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Trader Talk with Bob Pisani

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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:

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CNBC's Companies in the News:

General Electric

Goldman Sachs

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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.

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New from CNBC.com:

- The Dow 30 at a Glance

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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.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  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

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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

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    Questions? Comments? tradertalk@cnbc.com

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      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

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    Questions? Comments? tradertalk@cnbc.com

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      Wednesday, 24 Sep 2008 | 12:12 PM ET

    Don't Forget About Housing--Some Fairly Good News There

    Posted By: Bob Pisani

    The Street is so obsessed with the Congressional hearings that some fairly good news on existing home sales went virtually unnoticed. Remember, it's housing that is the source of the problem.

    Existing home sales were slightly lower than expected at 4.91 m sales for August. While the inventory level of homes for sale is still well above normal, the good news is that it did come down, to a 10.4 months supply, the lowest in many months.

      • Realtors say existing home sales fell in August
      • Housing grim as financial rescue debate rages

    Put this together with the lower level of new-home inventories (housing starts have been plunging) and we can say that there is clearly some kind of bottom developing.

    What we don't have yet is a dramatic move off the bottom.

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    - The Dow 30 at a Glance

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      Wednesday, 24 Sep 2008 | 11:02 AM ET

    Bernanke: "...This Is A Matter For Psychology."  (UPDATE)

    Posted By: Bob Pisani

    "You ask me my opinion as an economist, but this is a matter for psychology."

    That's what Mr. Bernanke said to Senator Schumer, who has been pressing both Mr. Bernanke and Treasury Secretary Paulson for some agreement that would provide a lesser amount (say $150 billion) initially, and then have the next administration vote on providing more funds.

    Mr. Bernanke is wisely resisting this gambit. He noted that "dribs and drabs" was not a good way to deal with what is essentially a confidence issue. The Street will interpret passage of this kind of deal as a sign of lack of commitment, and bears will say it is possible a future administration would be hostile to the idea and not approve more money regardless of whether it was needed.

    Elsewhere, it's been a quiet open, even number of declining to advancing stocks, volume very much on the light side. No dramatic volatility in sectors, but note the weakness in select financial-related stocks: our parent company, General Electric, down 3.4 percent, Citigroup down 3.7 percent, American Express down 1.9 percent. Good thing you can't short them anymore.

    Update: "Putting capital into healthy or reasonably functional banks might frighten off private money that could come in."

    That's Chairman Bernanke, responding to questions about why he is resisting proposals to allow the government to take an ownership stake in companies in exchange for buying bad debt.

    He says that "concern might arise that the government is going to wipe out other shareholders" as a further reason not to entertain this idea.

    Mr. Bernanke is trying to distinguish between a bank who is failing and needs an injection of capital, where taking warrants might be appropriate, and the current case, where institutions are not failing. The Fed here is trying to return liquidity to the markets.

    Finally, requiring ownership, Mr. Bernanke warns, could dramatically lower the participation rate in the program.

      • Read Bernanke's Statement
      • Bernanke: Financial Crisis Threatens US Economy

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    New from CNBC.com:

    - The Dow 30 at a Glance


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      Wednesday, 24 Sep 2008 | 9:09 AM ET

    Goldman And Buffett

    Posted By: Bob Pisani

    Anyone want to look into trading in Goldman Sachsat the close yesterday? Goldman goes from $120 to $125 in the last 5 minutes of trading yesterday, while the broader market was dropping. Anything happen with Goldman after the close? Anyone?

    It's up 4 percent pre-open, by the way.

    In addition to buying $5 billion of preferred stock, Berkshire Hathawaywill also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, exercisable at any time for a five year term.

    Goldman is also raising at least $2.5 bln in common equity in a public offering, though Mr. Buffett says that will be raised to $ 5 billion.

    Buffett's involvement is a big positive, but it IS dilutive (just the warrants, at 43 million shares, would be 10 percent dilutive), and the capital raising is not coming at a cheap price.

    This comes on talk in Japanese newspapers that Sumitomo Mutsui Financial may also invest in Goldman.

    Elsewhere:

    1) Buffett, on our air, specifically said he would not be buying into Goldman if he thought the Treasury bill being considered in Congress was not going to pass. We will have another day watching Mr. Paulson get the stuffing beat out of him.

    Some traders are now openly speculating that if a bill cannot be passed in the form Treasury wants it, they may do it in pieces. This is not a desirable outcome.

    2) Mortgage rates went up, the 30-year fixed rate mortgage rose to 6.08 percent, from 5.8 percent last week. Applications to purchase homes dropped 10 percent.

    3) Lowe's reiterated its 2008 guidance and repeated they were on track to double their earnings in the next five years.

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

    _____________________________

    _______________________________________
    CNBC's Names in the News:

    Berkshire Hathaway

    Goldman Sachs

    _______________________________________


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Tuesday, 23 Sep 2008 | 5:28 PM ET

    Rescue Bill Drama, Global Slowdown Drag on Market

    Posted By: Bob Pisani

    Update: The House is moving quickly. They already have a Discussion Bill in circulation regarding the Treasury’s proposal. Click to see it here .

    Looks like they are not signing off on the $700 billion request.

    ----------------

    The Dow moved in a 300 point range (which is normal for the past couple of weeks) today to end near the lows, but the volume has been much lighter than last week.

    Weakness in the mid-morning -- on concerns that the Treasury bill under consideration in Congress would be watered down and burdened with punitive measures -- gave way to a modest rally as the hearing ended (!), then in the last half-hour we again moved down toward the lows of the day.

    Aside from the concerns over the Treasury bill, there was a very straight "global slowdown trade" that was on for the day, as large industrial and construction stocks (Fluor , Ingersoll Rand , Danaher , Deere ) were down 4 to 6 percent, while commodity stocks like US Steel , Alcoa , Newmont Mining and Freeport-McMoRan area also down 3 to 5 percent.

    Late Update: Word that two well-known investors were dipping their toes into the sea of financial assets are helping move futures up 17 points after the close:

    1) Warren Buffett is investing $5 b in Goldman Sachs has moved Goldman up about 8 percent after the close.

    Buffett is getting preferred stock at a 10 percent yield. While this might sound like an amazing deal, bear in mind that the Goldman Preferred B shares, for example, are trading at an 8.9 percent yield (par is 6.20 percent!). The shares are also callable at a 10 percent premium. So it is a good deal for him, but not unbelievable.

    2) J. Christopher Flowers, the founder of private-equity firm J.C. Flowers & Company, was approved by regulators to buy a small Missouri bank, the First National Bank of Cainesville, according to Bloomberg.

    The bank only has assets of $14 million, but there is considerable speculation that he may use this as a platform to buy other banks.

    These are two data points in a large sea, but in after-hours discussion traders are encouraged that two investors are finally ponying up for financial assets. CDOs, anyone?


    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.

     

    • 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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