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Trader Talk with Bob Pisani

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  Thursday, 24 Jul 2008 | 9:36 AM ET

Fannie Mae Gets Boost -- Mixed Results Elsewhere

Posted By: Bob Pisani

Fannie Mae up 6 percent pre-open as the House overwhelmingly passed the housing bill. It will get new regulators for Fannie and Freddie, and authorizes the federal government to potentially invest billions in the two companies.

A couple consumer companies indicated slower sales for the second half of the year:

1) Hotel giant Starwood reported earnings above expectations, but guidance for the second half of the year is below expectations, due largely to expected shortfalls in timeshares (timeshare sales declined 25 percent in the second quarter, with average prices down 19 percent).

2) Chipotle Mexican Grill was a bit light, and I'll leave it to Raymond James to describe why the stock is trading down 14 percent pre-open: "Management indicated that comps decelerated as the quarter progressed and have slowed further in July on the first visible signs that its sales are being impacted by macro headwinds. Management also increased its caution about food inflation through next year -the combination of slowing sales and rising cost pressures should bring 2009 Street estimates down sharply from the $3.40 level."

Elsewhere:

1) MMM reported earnings just a tad below expectations, but here's the remarkable stat: they made $1.33 in the second quarter, but they made $1.25 for the same period last year. How many companies INCREASED their earnings from the same period last year. How did they do it? International sales now account for two-thirds of MMM's total revenues. Latin America up 32 percent, Europe 18 percent, Canada 14 percent, Asia Pacific up only 1 percent. They reaffirmed their full year guidance.

2) Speaking of rising profits...Dow Chemical's $14.89 b top line was up 23 percent, thanks to double-digit price increases. But raw material and energy costs increased 42 percent; that's why earnings at $0.81 was below expectations of $0.85. CEO Andrew Liveris said he believed the U.S. economy would continue to weaken for the rest of 2008, and the outlook for the global economy was uncertain.

3) Things are not getting better for homebuilder Ryland . They reported earnings of a loss of $5.70, well below the expectations of a loss of $0.79, due largely to impairment charges. In this case, the value of the land and inventory dropped--a lot. How much? According to Raymond James, "the land and inventory charges of $180 million are more than 6x the amount charged off in 1Q:08 and Ryland's second largest quarterly write-off to date."

4) In Europe, Credit Suisse earnings stronger than expected ($1.17 b) --in fact about double what was expected. Up 6 percent pre-open.

Also in Europe, GM and Ford aren't the only ones having problems: Daimler issued a profit warning, citing higher raw material costs.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 4:06 PM ET

Reminders Of Just How Bad Things Are

Posted By: Bob Pisani

We had a couple reminders midday about how poor economic conditions are:

1) the Fed Beige Book describes the economy as having 'slowed;"

2) JD Power cut their outlook for auto sales, projecting a 12 percent dip in sales for 2008 compared to 2007 (to 14.2 million cars and trucks), which would be the lowest level since 1993

Still, a number of factors helped stocks today:

1) housing bill near passage in the House of Representatives
2) commodities decline
3) dollar up
4) bonds downs
5) earnings affirmations from companies like Pfizerand Whirlpool
6) FDIC Chairperson Sheila Bair saying she did not see another IndyMac-size bank failure

However, there is considerable debate about the financial rally that began last week. There are bulls and bears here, but here is the consensus:

--a floor is in, but financial stocks are now overbought
--the 6-day rally is running out of steam
--fundamentals for financials are still poor, sideways trading is likely for the next several months

Home builder Pulte reports after the bell; MMM, Ford and Potash report tomorrow before the bell.

Update: I noted that there was considerable debate today about where financials might be going. Most agree that they are overbought short term. After the close, here’s what Birinyi had to say:

“Six days ago we highlighted the fact that the financial sector was the most oversold since the Crash of 1987 (the second most oversold ever). While the sector is technically not overbought, at just .65% above its 50-day average, (overbought would require a reading of approximately +15%) we would caution that the sector has just had its greatest six trading day change ever at +30.79%.”


