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Trader Talk with Bob Pisani

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  Friday, 26 Sep 2008 | 9:04 AM ET

Street Wants To Be Re-Liquefied--And JP Morgan's Coup

Posted By: Bob Pisani

The Street is in unanimous agreement about one thing: the system needs to be re-liquefied. Soon. HOW you get to that point may not be as important as just GETTING there.

The consensus is that if nothing gets done, the market will crash. A minority note that with the consensus overwhelmingly believing that, it is unlikely to happen. Few are willing to make that bet now.

Elsewhere:

1) Last night, JP Morgan announced that it acquired ONLY the banking operations of Washington Mutual for $1.9 billion in cash to the FDIC. They will mark down the loan portfolio by $31 billion.

They DID NOT buy the holding company's assets and liabilities, the senior unsecured or subordinated debt, and preferred stock.

JP Morgan also will be raising $8 billion in a common stock offering.

This is a coup for JP Morgan: they get the branches in the west and Florida that they coveted (and did not have), the deal is accretive in 2009, and they now become the largest depository institution in the U.S.

This leaves almost no value for WaMu common and preferred shareholders, and, it seems, most of the debtholders.

2) Financials: Wachovia down 23 percent pre-open; European banks like UBS and Lloyds down 8 percent.

Morgan Stanleydown 13 percent. Remember, Mitsubishi has not yet put up a dime to buy into Morgan Stanley, despite the proposal to buy up to 20 percent of Morgan.

3) KB Homedown 7 percent on a terrible report (loss of $6.19 excluding gains from discontinued operations, vs. estimates of a loss of $1.25). "Market fundamentals appear unlikely to improve significantly in the near term," CEO Jeffrey Mezger said.

Other builders like Lennar and Hovnaniandown 8 to 9 percent pre-open.

  • WaMu Folds, JPMorgan Buys Assets
  • Poll: When Will Deal Happen?
  • Should Buffett Negotiate Deal?
  • Who's Afraid of Salary Cap?
  • Americans Split on Bailout
  • How Exactly Will Bailout Work?
  • How to Trade Bailout
  • S&L Rescue Now Looks Easy
  • _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Thursday, 25 Sep 2008 | 4:07 PM ET

    Overall, A Good Day For Markets And GE

    Posted By: Bob Pisani

    Though we sold off a bit toward the close, it was still a good day. Almost 3 to 1 advancing to declining stocks, with particular gains in emerging market stocks (many up 4 to 6 percent). Many techs and energy stocks are up 2 to 3 percent.

    A bit of good news: our parent company, GE, held up well despite reducing earnings estimates for the third quarter. Two pieces of good news: 1) Standard and Poor's affirmed the company's ratings, and 2) GE is making efforts to reduce leverage and diversify its funding strategy for GE Capital.

    GE closed just off the highs for the day (up almost 4 percent).

    This is important. By the middle of next week, the news will be have been out on the Treasury bill, Congress will have recessed for the political food fight of the century, and Wall Street will turn to third and fourth quarter earnings (the quarter ends next Tuesday!)

    The early buzz is not good; many anticipate that estimates remain too high for energy, retailers, and others, and that firms will be lowering guidance, just as GE did today.

    But with markets down so much, there may be room for some lowering of estimates: GE is now the poster child for this argument.

    Thin gruel for the bulls, but it is one of the few arguments they have right now.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

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      Thursday, 25 Sep 2008 | 2:43 PM ET

    The "Not Quite" Agreement Knocks Stocks Off Their Highs

    Posted By: Bob Pisani

    That was brief. Stocks came off their highs on word that there is not quite an agreement yet and that there will be several "add-ons."

    There will be a bill (it may get sealed in the White House at the meeting with the President this afternoon), but it may be so burdened with "equity protection" (read: back-door ownership) and "phase-ins" (read: we ain't giving you all the money now) that the Street will argue it will limit participation in the plan.

    Remember, the goal is OPT-IN, not OPT-OUT. We want the banks to sell as much as they can to the Treasury so it will be easier for them to begin lending again, we do not want the banks to look for every excuse short of going under before they sell.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________

    _______________________________________
    CNBC's Names in the News:

    GE

    GM

    _______________________________________


    Questions? Comments? tradertalk@cnbc.com

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      Thursday, 25 Sep 2008 | 1:39 PM ET

    Bears "Roaming" The Street

    Posted By: Bob Pisani

    How bearish is sentiment on the Street? Very.

    We are getting an early Treasury Bill Rally, as anticipated. That's not the issue. It's what happens on Monday that traders care about. And most are arguing to continue to sell into the rally.

    Huh? It's a testament to the rhetorical strength of the bears, who are arguing that the next battleground will be the global economic slowdown that we are all sick of hearing about.

    Their argument: just like the U.S. financial crisis is deeper and lasting longer than bulls anticipated, the global economic slowdown will last longer and cause more adjustments than anyone anticipated.

    What about housing, the origin of many of these evils? Bears were handed a gift this morning in the form of the worst New Home Sales since 1991. Not only that--inventory levels are remaining near 11 month highs.

