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Trader Talk with Bob Pisani

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  Friday, 5 Sep 2008 | 4:55 PM ET

Market Needs Turnaround To Bring In Hedge Fund Cash

Posted By: Bob Pisani

If you're looking for something to blame today's early weakness on, you don't have to get very imaginative: 1) the unemployment rate spiking to over 6 percent will be the lead headline in many papers tomorrow, and 2) U.S. homes in foreclosure reaching 2.75 percent, up from 2.47 percent in the first three months of 2008. Delinquencies (30 days or more past due) stood at 6.41 percent, the highest since 1979.

The foreclosure number wasn't all bad: there were improvements in Texas, Massachusetts, and Maryland. But it was overshadowed by California and Florida, which accounted for 39 percent of all the foreclosures and a good part of the delinquencies as well.

Elsewhere, the big debate is what is going on with hedge funds, and what they may do in the fourth quarter. Everyone agrees that many funds have deleveraged and are sitting on large piles of cash. What will they do with it?

Bulls are hopeful that they will put it to work in the market--the argument here is that the U.S. represents a relative value play--that as the rest of the world slows down, we will come out of the slowdown first, making the U.S. the logical choice of investors right now. They point to recent action in the U.S. dollar to support their thesis.

This is an interesting argument--the problem is many traders I talk to aren't convinced. I've noted several times this week how sour the mood is on the Street. Here's why:

1) with such large losses in some funds, many traders are defensive and are not inclined to make big bets unless there is a much clearer turnaround in the market;

2) funds need a cushion to meet redemption requests, as well as margin calls.

Bottom line: the markets are going to have to move notably higher to suck in a lot of those funds sitting on all that cash.

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CNBC's Names in the News:

Palm

Rimm

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Questions? Comments? tradertalk@cnbc.com

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  Friday, 5 Sep 2008 | 9:20 AM ET

Rally After Down Day Or Continued Weakness?

Posted By: Bob Pisani

Futures dropped 10 points as the unemployment rate rose .4 percent to 6.1 percent , the highest since September 2003. The S&P will likely open in the mid 1,225 range; the key number here is 1,200, which was the July 15th intraday low.

We have seen a weak rally from the July lows that is now deteriorating; Demand for stocks has been weak and supply has been more than adequate.

Yesterday was a 90 percent downside day on both the NYSE and the NASDAQ, according to Lowry; in the past these sharp down days typically are followed by rallies of 2-7 days before a renewed decline. However, there were important breaks of support yesterday, which Lowry says, suggests potential for further weakness.

Elsewhere:

1) Nokiadown 11 percent, lowering its third quarter 2008 mobile device market share on weaker consumer confidence; they now expect it to be lower than in the second quarter. Motorola and Texas Instruments weak in sympathy

2) Goldman downgrades Merrill Lynch to sell: "With these markets still under pressure, we believe additional write-downs...and book value deterioration will continue to plague the stock." Merrill down 5 percent.

3) Elan looking for second-round bids for its drug delivery unit, Elan Drug Technologies. It could fetch between $1.3 and $1.4 billion. A few private equity firm are in the bidding.

4) M&A chatter floating around:

a) Tobacco firm Altria in advanced talks to acquire smokeless tobacco maker UST, according to the New York Times; UST up 23 percent.

b) Samsung may make a bid for SanDisk,according to online news provider eDaily. That would create a flash memory powerhouse. A SanDisk spokesperson said that they periodically have conversations with multiple parties, including Samsung. One issue: SanDisk already has a venture with Toshiba.

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  Thursday, 4 Sep 2008 | 3:09 PM ET

Sour Mood Invades The Street; Here's Why

Posted By: Bob Pisani

There is a sour mood on the Street today. This is the first time in a while all sectors are down despite a stronger dollar and lower oil...bears are now arguing that we will see more correlated moves going forward which, they say, is the way its supposed to be in a down market.

And what about oil? A cynical mood has taken over here, with traders arguing that while lower oil is a help to the economy, it is not the savior of the economy.

Wait, the cynicism gets deeper. The biggest complaint is the vicious moves in either direction. As one veteran trader told me this morning: "What I buy on Monday, goes down on Tuesday..what I short on Tuesday, goes up on Wednesday." This is the nature of bear markets, bears keep saying: all the bulls have their hearts broken. The difference here is that in THIS bear market even the bears get beaten up.

Internal indicators are terrible today:

1) several indices have broken to new lows: a) The NYSE Composite Index broke through its July low and is now at a 2-year low, b) the Dow Utilities broke to a 2-year low, and c) the Philadelphia Stock Exchange Semiconductor Index (SOX) broke to a 5-year low.

2) new lows on the NYSE are at their highest levels since just after the July lows.

Everywhere today there are reminders that investing has become a landmine:

1) Home builders Hovnanian and Toll Brothers have signaled that while there may be some signs of a bottom, there is no sign of a rebound in housing;

2) Retailers have reminded us that--outside of Wal-Mart--retail sales have been weak and the recent rally in retailers as an early cycle play may be overdone;

3) Machinery companies like Terexare reminding us that formerly strong demand for equipment is now slacking off;

4) Techs are weak, as companies like Cienaare saying that phone companies are delaying purchases of communication equipment due to a weaker economy; yesterday display companies like Corning and Lg Display are reminding us that even the formerly hot area of flat panel TVs are showing signs of slowing down.

Bulls argue that economic news has been better recently. That's true, but bears argue that the poor company commentary is a better leading indicator. The key point: the bearish position has consistently been the most accurate, and for the moment they retain the rhetorical upper hand.