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 11:34 AM ET

Rally: We're At A Very Important Point

Posted By: Bob Pisani

A number of trends are providing modest boost to stocks this morning: congressional legislation, a continuing modest dollar rally, commodities like oil and metals continuing to decline, and bonds down, earnings reaffirmations.

We are at a very important point in the rally, the point where bulls start questioning whether the bear market is over or not. Short-term it can be argued that we are overbought, certainly in financials. But overbought in a bear market is different than overbought in a bull market.

In a bull market, as Lowry has noted, overbought readings are considered a sign of strength. However, in a bear market overbought readings are clearly a signal to take profits.

So which is it? If the bear market is over, then these signs of strength are good. If the bear market continues, this is a classic bull trap that will end badly for those who have gotten in during the last week.

The bears can argue that while we did have strong volume and a reversal last week, we had no 90 percent upside days, i.e. days where the ratio of upside to downside volume exceeds 90 percent. This is the classic sign of a surge in investor demand and often looked for at market bottoms.

The lack of a 90 percent upside day is a problem for bulls.

Bulls argue that the selling climax in the XLF, the ETF that is the financials index, was sufficient for a bottom in financials.

The S&P is now sitting at the closing low levels for March (1277 or so).


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 9:15 AM ET

Key Earnings Phrase: Reaffirms Full Year Guidance

Posted By: Bob Pisani

Several factors helping stocks this morning: oil continues to drop, lots of legislation moving through Congress, and several important companies reaffirming full year earnings.

After the close, Washington Mutual reported earnings notably below expectations. The bad news is that there is more credit deterioration, which is creating more provisions for losses. The good news is the company felt they had "sufficient capital", with $40 b of available liquidity at the end of the quarter, and that 2008 would be the peak year of loss provisioning.

Elsewhere, earnings are coming in fast, and what you want to look for here is the frequent recurrence of the word, "reaffirms full year guidance."

1) Two slightly different results from two aerospace giants. Boeing was a bit light on top and bottom line in what one analyst called a "messy" quarter, though they did reaffirm their full year guidance for 2008 and 2009. They had previously announced they would take a charge for a delayed military plane contract. They cited strong global demand for their products and services.

General Dynamicsdid beat on top and bottom line, and guided higher for the full year, $6.00-$6.05 from $5.55-$5.65.

2) Whirlpool beat on top and bottom line and reaffirmed full year guidance (they had lowered guidance in April). Still, this was impressive, given that they had significantly higher material and oil costs. North American sales declined 4 percent from the prior year. But sales in Europe were up 17 percent, much of it due to currency gains. Up 8 percent pre-open.

3) Pfizerbeat by a penny and beat on the topline , they too reaffirmed full year guidance.

4) McDonald'sbeat, and international sales continue strong . U.S. comp sales were up 3.4 percent, Europe up 7.4 percent, Asia/Pacific, Middle East and Africa up 5.5 percent.

5) A bit of a surprise from wholesaler Costco. They pre-announced earnings "well below" consensus of $1.00, due largely to higher inflation costs . They particularly noted the pressure to hold prices, despite cost increases. This is creating pressure on rival BJ's Wholesale, which is down 9 percent pre-open.

6) Finally, watch the housing bill. The House is expected to vote on it today, and the President has dropped his opposition to it. Fannie and Freddie trading up, as they would be beneficiaries.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 4:36 PM ET

Financials Rally A "Violent" One

Posted By: Bob Pisani

A wild trading day in financials. How confusing was it? After the close, Washington Mutual reported what initially looked like disappointing earnings (the stock traded down), then when everyone looked a little more carefully, noting the company said it had “sufficient capital”, with $40 billion of available liquidity at the end of the quarter, and that 2008 would be the peak year of provisioning, the stock turned around and is now trading up.

For the trading day, there was two separate rallies, one early in the morning on oil dropping to 6 week lows, a dollar rally, and a move up in financials, was followed late in the day by another broad rally that lifted stocks to their highs of the day.

