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Trader Talk with Bob Pisani

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  Friday, 8 Aug 2008 | 9:20 AM ET

Dollar Gains Hurt Overseas Profits

Posted By: Bob Pisani

Happy start of the Olympics! The Shanghai Composite Index hit a new low this morning.

The big story this morning is not Fannie Mae, it's the dollar--and if "going parabolic" is an overstatement, it's not too far a stretch. Dollar having best day against the Euro since 2004. What's up? No specific news today, but clearly concerns over a global economic slowdown is what's driving the move.

This has important implications for multinational companies--the majority of the S&P 500. Dollar strength for U.S. based corporations implies profits will be smaller when profits made overseas are repatriated back to the U.S.; does it mean the biggest multinationals are now partly for sale?

If so, what do you buy? Sherwin Williams? Housing stocks?

On the strong dollar, commodities are down, as are gold stocks.

Elsewhere:

1) Fannie Mae down 13 percent pre-open; like Freddie Mac, reported a loss far in excess of expectations: $2.3 b (following a loss of $2.51 b in the previous quarter), loss of $2.54 a share (loss of $0.69 is the estimate), as well as an 86% cut in dividend (to $0.20).

--while 2008 will be the peak year for credit-related expenses, the total amount for credit-related expenses will still be "significant" in 2009;

--due to volatile market conditions, they have less visibility into their capital position in 2009;

--credit performance continued to deteriorate into July, and charge-offs were higher than expected.

Bottom line: deterioration in the mortgage book is spreading into Alt-A loans (no or low-documentation loans), and it will take well into 2009 before the awful 2006-2007 mortgage vintages fully play out.

2) Hertz beat but guided below expectations, they complained about higher costs, but noted they had raised prices TWICE this summer.

3) Food manufacturer Hormelalso guided below expectations, noting that "while we hae continued to implement price increases in this segment, they have not been adequate to offset the higher input costs."

4) An IPO: Web hosting company Rackspace priced 15 m shares at $12.50 a share, at the low end of the range expectation of $12-$16.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 4:14 PM ET

Consumer Negatives Make A Rough Day For Market

Posted By: Bob Pisani

The markets had to contend with a raft of negative news, much of it centered around the consumer. Late in the day, Moody's said they may downgrade the debt of American Express; Moody's say they were concerned about AmEx's lending exposure to areas of the country that have experienced sharp home price declines. AmEx dropped 5 percent.

At the same time, consumer credit for June --a lagging indicator and not normally a market mover--came out much higher than expected--$14.3 billion vs. $6.3 billion estimate. May's reading was revised upward as well, from $7.8 billion to $8.1 billion. This statistic is very volatile and often revised heavily. Simply put, consumers are charging more on their credit cards.

Add in the weakness in retail sales, the disappointing weekly jobless claims report, and AIG--as well as a 360-point gain in the Dow in the prior two days--and you have all you need for a down day.

Financials were weak across the board, in fact they were far and away the weakest group; not just property and casualty firms on the AIG news, but also brokers like Lehman, Merrill and Goldman were weak.

Freddie Macclosed near its old low of $5.26; Fannie Mae reports tomorrow.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 1:58 PM ET

Why Dollar Is More Attractive

Posted By: Bob Pisani

A lot of cross currents today--on the negative side, we have AIG, the weakness in retail sales, the disappointing weekly jobless claims report.

On the positive side, we have 1) oil moving down midday which provided a modest boost to stocks, 2) the dollar rallying for the fifth straight day, largely on comments from the ECB's Trichet (he gave no indication that more rate hikes were coming), and 3) continuing outperformance from techs.

The good news for the U.S.--and the dollar--is that we do not need to cut interest rates, as they are already low. Other countries with heavy commodity-based currencies like New Zealand and Australia are likely to keep cutting rates; elsewhere the U.K. has not yet but probably will soon, and many are betting that even the ECB will be forced to cut rates soon. All this makes the dollar more attractive.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 9:31 AM ET

Retails Sink As Jobless Claims Rise

Posted By: Bob Pisani

Futures are down nearly 10 points, not surprising given AIG, a strange but generally disappointing retail sales report, and jobless claims higher than expected.

ECB and the Bank of Englandleft rates unchanged.

Very odd retail sales reports for July, though generally downbeat:

a) Wal-Mart trading down 3 percent pre-open; Wal-Mart's comp store sales were up 3.0 percent in July, below the estimate of 3.4 percent, a bit of a surprise given the effect of the stimulus checks. They had beat expectations for the past several months, so many were expecting them to beat again. August comp store guidance of up 1-2 percent is also conservative.

