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Trader Talk with Bob Pisani

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  Thursday, 29 May 2008 | 3:16 PM ET

Bulls And Bears: The Case For Both Sides

Posted By: Bob Pisani

Bulls and bears are engaged in a furious fight today--bulls are emboldened because oil traders sold off oil, despite a bullish drawdown in inventory, and stock traders did not sell off the market when those bullish oil numbers came out.

They say this is the beginning of the end for oil's dominance of the stock market. Let's hope so, but so far the evidence of a top is tenuous.

The bulls’ main arguments:

--Economic data weak, not awful (look at GDP)

--Dollar rally resumes

--Commodities are acting toppy: not just oil, but copper is at a 2-month low, look at charts for gold, aluminum, platinum, palladium: all toppy

--Bond selloff continues—while traders are not delighted with the prospects for higher rates, it does represent a renewed awareness of inflation and bonds down means more money potentially for stocks.

Bears are equally adamant:

--These are brief rallies in ongoing bear market: it is a lot of nothing

--Attempts to call bottoms in homebuilders, financials, retailers unsuccessful!

Bears have a point here. They note:

1--Bulls have attempted to call bottoms in HOMEBUILDERS since November--since then there have been at least 3 significant attempts at rallying--all of which have amounted to nothing, i.e. we are exactly where we were in November.

2--Bulls have attempted to call bottoms in FINANCIALS, beginning at the end of January, when they argued that fourth quarter results would see "the mother of all writedowns" and financial would begin rallying in the third week of January. That rally lasted 2 weeks. Another rally that began at the bottom in March also fizzled, and we are essentially just a few points above the March lows for most financials;

3--Bulls argued that RETAILERS were ridiculously oversold in January, but like financials brief rallies in January and March were immediately met by selling, so most retailers (ex-Wal-Mart ) are only a few points off their lows.

So, the rally is VERY DICEY and traders, particularly bulls, are VERY NERVOUS. Is it a new bull market? We don’t know yet, but be encouraged that there are traders (maybe only 10 percent of active traders) who are betting there is.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 29 May 2008 | 9:03 AM ET

Morgan Stanley Says Business Travel Suffering

Posted By: Bob Pisani

Dollar stronger again; bond rout continues. Stock futures dropped a bit as GDP revision came in in-line, up 0.9 percent from 0.6 previously.

Morgan Stanley out with a long note on business travel this morning, not surprisingly with the title, "Business Travel Fundamentals Worsening." A summary:

1) room rate renegotiations, which first surfaced with financial business travelers, is now spreading to other sectors;

2) group cancellation rates are increasing.

3) rising airfares, already impacting leisure travel, will impact corporate travel this year.

They cut their ratings on Marriott , and reduce the price target to $40 from $47. Marriott closed at $34.14. They go further: "...we do not recommend putting new money into lodging with the exception of stocks with unique catalysts."

Elsewhere:

1) We have been getting retail earnings reports for the past week, with mixed results.

a) Men's Wearhouse reported earnings a bit below expectations, and guidance for the quarter and full year appears a bit below expectations as well. Down 6 percent pre-open.

b) Big Lots and Costco beat expectations; Big Lots up 8 percent pre-open as they raise their full year guidance slightly. Costco reported good comp store sales growth --U.S. up 6 percent, international up 16 percent.

2) NYSE IPO: Safe Bulkers (SB), a marine drybulk shipping company, priced 10 million shares at $19, below the expected range of $20 to $22 a share.

3) German chip maker Infineon down about 12 percent pre-open, after they lowered their outlook for their communications unit.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 28 May 2008 | 3:08 PM ET

What's Causing The MILD Panic In Financials

Posted By: Bob Pisani

It's finally happening...there are signs of capitulation in the regional banks as selling has intensified, the Dumb Money is giving up the ghost here and, well....is this finally the bottom we have been waiting for???

Let's step back. There are three events today that are causing a MILD PANIC in financials:

1) KeyCorp doubled the guidance on potential losses, mostly from mortgages but also from home equity and educational loans (there is also speculation the dividend may be cut);

2) Wachovia Bank , which priced a huge 145 million share secondary of common stock at $24 on April 14, saw the price drop below $24 early this morning (selling intensified);

3) Brokers (but especially Lehman , whose quarter is ending on Friday), are notably weak today, as the Street has seen slower client activity, and write-downs of leveraged loans and fixed income continue. There are also vague concerns that hedges that were put on to protect against losses in fixed income were less effective this quarter.

I want to focus on regional banks....KeyCorp's problems are a microcosm of every problem that is facing other regional banks.

1) Now following big banks with more credit losses;

2) More dividend cuts, capital raising likely

3) Earnings estimates still coming down fast, with many analysts and bulls predictably about to say, "I was too early."

As the Street has realized this in the last week, the selling has intensified; many large regional banks (Keycorp, Wachovia, Fifth Third, Regions Financial) are now at multiyear lows.