Banks had held their gains since mid-morning, when Wachovia Bankturned around as the CEO said he was not going to issue more common stock as a capital raising plan (no word on preferred).

Financials gained a bit of steam late in the day as influential bank analyst Mike Mayo at Deutsche Bank put out a note where he seemed to get a little less bearish: "We now would reduce the degree of our underweighting on the group," he said.

The reason:

1) no new capital issuance for most banks in Q2

2) margins improved more than expected

3) problems have not spread as much as feared

Still, the rally in financials was a violent one: the Bank Index, for example, moved in a nearly 15 percent trading range from its low to its high.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 11:24 AM ET

Repeat Of Financials Selloff Seems In Doubt

Posted By: Bob Pisani

Stocks are rallying, as oil has come down on a growing sense that Tropical Storm Dolly will miss the Gulf oil refineries.

Financials are also moving up; for all the disappointments associated with

Wachovia

missing big and cutting dividends, there is a sense that the downside might be limited here, a sense that financials are in buy the dip mode.

There's no doubt last week's trifecta of financial news (bank earnings above expectations, new limitations on naked short selling for select financials, and the Fed/Treasury helping out Fannie/Freddie) was the major factor in this new line of thinking. So today, for example, we are seeing considerable buyers on weakness in financials.

Will we see the kind of selloff in financials we saw in June? Not clear, but some are again betting we will not.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 9:12 AM ET

Earnings: Glass Half Empty Or Half Full?

Posted By: Bob Pisani

A very mixed earnings picture in the last twelve hours. Yes, AmEx, Apple, and Merck and Texas Instruments disappointed. But DuPont, Suntrust and Packaging Corp. were better than expected. But UPS hit the estimate, and Caterpillar's strong report helped turn the futures up at 7:30 am ET, though we are still down.

Banks:
Wachovia,as feared, slashed its quarterly dividend 86 percent , however there was no capital raise. The Golden West deal has turned out to be a mess, as there are large losses there. Down 9 percent. They weren't the only ones cutting the dividend. Regions Financial cut their dividend, to $0.10 from $0.38. They reported earnings below expectations, $0.39 vs $0.43 analyst estimate.

KeyCorp reported a loss, though not as great as expected. They had previously cut their dividend.

Bottom line: as expected, the regional banks are continuing to increase provisions for loan losses.

Elsewhere:
1) With the disappointment from AmEx, expect the rest of the credit card companies--Visa, Discovery, Capital One, Mastercard--to trade down, at least at the open.

2) Not great news for the communications sector this morning, as Texas Instruments disappointing results and guidance below expectations, combined with Vodaphone cutting its revenue outlook, is weighing on the whole sector. Vodaphone and TI down 13 percent pre-open, Erickson trading down.

3) Caterpillarbeat on top and bottom line , and raised full year guidance. Again, the mix of sales is continuing to move overseas: sales outside North America increased 30 percent, while sales in North America increased 7 percent. The 2008 guidance reflects "considerable strength in sales to the developing world."

4) DuPontbeat ontop and bottom line, and raised their full year guidance slightly, though the gain seems to be coming from the beat in the second quarter. How much are higher costs hurting them? Local selling prices increased 7 percent, but energy, raw material and freight costs increased 15 percent.

5) Our parent company GE announcing an $8 billion joint venture with Abu Dhabi investing agency Mubadala Investment; says they see becoming one of GE's 10 biggest shareholders; stock trading up pre-open. CEO Jeff Immelt will be on "The Call" at 11 am ET.

6) UPScame in in-line, but guidance had already been lowered . The new guidance for the full year is $3.50-$3.70, but they had given $3.90-$4.20 previously.

