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Trader Talk with Bob Pisani

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  Tuesday, 17 Jun 2008 | 9:24 AM ET

Goldman, Best Buy Beat And Where Tax Rebates Have Gone

Posted By: Bob Pisani

Goldman Sachs, as is their custom, beat by a wide margin, $4.58 vs. expectations of $3.42. While numbers were lower for many units compared to the second quarter of last year, there was a clear improvement from the last quarter. For example, Investment Banking was 2 percent lower than the second quarter of 2007, but 44 percent higher than the first quarter of 2008.

Trading and Principal Investments were 16 percent lower than the second quarter of 2007, but 9 percent higher than the first quarter of 2008. Asset Management and Security Services bucked the trend: 18 percent higher than the second quarter of 2007, and 5 percent higher than first quarter of 2008.

Goldman closed yesterday at $182.09, traded about $184 prior to its earnings release, and is now trading at $185.68.

Good report from Best Buy . They beat earnings expectations , and affirmed full year earnings of $3.25-$3.40 (expectations of $3.26). They had a very healthy comparable store gain of 3.7 percent, due to an increase in the average selling price because the mix had changed toward higher ticket items like flat-panel TVs, video gaming consoles, notebook computers, and GPs devices. Up 1 percent.

Potentially important report on Alzheimers. Wyeth and Elan trading up about 5 percent as a study of an experimental Alzheimer's drug they are testing show it is effective with some patients.

Interesting commentary from the International Council of Shopping Centers. They put out regularly weekly data, of course, but they noted a special consumer tracking survey taken a few days ago. According to the survey, 19% of households reported spending most of the tax rebate already.

The ICSC also reported the latest results from their monthly consumer gasoline price impact survey which showed that discretionary spending on such items as clothing, shoes, jewelry, consumer electronics, restaurants, spa and beauty services, or other non essential purchases, were being pared by a record 69% of households, with 42% reporting a considerable reduction and 27% reporting a modest reduction in spending.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 4:13 PM ET

Using Analysts As Contrarians?

Posted By: Bob Pisani

Stocks improved midday as oil could not hold its gains, but gave up much of the gains toward the close. Three stocks advanced for every two that declined.

Airline stocks, which are now microcaps (United has a market cap of about $800 m), gyrated all over the place; United moved in a 12 percent trading range.

After a month of having the stuffing knocked out of them, financials traded a bit better. The Lehman conference call went as well as could be expected, with a lot of detail.

Speaking of Lehman, you wonder why analysts drive me crazy? How about Guy Moszkowski at Merrill Lynch? The banking analyst downgraded Lehman when it was about $24 on Wednesday and upgraded it when it was about $33 in the beginning of June. So what happens? It is closing today at $27 and change; that call was the short-term bottom.

In fact, it might be possible to use analysts as contrarian indicators. Have you noticed how many analysts have suddenly gotten all gloomy over their space, even though they have taken down numbers? The theory here is that with the exception of a small group of aggressive analysts (perhaps 10 percent of the total), most analysts are slow to change their worldview; when many begin doing it all at once, it's a sign of capitulation.

Today a number analysts issued gloomy reports on their universe, even though prices are down significantly. For example:

--UBS noted that a 50 percent decline in KeyCorp'sstock in one month (!) "doesn't necessarily imply KEY is cheap;"

--JP Morgan seems convinced that a weak consumer and rising steel prices will cause Whirlpoolto miss or lower guidance;

--Unilever,Danone and Cadbury were downgraded at UBS, citing slowing growth in emerging markets;

--UBS downgraded AT&T and Verizon, saying the weak economy would hurt wireline and broadband.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 11:08 AM ET

JP Morgan On GE: We Can No Longer Recommend

Posted By: Bob Pisani

Long note from JP Morgan on our parent company, GE . Morgan downgrades GE; they also cut estimates for 2009 (to $2.30 in 2009 versus $2.42 previously and a consensus of $2.44).

Some highlights from the report:

--"Despite a valuation that now discounts bad news and an attractive story for the patient, long-term buyer, we can no longer recommend GE as we see further earnings risk and dislocation from necessary portfolio management in 2009."