    They argue for continuing weakness in big global commodity stocks (already 30 percent off their highs) as well as global industrials.

    Oh, and did I mention that the Street is worried about its own future? The feeling is that trading volumes will be contracting significantly in the coming months, due to 1) continuing deleveraging, 2) restrictions on short selling.

    And the sour taste in the mouths of your average Joe regarding Wall Street will also mean less interest in investing, which will hurt investments in mutual funds and Exchange Traded Funds (ETFs). ETF volume is an important part of trading volume.

    Bottom line: a leaner, but not meaner, Wall Street trading community. Many of my contacts are looking for jobs, or fearful they may not have one by the end of the year.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

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      Thursday, 25 Sep 2008 | 12:33 PM ET

    Russia: Short-Sellers' Paradise?

    Posted By: Bob Pisani

    Traders are passing around this Russian document which purportedly lifts the ban on short selling in Russia.

    Those who are adamantly opposed to a blanket ban on short selling are claiming this makes Russia more of a capitalist country than we are.

    Silly, but emotions are running high on the Street on many issues right now.

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    CNBC Intelligence:

    _______________________________________
    CNBC's Companies in the News:

    General Electric

    Goldman Sachs

    _______________________________________


    Questions? Comments? tradertalk@cnbc.com

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      Thursday, 25 Sep 2008 | 9:04 AM ET

    Real Worry Among Traders Is Credit Markets

    Posted By: Bob Pisani

    Stock futures rose this morning as Rep. Paul Kanjorski said on our air that the bailout bill is "almost a done deal."

    Still, the real worries among traders continues to be in the credit markets.

    1) GE , our parent company, down 4 percent pre-open as it cut its third quarter guidance for the quarter, to $0.43 to $0.49 from $0.50 to $0.54, "reflecting unprecedented weakness and volatility in the financial services markets."

    It's taking steps to reaffirm its AAA rating, and is maintaining its dividend its $0.31 per share quarterly dividend through 2009. The stock buyback has been suspended so it can reduce GE Capital's leverage. GE down 5 percent pre-open.

    Standard and Poor's affirmed GE's and GE Capital's ratings. Moody's called the action "appropriate and necessary."

    GE, by the way, now has a yield over 5 percent.

    2) Pilgrim's Pride , which was down 38 percent yesterday and halted at 3:28 yesterday for News Pending, announced that they have had operating losses (high grain prices, weaker demand for product) combined with a significant hedging loss (probably on corn futures).

    Bottom line is that they are in violation of one of the financial covenants in their bank agreement. In this era of tight or impossible credit, it is a significant issue. They appear to have reached some kind of agreement with their lenders to continue to provide credit, at least temporarily.

    It will resume trading this morning. Other meat processors continue to be weak as well; Tysonis down 7 percent pre-open.

    3) Nike up 5 percent pre-open, they beat estimates, though net income was 10 percent below the levels of last year. Good numbers, considering.

    4) The Europeans and the Asians are watching what is happening here with amazement, dread, and anger. Not surprisingly, some are predicting this is a game-changer. Peer Steinbruck, the German finance minister, said the U.S. was losing its role as the global finance superpower and that "this world will become multipolar" with the emergence of better capitalized centers in Asia and Europe.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

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      Wednesday, 24 Sep 2008 | 4:09 PM ET

    Market's Reaction To Today's Hearings

    Posted By: Bob Pisani

    The market was quiet for most of the day. This is the narrowest trading range we have seen this month. Volume was light.

    We dipped to the lows near the close on weakness in financials. Of particular note was Washington Mutual(down 21 percent) and Morgan Stanley(down 12 percent).

    All the major sectors saw very narrow trading.

    Separately, Pilgrim's Pride halted for news pending at 3:28 PM ET, down 38 percent.

    Traders are gnawing their fingernails trying to figure out what kind of add-ons will go into the Treasury bill.

    To summarize: executive compensation limits and help for homeowners is likely and traders will support that, but getting warrants in exchange for buying assets, and limiting the amount to a miserly $150 billion (or $300 billion) instead of $700 billion and letting the next administration deal with the rest of the request are definitely harmful to confidence.

    UPDATE: While the stock market appeared to be quiet today, beneath the surface there were signs of tension.

    In the middle of the day, we saw two stocks that seem completely unrelated move down at roughly the same time: chicken processor Pilgrim's Pride (down 38 percent before being halted for news pending at 3:28 PM) and Morgan Stanley (down 11 percent).

    Huh? There appears to be some relationship, believe it or not: the panic over access to capital and credit.

    The problem is Goldman Sachs. If Warren Buffett can buy into Goldman Sachs on the terms he got today, with 10 percent dilution, and Goldman is the highest quality name on the Street, what will it cost Morgan Stanley to raise equity? Quite a bit, markets fear.

    Recall that Mistubishi UFJ Financial said on Monday it would buy as much as 20 percent of Morgan Stanley. But the terms are vague: the price is based on book value (no more specifics on price were given) and upon the completion of "satisfactory" due diligence. What price will they offer?