They said: "With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month. We also continue to see improvement in our customer traffic, relative to last year."

2) other discounters were mixed: Costco was up 10 percent, more than the 7.5 percent expected; BJ's Wholesale were also better than expected, but they have a slightly more affluent consumer and also get more business traffic than Wal-Mart ; but Target was down 1.2 percent, below Target's own estimate of a loss of 1 cent to a gain of 1 cent.

b) teen retailers were also very mixed: Hot Topic , American Eagle , Pacific Sunware were weaker, as was American Eagle, which guided below consensus for the quarter.

Aeropostale , however, was higher than expected and they raised guidance.

c) Apparel, not surprisingly, had a tough time. Gap missed but guided higher ($0.30-$0.31 vs. $0.23 consensus). Abercrombie was also worse, and their guidance is below expectations. JC Penney had a lousy comp number but like Gap they guided higher, implying they are keeping their margins.

Bottom line: second half of the year will be tough, expect a lot of promotions. Inflationary pressure is high, but throw in job losses, credit card debt, tight credit, home prices still declining, and you have the makings of a worried consumer.

Elsewhere:

1) AIG down 13 percent pre-open as they reported a net loss of $5.4 billion. The operating loss was $0.51 a share, well below the expected gain of $0.63, the third straight quarter of losses. Big writedowns on credit default swaps ($5.5 b) and impairments on their investment portfolio ($6 b, for residential mortgage backed securities, or RMBS) were the primary problem, but results from Property and Casualty , a core business, were also disappointing. There is considerable discussion this morning about whether:

1) AIG will need to raise capital to protect its ratings, and 2) whether new CEO Richard Willumstad has really "kitchen sinked" the quarter.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 4:01 PM ET

Why Bulls Are Feeling Good

Posted By: Bob Pisani

Stocks staged a modest late day rally and gave back some of the gains late in the day, but still ended up. That is unusual, given that the usual trend is to reverse after a large gain.

The important development is technical: the Dow, the NASDAQ, the S&P 500 and the Russell 2000 are all at 5-week highs. In addition:

--oil at 3-month lows

--dollar index at 5-month highs

--Fed not raising rates (probably)

Are all making bulls feel notably better. Bears, of course, laugh at this, noting that housing has not bottomed, the balance sheet of financials will remain poor for the foreseeable future, and economic data is still deteriorating. To suggest that there will be some notable turnaround in the next few months is comical, bears maintain.

But much of this market has become technical in nature. Today’s development are positive for bulls.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 12:52 PM ET

Why There's Pressure On Consumers

Posted By: Bob Pisani

Two companies today are illustrative of the Consumer Under Pressure: Whole Foods and CarMax.

1) Consumers are cutting back on higher-end food purchases. Whole Foodsreported earnings well below expectations (about 30 percent below expectations); it's no surprise that consumers are cutting back purchases at higher-end stores like Whole Foods, but the decline is even greater than expected. And no, you cannot blame all their problems on the Wild Oats purchase, which has been expensive and dilutive. They have suspended their dividend and cut back on store growth, both prudent measures to preserve capital. Down 15 percent to a 6-year low.

2) Used car sales are down, and it's not just because of the "bad mix" of no demand for gas guzzlers and high demand for fuel efficient cars. How bad was it? CarMax said they saw used unit comp sales down 17 percent in June and July; according to RBC Capital, the worst prior quarter they could find was down 7 percent. Besides fewer people trading in their cars, vehicle prices are falling, and this is pressuring sales as the company is being forced to liquidate inventory at prices below estimates. Down 6 percent.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 6 Aug 2008 | 9:24 AM ET

Freddie Mac Proving There's No Market Bottom?

Posted By: Bob Pisani

If you're wondering why we have been getting these triple digit swings in the Dow every since we hit bottom about July 15th, the answer is evident today with Freddie Mac's earnings. If housing is the key to the recovery, then Freddie's numbers do not indicate any imminent bottom.

Freddie Mac is the most actively traded stock pre-open, trading down nearly 20 percent on over 2 million shares changing hands.

They reported a loss of $1.63 (their fourth straight quarterly loss) a loss of $0.41 was expected. Revenues were $1.69 billion vs. expectations of $2.18 billion, so everything was well below expectations. They are cutting their common dividend but still paying the preferred dividend. Additional provisions for credit losses totaled $2.5 billion due to increases in delinquency rates and foreclosures.

They again said they planned to raise capital, but the timing of the raise depends on market conditions, which are "choppy."