7) Friedman Billings Ramsey making an interesting call on Microsoft,noting that the current buyback is expiring, and urging the company to consider a leveraged buyout, which would take advantage of its $23 billion cash balance and be nicely accretive.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 5:03 PM ET

Bulls Find No Joy In After Hours Session

Posted By: Bob Pisani

Not a great after-hours session for bulls:

1) American Expressreported a notable miss ($0.56 vs. expectations of $0.83), and it's not hard to see where the bulk of the miss came from. a $600 million ($374 after-tax) addition to U.S. lending credit reserves.

"Credit indicators deteriorated beyond our expectations, CEO Kenneth Chenault said.

More from the release:

--"we are no longer tracking to our prior forecast of 4-6 percent earnings per share growth"

--"we do not expect to meet or exceed our long-term financial targets until we see improvement in the economy"

--the environment has weakened considerably since January, particularly during June

--"the scope of the economic fallout was evident even among our longer term, superprime Cardmembers"

AmEx down 10 percent after the close.

2) Apple beat estimates, the Mac and iPod sales were strong , but gave typically conservative guidance. Traders know they typically lowball the guidance by 5 to 8 percent; problem is that the guidance for the current quarter (about $1.00) is well below the analyst estimates for the current quarter ($1.24). Down about 5 percent after the close.

3) Merckhas suspended guidance to assess the effect of the Vytorin announcement today ; down 6 percent after the close after being down 6 percent during regular trading hours.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 1:36 PM ET

What Happened To Market? Financials Run Out Of Steam

Posted By: Bob Pisani

If you're wondering what happened to the stock market today, it's simple: financials are running out of steam. Yes, Bank of America had a great report, but we are now going into a whole raft of lesser-quality financial names in the next two weeks (I'm talking regional banks) and that clearly has the Street nervous.

On top of that, where's the support from the rest of the market? Techs, consumer staples and telecoms have done nothing for several days. Last week's move up in retailers, autos and home builders also lasted two days (Wednesday and Thursday) and then died.

Skeptics correctly point out that last week's trifecta of news (bank earnings above expectations, new limitations on naked short selling for select financials, and the Fed/Treasury helping out Fannie/Freddie), primarily benefited financials. What's changed for everyone else since then, skeptics ask? Not much.

Finally, skeptics point out that there may still be tougher times for financials...not just writedowns, but there has been a lot of talk about a Financial Times article over the weekend quoting Sheila Bair, FDIC chairman, that it is "likely" they will be raising premiums for deposit insurance due to the FDIC takeover of IndyMac.

Some are calling this a "stealth tightening" because it increases costs and lowers the amount of money that could be lent out.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Jul 2008 | 9:13 AM ET

Are Banks Overbought?

Posted By: Bob Pisani

Bank of Americamade it four in a row with big banks beating expectations, and beating big: $0.72 is 40 percent higher than the $0.53 expected . Revenues were a knockout as well: $20.32 billion, 10 percent above the estimate of $18.37 billion.

Highlights:

--Net interest margin (the difference between what you pay out and what you charge) expanded because loan growth grew and there was migration from higher cost CDs into lower cost money market deposits;

--There was loan growth and a well as higher income from service charges, mortgage banking, and investment/brokerage services

--Average retail deposits up 12 percent, half from organic growth and half from the acquisition of LaSalle Bank.

--The dividend was covered, and there was no word on whether it would be cut.

On the downside:

--Credit quality continued to weaken, "particularly in markets that experienced the most significant home price declines."

None of this reflects the Countrywide acquisition, which closed on the first day of the quarter. BofA up 11 percent pre-open. With financials up again this morning, a lot of traders are asking, are banks now overbought? Lots of nervousness about Wachoviatomorrow. Writedown $1.2 billion, less than some analysts expected.

Elsewhere:

1) Bonds are down again on the B of A earnings.

2) Roche bidding for the rest of Genentechthat they don't already own; $89 a share in cash. Roche acquired a majority Genetech way back in 1990; they currently own 55.9 percent of the outstanding shares.

3) Oil service giant Weatherford missed earnings expectations by a couple pennies and is down 4 percent pre-open.

4) Target's2008 and 2009 estimates were lowered at Bank of America, traffic continues to be weak.


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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