How much more can you squeeze out of shorts here? In other words, unless you are a believer in Total Armageddon, we appear to be getting closer to Capitulation. This, as one trader said, is the time to be sharpening your pencils, while the Dumb Money is selling.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 28 May 2008 | 9:10 AM ET

Dow Chemical's CEO: Where's the U.S. Energy Plan?

Posted By: Bob Pisani

Futures saw a nice, 5-point pop as durable goods, down 0.5 percent, was not down as much as the expected decline of 1.5 percent. Bonds dropped to the lowest levels of the year.

Scathing words from Dow Chemical about the cost of energy and the failure of Washington to develop an energy plan. They are raising prices by up to 20 percent--that is a really big price increase.

Dow's CEO, Andrew Liveris, noted that first quarter feedstock and energy costs were up "a staggering 42 percent," putting strains on the company and its relations with customers. For most chemical companies, price increases have failed to keep up with raw material increases. He went on to note that:

"For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy. The government's failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S."

Elsewhere:

1) Airlines up again this morning (AMR and Delta both us about 5 percent pre-open) as oil drops another $4 to $126. Dollar once again well bid; gold down 1.9 percent, copper down 2 percent.

News on the retail front not bad this morning:

a) American Eagle beat expectations, guidance in line, up 5 percent;

b) Ralph Lauren is up 7 percent pre-open, beat earnings expectations for its fourth quarter, and has reaffirmed its earnings for the fiscal 2009 year

c) Chico's also came in roughly in line with expectations, though they continue to provide sober commentary, expecting negative comparable store growth and lower earnings for the first half of the year.

2) Deutsche Bank is holding an energy conference in Miami, we may hear from Anadarko, Devon and others today. ExxonMobil and Chevron hold their annual meeting today. Our Mary Thompson is in Dallas covering the Exxon meeting.

3) This Friday is the end of the quarter for Lehman , Morgan Stanley , and Goldman Sachs .


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 27 May 2008 | 4:27 PM ET

Why Stocks Had A Modest Rally Today

Posted By: Bob Pisani

Several factors helped stocks stage a modest rally today:

1) lower oil and commodity prices (including gold and copper);

2) a sense that certain groups--particularly financials--have been oversold.

The last point was the major factor in a modest late day rally. Many traders noted that:

--financials as a group are down 7 percent this month;

--Goldman Sachs is down 9 days in a row (down 9 percent for the month), Lehman is down 16 percent this month, and Morgan Stanley is down 13 percent.

--negative research on brokers continues, with Bank of America and Bernstein lowering numbers today on Lehman, Goldman, and Morgan Stanley.

Techs--which many have been hoping would feel the leadership gap--advanced modestly today, with 2 to 3 percent gains in the Big Momentum names like Google, Apple,RIM, and Bidu.

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  Tuesday, 27 May 2008 | 1:02 PM ET

Oil Price Blame Game: What's Really Needed Is Energy Policy

Posted By: Bob Pisani

Some are blaming speculators. Others are blaming prop trading desks (it must be Goldman!). Other blame oil companies, or the Saudis. Or the Russians.

Welcome to the Street's favorite parlor game: blame some shadowy force for the rise in oil. Never mind that there is 85 million barrels of oil produced a day, and scant supply anywhere. There has to be something more than a global supply/demand imbalance at work here. Someone is sitting in a room somewhere, manipulating all this. We just have to find him and expose him.

Last week, we had notes from several respected commentators. Charles Biderman at TrimTabs released a note with this title: "Oil Producers Could Easily Be Manipulating Oil Prices through Funds of Hedge Funds Helped By Ridiculously Low 7% Margin Requirement for Oil Futures. We Don't Know That They Are, But They Could."

That got a lot of play on trading desks. One solution, of course, is to boost margin requirements for oil futures, but given that exchanges and brokers earn significant income from trading lots of contracts, he doubts this is likely. Still, there are efforts underway to do exactly that in Congress.

Biderman proposes an interesting alternative: let governments short oil futures. "If it is logical for oil producers to go long oil futures to enhance the future value of their remaining oil, why is it not logical for oil consumers to go short oil futures? Japan, are you listening?," he asks.

He goes so far as to encourage the U.S. government to spend the roughly $275 m it is saving per month due to suspension of purchases for the Strategic Petroleum Reserve and use that money to short oil!

This kind of talk gets trading desks going, because it: 1) sounds patriotic, 2) might help trader profits, and 3) would be payback to those greedy evil nameless faceless forces manipulating us.

There's a long string of people in line with these theories. Recall last week that Michael Masters, Managing Member of Masters Capital Management, testified in front of the Committee on Homeland Security and Government Affairs of the U.S. Senate , blaming speculators--specifically pension funds and hedge funds--for much of the rise in oil (his testimony is very interesting reading).

Years ago, Richard Hofstadter wrote a famous book called "The Paranoid Strain in American Politics", about the American right's scapegoating of liberals as communists during the McCarthy period. There's something similar developing here: a paranoid strain in American capitalism.