    Still wondering about what Pilgrim's Pride has to do with this? Analysts believe it too has to do with access to credit. Morningstar's Ann Gilpin told Reuters food processors in general were "highly leveraged firms with significant exposure to commodities, which have raised havoc with profits recently."

    But wait a minute--a 38 percent drop in a stock in one day is not due to commodity prices. It may be a sign of worry about access to credit, but what it really is a sign of is the panic that is seizing markets.

    This is another example of the need to address this panic by passing a usable Treasury bill that will help unseize the credit markets.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Wednesday, 24 Sep 2008 | 4:06 PM ET

    Paulson: Plan is NOT a Bailout

    Posted By: Bob Pisani

    Secretary Hank Paulson is doing the right thing in his afternoon testimony: he is arguing that this is not a bailout, it is an asset purchasing program. The $700 billion is for Working Capital to buy mortgages.

    He's doing this to try to stem a tidal wave of add-ons that will dilute the effectiveness of the bill. Remember on the other side of this rabbit-hole, we want OPT IN, not OPT OUT.

    President Bush will try to sell this plan tonight; unfortunately, he is not in a good position and is not the best spokesperson for the plan.

    As for limits on executive compensation, traders are resigned that it appears to be a fait accompli -- but that it will also dramatically limit the talent pool working in the public sector.

    Even independent of that, there's a sense that a good living -- not $30 million a year, but the $500,000 to $1,000,000 many mid-level managers DID make on the Street -- is now very limited.

    • Poll: Did Bernanke and Paulson Make Their Case?

    "We're all going to work in tennis shoes and make $30,000 a year," one very dejected trader said to me this afternoon.

    Meantime, the market is quiet. No one is trading. This is the narrowest trading range we have seen in a month. Volume is less than half what is was last week.

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    CNBC's Companies in the News:

    Goldman Sachs

    Morgan Stanley

    Wachovia Bank

    _______________________________________


    Questions? Comments? tradertalk@cnbc.com

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      Wednesday, 24 Sep 2008 | 2:21 PM ET

    NYSE CEO Duncan Niederauer And Short Sale Rule

    Posted By: Bob Pisani

    NYSE CEO Duncan Niederauer has just held meetings with a number of financial company CEOs regarding the short sale rule. He has also spoken on the phone with the SEC.

    The NYSE has said they are expecting a broader solution to the short-selling ban, but they are expecting an extension of the current ban on short-selling in financials, which expires October 2nd.

    The NYSE also said it was in discussions with the SEC on "marketwide" rules for short-selling, i.e. rules covering short selling for the entire market, not just financials.

    This likely means some kind of return of the "uptick rule" which required that traders could only short stocks on an uptick in a stock. The rule was removed last year.I interviewed Niederauer.

  • How to Trade the Proposed Bank Bailout
  • Cramer: Sell, Sell, Sell This Market
  • Money Market Freeze Needs to Be Fixed
  • S&P to Fall Another 40%: Analyst
  • Banks After Lehman: Winners and Losers
  • _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Wednesday, 24 Sep 2008 | 12:51 PM ET

    Bailout Bill: The Only Question Is, What Will Be In It

    Posted By: Bob Pisani

    The latest round of hearings have ended. The next hearing, in front of the House Financial Services Committee, will take place at 2:30 pm EST.

    It's not a question of whether a bill will pass. Rep. Frank has said that efforts are already underway to come up with a joint Senate-House bill to give the Treasury Department authority to buy mortgage assets.

    The question is what will be in it; the outlines of a deal are already pretty clear. Frank said that they are close to an agreement that would allow the government to take an equity stake in companies in exchange for selling assets.

    There will also likely be some kind of limits on executive compensation, and some type of help for homeowners in the form of foreclosure forbearance, or something of that type.

    The question now is, to what extent will these additions hinder participation in the program? Remember, we want OPT IN, not OPT OUT.

    Pricing is the last issue, and while the Congress seems befuddled about how that would work, the key is not to give out money piece-meal for purchases. Senator Schumer's suggestion of just $150 billion, then letting the next administration deal with the rest of the $700 billion request, is a serious confidence-killer.

  • Watch What Buffett Is Doing: Pros
  • How to Trade the Proposed Bank Bailout
  • Cramer: Sell, Sell, Sell This Market
  • Money Market Freeze Needs to Be Fixed
  • S&P to Fall Another 40%: Analyst
  • Banks After Lehman: Winners and Losers
  • _____________________________
    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.

    Wall Street

    • PIMCO headquarters in Newport Beach, California

      The Pimco Total Return Fund, launched by Bill Gross, has lost its title as the world's biggest bond mutual fund, following two years of withdrawals.

    • Shares in global bank rise on Q1 results just days after its annual general meeting, at which it said that it was considering moving from London.

    • UBS

      The Swiss banking giant reported a hike in profit for its first quarter, despite the SNB's shock decision to unpeg its currency from the euro.