--"Credibility is now damaged, and we are hard pressed to see a re-ignition in investor interest without more transparency. This, we think, can only be driven by a more simplified structure."

--"We think there should be further cuts at some stage over the next 2 years. Most of the developed markets assets in GE Money could go, with the rest folded into Commercial Finance. NBCU could be broken up and sold in pieces, giving prime-time some room to recover. It's even debatable that Healthcare should remain in the portfolio."


Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 9:22 AM ET

Market Issues For Week: Oil, Earnings, Financials

Posted By: Bob Pisani

S&P futures dropped about 5 points as the New York Empire State Index was notably weaker than expected and has been down 4 of the last 5 months, then dropped again on oil.

The most important issues this week:

1) we are entering earnings pre-announcement season.

2) whether oil can break significantly below the roughly $135 pivot; ; (NYMEX crude just hit a record, $139.89).

3) whether Goldman and Morgan Stanley will have any significant surprises this week.

Elsewhere:

1) Barclays up 5 percent; they have said they may raise capital with an outside investor (Reuters says it may include Singapore sovereign fund Temasek, which already has a 2 percent stake), but may also give existing shareholders right to take part.

2) AIG up modestly as CEO Martin Sullivan was forced out and replaced with Chairman Robert Willumstad, who will also retain the Chairman title. Willumstad was formerly President and COO of Citigroup.

3) Lehman came in in-line with its statements last week , a loss of $5.14.

4) Our parent company GE downgraded at JP Morgan, where they also cut estimates for 2009 (to $2.30 in 2009 versus $2.42 previously and a consensus of $2.44).


Questions? Comments? tradertalk@cnbc.com

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  Friday, 13 Jun 2008 | 4:27 PM ET

Regional Banks An Anchor On Markets

Posted By: Bob Pisani

Markets in the last hour:

A strong dollar and lower oil helped stocks today, enough to eke out a small gain of 0.8 percent for the Dow for the week (the only major index that was up this week).

The anchor on the market was regional banks; once again, most hit multiyear lows on continuing concerns of dividend cuts and the need to raise more capital.

There has also been a bit of a seachange in the mentality of traders recently:

1) many are now betting on Fed hikes, sooner than later. Normally, traders would not greet Fed hikes with any pleasure, but the fear of what oil is doing to the economy outweighs the fear of Fed hikes today.

2) the idea that "buy and hold" is a broken trading strategy. Traders have been sharing one and five year charts of big companies like Wachovia Bank, Pfizer,Merck, and General Electric (our parent company), all in an aggressive decline mode and at multiyear lows. Under this theory, the idea of just holding an index like the S&P 500 is not going to be of much help. It essentially turns everyone into a momentum trader; so everyone is now long energy and materials and short financials.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 13 Jun 2008 | 12:05 PM ET

Regional Banks Taking It On The Chin

Posted By: Bob Pisani

Bucking the rally. Following yesterday's announcement that KeyCorp would cut its dividend in half, a number of regional banks are notably weaker today.

Goldman Sachs sent a note out late last night with this title: Key is Likely Not Alone, More Capital Raises and Dividend Cuts to Come. They specifically mentioned Regions Financial, Fifth Third, Comerica, Bank of America and SunTrust; all but Bank of America are down notably. BofA already said this week that they would not have to raise capital or cut the dividend, assuming the U.S. avoids a recession.

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  Friday, 13 Jun 2008 | 9:16 AM ET

Twisted Thinking: Some Hail Consumer Inflation

Posted By: Bob Pisani

Crude oil is lower, and the dollar is up.

Consumer inflation is a tad hotter than expected. To show you how twisted things have become, some greeted this as positive news, since it supports their hope that the Fed will raise this year, which will help move the dollar up more. Under this thesis, dollar strength will put pressure on commodities.

Problem is, this theory was wrong yesterday. Stocks traders were bitterly disappointed yesterday, as a dollar rally failed to prevent oil from moving up.

The reason the dollar is rallying again as Irish voters rejected the European Union's Lisbon treaty, which may doom the EUs reform plan. The plan replaces a EU constitution that was already rejected by Dutch and French votes.