Their CFO says it is still reasonable to expect a housing recovery in the first quarter of 2009.

Elsewhere:

1) Sprint down 9 percent, earnings of $0.06 vs. expectations of $0.03, but still trading down as wireline revenue was down 2 percent, wireless down 12 percent.

2) Used car sales are dropping fast. CarMaxsaid they had used unit comp sales down 17 percent in June and July; they are reducing inventory and halting most of their new store opening. Down nearly 20 percent on light trading pre-open.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 5 Aug 2008 | 4:30 PM ET

Fed Issues One Masterful Statement: Stocks Rally

Posted By: Bob Pisani

Stocks rallied in the morning, then again in the late afternoon, as the Federal Reserve issued a masterful statement that, while it gave more space to concerns on inflation, did not show any increase in the lone dissent arguing for a rate hike. Traders are coming to the conclusion that the chances are increasing that the Fed will not raise rates until 2009.

Bulls are fervently hoping that today's action--commodities down, stocks up--are a sign that we are finally out of the woods, but most traders are not so sanguine.

First, it is likely that oil will stage some kind of modest rally or at least stabilize, stock bear argue. Then there is the technical problem: there are not yet dramatic breakouts, or heavy volume days. Today, they are buying financials and everything else, but even with the Fed statement the volume is light.

Bottom line: we need more sustained up moves, but even bears can’t help but be impressed with the size of the moves today.

Meantime, several parts of the market are breaking down, despite modest gains today:

1) The S&P energy sector is now in bear market territory, dropping more than 20 percent from its high in May to the close yesterday;


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 5 Aug 2008 | 9:22 AM ET

Commodities Decline While Airlines and Financials Look Up

Posted By: Bob Pisani

The commodity decline that began a month ago and accelerated yesterday is, with the exception of copper, continuing this morning; traders are worried about the muted reaction from the stock market and are hopeful we will get a better reaction today.

Bears, of course, say this is a sign that slowing global growth is finally starting to show up in the psyche of commodity traders. This is a real issue for many of the stocks in the S&P 500: remember nearly 50 percent of total revenues from the S&P 500 is now overseas, so there are plenty of people wondering about how much more upside there can be in growth stocks in particular.

The dollar index is on the verge of breaking out to a 6-month high.

The Fed meeting today is a real tossup: they will certainly not change rates, but it is an opportunity to discuss growth concerns and perhaps less on inflation.

Elsewhere:

1) Societe Generale is helping the mood in Europe. There were continuing losses on credit derivatives, but much of the subprime issues seem to be behind them. Retail banking was strong. Most financials in Europe are trading up, most financials are up pre-open in the U.S.

2) Airlines are trading up this morning on lower oil; Delta and Continental up 4 percent each. United Airsaid after the bell yesterday that traffic was down 4 percent in July, American said traffic was down 3.5 percent.

3) P&G delivered earnings ahead of estimates, and ahead of the company's own estimates. Tighter cost controls and price increases were a major factor in the beat. Topline growth of 10.3 percent was also ahead of most expectations. 2009 guidance of $3.80-$3.87 is a bit wider than prior guidance of $3.80-$3.85; the company also reduced their guidance for organic volume growth to 2-3 percent (from 3-5 percent previously).


Questions? Comments? tradertalk@cnbc.com

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  Monday, 4 Aug 2008 | 4:40 PM ET

Stocks Not Gaining on Commodity Fizzle

Posted By: Bob Pisani

Pisani's Third Law of Broadcast Journalism is, "When stock traders talk about something besides the stock market, pay attention to whatever the topic is." Today, it's about commodities, as stock traders are arguing about whether today is the final nail in the coffin of the Great Commodity Rally of 2008, and if it is, why aren't stocks benefiting?

There is ample evidence commodities are fizzling:

- Oil prices : 3-month low

- Nat. Gas 6-month low

- Platinum: 6-month low

- Copper: 6 month low

- Corn: 4 month low

There is ample evidence big energy stocks are fizzling, and I am not talking about stocks with big exposure to the refining business.

I am talking about stocks that have held up well in the past month, including oil and natural gas stocks and oil services stocks like Noble. But look what's happened since they hit their historic highs a month or so ago:
(% from historic highs)

- Cabot Oil down 44%

- Chesapeake Energy down 38.9%

- Noble down 29.8%

Same with the agricultural stocks: after hitting historic highs in June, they have simply collapsed:
(% from historic highs)

- Monsanto down 26%

- Potash down 24%

- Mosaic down 32%


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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