It doesn't mean we shouldn't look into the influence speculators have on the relatively small commodity market. However, let's not lose sight of what we really need: an energy policy.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 27 May 2008 | 11:22 AM ET

Bulls Are Worried: Here's Why

Posted By: Bob Pisani

Bulls who have been smacked around by record oil prices were happy to see a sharp drop in that commodity this morning. However, they're not happy with the very meager response from the stock market, where buyers are again showing little enthusiasm.

To recap, the bulls are worried. Here's why:

1) The bulls have argued that lower oil prices will get the market going. Indeed, saw the effect lower oil has had on stocks this morning: a very modest rally. A 4-point move in the S&P, after a 50-point decline last week, is a pretty modest rebound. Indeed, if bulls are right and it's commodities that matter, this "rally" is pretty disappointing.

The reason we are not getting a stronger rally is because the vast majority of the market is not convinced that oil is any notable downtrend, at least not yet.

2) While there has been a modest uptrend since the market bottom in April, it has not been very convincing; rallies have occurred on meager volume since April;

3) While there seems to be little enthusiasm for selling stocks aggressively since the March lows, there has also been little enthusiasm for buying. This equilibrium began to change a bit last week, when we clearly saw a spate of selling interest, with little enthusiasm from buyers despite lower prices;

4) New leadership is not emerging. Yes, tech is off its lows, but it is hardly shining, and financials have fallen back.

This, of course, plays into the bears' hands. Their thesis is that the rally off the March lows is illusory: it's been based on seller exhaustion, not buyer enthusiasm, and with no increase in buyer enthusiasm stocks will at best be range-bound through the summer.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 27 May 2008 | 9:31 AM ET

Market Worry: Stocks Hitting Recent Lows Again

Posted By: Bob Pisani

European stocks are weak on the back of more declines in European banks. Futures turned around, gaining three or four points, as oil fell about $1.50 right after 9 am ET. The decline in oil has accelerated, which will help the open.

News on the housing front was not great, with the S&P/Case Shiller report of home price indices down 14.1 percent in the first quarter compared to the first quarter last year; that's the biggest decline in the history of the index. If there's any good news, it was in line with expectations. New home sales out at 10 am ET.

The real worry here is stocks; we are down three out of four days and the uptrend that began with the March bottom has now been broken.

Many financials like Lehman are already sitting at or near their March lows; other groups like home builders are also drifting toward their January lows. Even market leaders like energy and materials saw profit-taking last week.

UBS is trading down today, but it traded down yesterday in Europe (when our markets were closed); today is the first day it is trading ex-subscription rights. Last week they announced a major rights offering (nearly $16 b, at a significant discount), which is going to result in significant EPS dilution. If you are a stock holder of record, you have now received the rights, which are trading separately at about $1.61.

As part of its prospectus for the rights offering, UBS warned that it may experience more losses tied to real estate.

Bank of America became the latest shop to cut second quarter numbers on the investment banks, including Lehman (where they now expect a loss), Morgan Stanley , and Goldman Sachs . Bernstein also cuts estimates on Lehman, Goldman, Morgan Stanley.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 23 May 2008 | 9:42 AM ET

Out Of The Office

Posted By: Bob Pisani

I'm out of the office for the holiday weekend. I'll be back next week with more posts from the market floor. Hope to see you then.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 22 May 2008 | 3:39 PM ET

End of Energy Subsidies: Pro & Con

Posted By: Bob Pisani

There are signs that emerging-market governments who provide gasoline and other energy subsidies to their citizens are under intense pressure to lower those subsidies, and this is causing some trepidation among stock market bulls.

Consider:

--Indonesia has announced they are reducing subsidies on gasoline, in an effort to reduce their budget gap. This may increase fuel prices by 28 percent. Protests have already broken out;

--Taiwan has said electricity prices will be going up for the first time since 2006, and will allow local oil refiners to raise prices;

--Malaysia has said it would review its existing fuel subsidy program "soon;"

So far, we have not seen price hikes in China and India, both of whom are obviously worried about social unrest.

However:

--In China, rumors that China might consider lowering its considerable fuel subsidy program have generated several Chinese newspaper reports, where officials have denied that the government is considering lowering subsidies.

--In India, a major oil refiner, Bharat Petroleum Corporation Limited (BPCL) has announced that they are rationing gasoline to all of its stations, because the government has refused to allow them to raise prices.

Government energy subsidies are a two-sided coin. On one side of the coin, lowering or even ending government subsidies will help level the playing field and will lead to a reduction in demand. There is much truth to this: some countries have absurdly low gas prices ($0.89 a gallon in Egypt, $0.12 in Venezuela), which have clearly fueled demand.

On the other side, be careful what you wish for: these kinds of chain reactions are difficult to control, will almost certainly lead to more social unrest, and could have a much bigger impact on growth prospects for emerging market countries.

This is the scenario that worries bulls the most: the recent rally off the March lows has been predicated on the theory that the global economy--and global growth stocks--will not see the worst-case scenario bears are predicting. Oil at $135--and governments throwing in the subsidy towel--throws those assumptions into doubt, and makes it easier for fence sitters to continuing counting their cash.


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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