    More on this shortly.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    Questions? Comments? tradertalk@cnbc.com

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      Friday, 10 Oct 2008 | 9:12 AM ET

    Watch Value Of Credit Default Swaps Backed By Lehman Bonds

    Posted By: Bob Pisani

    Traders are in agreement on two points:

    1) We are not trading on fundamentals. Forced selling is causing many stocks to trade well below fundamental values;

    2) traders do not have faith in 2009 earnings projections, which is making it difficult to value stocks.

    Elsewhere:

    1) The value of credit default swaps backed by Lehman bonds will be set today; this may be the most important event today.

    2) Our parent company, General Electric , reported earnings in line with the revised expectations of last week. NBC Universal had 10 percent operating profit. Affirmed the outlook given on September 25th when they revised their outlook.

    More importantly, CEO Jeff Immelt said the commercial paper market was improving and they have had no problem accessing the corporate paper market recently. He said the CP issues was "off the table" for GE investors.

    3) Financials: Morgan Stanley down 25 percent, Goldmandown 17 percent. Gold stocks are one of the few stock groups on the upside.

    4) GM said bankruptcy is not an option they are considering.

    5) Macy's reduces third quarter guidance to $1.30-1.50 from $1.70-1.85 (estimate of $1.75). Same-store sales in the fall season could be down by 3 to 6 percent.

    6) Restaurant chain Brinker (Chili's) guides below expectations for the third quarter, from $0.19-$0.20 ($0.32 consensus); guides fiscal 2009 to decline 15 percent to 25 percent.

    7) Wachovia is trading up 15 percent pre open as Citi is walking away from negotations with Wells Fargoover how to divvy up Wachovia, they will not seek to bar Wells from proceeding but will seek damages--dramatic differences in how to divide up the company and on how much risk was involved in taking on the portfolios.

    8) It appears at least a few people are trying to play a bottom. According to AMG, mutual funds are continuing to report large net outflows: $9.357 billion, two-thirds of that from domestic funds.

    But look at Exchange Traded Funds (ETFs): the report indicated that $6.798 b moved INTO the SPDR (S&P 500 ETF) this week.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    _______________________________________
    CNBC's Names in the News:

    General Electric

    General Motors

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    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Thursday, 9 Oct 2008 | 4:50 PM ET

    Uncertainly In Credit Markets Just One Of Key Issues

    Posted By: Bob Pisani

    The issues are:

    1) forced selling & redemptions in the last hour

    2) continuing uncertainty in credit markets

    3) inability to determine earnings with credit uncertainty

    4) financials: concerns about wider losses (credit card losses, commercial real estate) and capital raises

    GM down 31 percent to the lowest level since 1950 on worries that global auto sales will slow dramatically in 2009.

  • Cramer: Why the Rate Cuts Didn't Matter
  • Investors Wonder What's Next
  • Bogle: Stock Selloff May Be Halfway Over
  • Take Steps to Avoid Outliving Your Nest Egg
  • Insurers like Prudentialand Protective Life were down 23 and 44 percent respectively as traders believe insurers will have to raise more capital soon. Earlier in the week Allianz invested $2.5 billion in Hartford Financial.

    Teen and specialty retailers reported September same store sales today, and as with department stores yesterday they are generally below expectations. Abercrombie,TJX, Pier One and Men's Wearhouselowered guidance; Chicos withdrew the earnings guidance for the rest of the year.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    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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