KeyCorp successfully raised $1.65 b in offerings of common and preferred stock (10 percent more than planned).

The $1 billion of common stock, consisting of 85.1 million shares, was priced at $11.75 each. Stock closed yesterday at $11,98, down 23.8 percent, down another 3 percent in pre-open trading.

US Air is jumping on the "business transformation" bandwagon, which is a fancy way of saying you're going to be charged for peanuts and don't check in any bags. There's going to be fewer flights, fewer employees. The cost of fuel is up 90 percent in 12 months. What does that mean? They estimate they will spend an average of $299 per passenger for a roundtrip, it was $151 in 2007, $70 in 2000.

The NYSE has finally made some long-awaited changes in its rules regarding specialist trading. Specialists are giving up something that was formerly very valuable. They will no longer get an advance look at incoming orders, but this had no value because they were getting very little orderflow. This allows them to trade on parity with incoming orders, whereas before they were not allowed to do that: they had to step to the back of the line. They also couldn't call a trading desk and were very limited in. The hope is that this will get them to be more involved in trading. The changes will take place in the next few months.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 12 Jun 2008 | 4:14 PM ET

Oil Spike Spoils Day On The Street

Posted By: Bob Pisani

Once again,an oil spike in the middle of the day has spoiled the modest rally we were enjoying. This has happened often, of course, but today's action was a bit more disturbing. Recall that many believe that if we could only get the dollar out of its recent trading range, that would pressure commodities and provide relief to stocks.

Today, the dollar index traded at its highest levels since February, certainly above its recent range, and it did not drop commodities. Maybe a sustained rally will, but this theory has got some holes short-term.

Airlines nosedived again, with AMR, United, and US Air down double-digits.

Morgan Stanley made an interesting call, urging clients to sell energy and buy financial stocks. Gutsy, but cynics were all over this call, saying why are you selling a sector where earnings are growing to buy a sector where earnings are shrinking?

Pharmaceuticals, which should have bounced after four days of heavy selling, did not. New lows for Merck,Sanofi,Bristol Meyers .

Other Dow components at new lows include GE (our parent company) and GM .


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 12 Jun 2008 | 1:04 PM ET

Frontier Investing

Posted By: Bob Pisani

You know about emerging markets, how about frontier markets--markets that are not quite emerging, but still have viable markets. Claymore has just today launched its Frontier Market ETF that will invest in countries like Poland, Chile, Egypt, Kazakhstan, Peru, and the Czech Republic.

The criteria: minimum share price of $3, market capitalization of $100 million, and trading volume of 10,000 shares a day. The index will only include depositary receipts--which are companies listed in the U.S. or other major developed market exchanges. May sound strange, but it does provide some layer of protection. It will be rebalanced quarterly.

We are also waiting for PowerSharesto launch their version, the PowerShares MENO Frontier Countries Portfolio.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 12 Jun 2008 | 12:23 PM ET

Reasons Markets Are Better Today

Posted By: Bob Pisani

Markets are better today for several reasons: 1) we have been hideously oversold recently, 2) retail sales better than expected (no it was not just gasoline sales), 3) the dollar index has rallied to its highest level since February, and 4) commodities, particularly oil (but not natural gas), are trading down.

After Lehman fired two top executives , the question is, does this give them any breathing room? The trust is broken--everyone thinks they will have to raise more capital, everyone thinks there will be more writedowns.

Cynics on the Street ask, why own Lehman? Their thinking is, even if it goes to $30 (currently $23), that would only happen if the business on Wall Street got better for everyone. If that's the case, why not buy less high beta names than Lehman?

That's why the call from Morgan Stanley to buy financials and sell energy is potentially important. The bulls, remember, are still betting that business for financials will get better: the yield curve is steeper, the deleveraging process is going on, companies are getting more capital, so when they get balance sheet in shape maybe they can make money again. So take some of that money out of energy and buy financials. It's still buy low and sell high, right?

They cynics—and there are many—say this is understandable, but think its a mistake as investor generally underweight the growing portion on the S&P and overweight the shrinking portion. They point out that the earnings of energy is still growing, while those of financials are still shrinking.

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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