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CNBC's Names in the News:

Boeing

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Questions? Comments? tradertalk@cnbc.com

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  Thursday, 4 Sep 2008 | 9:28 AM ET

Retail Results Just Plain Soft

Posted By: Bob Pisani

Productivity numbers were stronger than expected, but initial jobless claims just keep rising, now at 444,000, the highest levels since 2002. The Bank of England left interest rates unchanged at 5 percent, the European Central Bank also left interest rates unchanged at 4.25 percent.

Elsewhere:

1) Yesterday, Kohl's and JC Penney reported August same store sales slightly better than expected. Today Wal-Mart, Target, Gap, American Eagle (reaffirms third quarter guidance), Pacific Sunwear all reported sales above expectations. However, department stores did not fare as well: Saks and Nordstrom were both below expectations, although not dramatically. Mid-priced stores like Dillards, and Bon-Ton Stores were also weaker than expected, as was Abercrombie. TJX was weaker as well, that is surprising--off-price discounters have been doing well.

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  Wednesday, 3 Sep 2008 | 4:50 PM ET

How Market Played Out Today

Posted By: Bob Pisani

Commodities were lower, but once again it was no help for stocks. Commodity stocks were again sold off.

Techs were weak as Marvell gave what was perceived to be negative comments at a tech conference, while display stocks were down notably after Corning cut its outlook and LG Display made cautious comments.

Home Depot'sCEO helped retailers by saying that we were "getting awfully close to the bottom" in housing, as did Kohls and JC Penney, who both reported August same store sales roughly in line with expectations. The rest of the retailers report sales tomorrow. JC Penney at a 3 month high, Kohls and Limitedat highs for the year. Why, if the consumer is weak? This trade is partly based on the oil trade, partly it's just on faith: investors are looking to buy some early cycle names (Home Depot, Lowe's). Also, there are still tons of shorts in retailers.

Lehman up for a sixth straight day on word that other suitors may be interested in acquiring a stake in the company.

Finally, the Beige Book was a bit blue , in general the Federal Reserve districts said that"

--economic growth was "Slow"

--there was upward price pressure and

--tighter lending standards.

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  Wednesday, 3 Sep 2008 | 3:15 PM ET

Commodities "Taking It" On The Chin

Posted By: Bob Pisani

The big discussion today revolves around the continuing route in commodity stocks...the decline is so steep and severe that it is fueling theories that a liquidation is occurring due to: 1) another commodity firm going out of business (most likely), 2) prime brokers telling clients they don't want them in commodities, or 3) firms that lend in the commodity markets pulling back.

Just look at the last two days: Freeport McMorandown 11 percent, Potash down 11 percent, U.S. Steel down 11 percent, Barrick Gold down 9 percent.

And that's just metals and agriculture. In energy, Arch Coaldown almost 25 percent, Foundation Coaldown 16 percent, Bucyrus and Joy Global(mining equipment) both down about 25 percent.

Oil service stocks are getting clobbered as well: Weatherford down 11 percent, National Oilwell Varco down 15 percent, Nobledown 9 percent, Tidewater down 8 percent.

Folks, that seems like a lot more than demand destruction to me.

In the middle of this, oil services giant Schlumberger said that it expects North American natural gas drilling to stay strong through 2009. The reaction? Stock goes from $86 to $87, still down 3 percent. Strange.

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CNBC's Names in the News:

Apple

Home Depot

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 3 Sep 2008 | 11:26 AM ET

The Good News This Morning

Posted By: Bob Pisani

1) Oil continues to trend downward, and airlines are again among the most actively traded pre-open (I noted yesterday that oil is down 27 percent since its July highs but the S&P 500 is only up about 5 percent since its July lows);

2) the dollar rally continues, with the euro/dollar challenging the January lows;

3) mortgage rates have fallen to a 7 week low of 6.39 percent, and as a result applications to purchase homes rose 10.5 percent.

4) Home DepotCEO Frank Blake said “we’re getting awfully close to the bottom” of the housing downturn.

Still, looking for signs of a global slowdown has become something of a sport on Wall Street. Two signs today:

1) LG Display, a maker of LCD screens, said it would keep output at only 90 percent due to sluggish demand worldwide for flat panel TVs and computers. On top of slower demand, TV makers have been embroiled in a bitter price war that is squeezing margins for everyone in the business.
(Contd.)

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2) Paul Jacobs, Qualcomm's CEO executive, speaking on our air this morning, said there were some signs that consumers globally were holding onto their phones a little longer than expected before turning them in for newer models.

Elsewhere:

1) commodity hedge fund manager Ospraie Management said it would close its flagship fund. Lehman owned 20 percent of the fund. Separately Korea Development Bank proposed buying 25 percent of Lehman for up to $3.5 billion, according to newspaper reports.

2) GM President and COO Fritz Henderson said he expected vehicle sales in the U.S. to fall to the low-14 million level, down from 16 million last year. Separately, the company said they were extending the Employee Discount For Everyone plan for another month.

3) Furniture seller Ethan Allendown 6 percent, they announced earnings would be below expectations, noting that sales volumes were "substantially lower" in July and August.

4) ConAgra down 7 percent as they also announced earnings would be below expectations due to underperformance in the Consumer Foods division due to higher costs. Merrill Lynch and JP Morganlowered their rating.

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CNBC's Names in the News:
(Click on ticker for headlines)

Morgan Stanley

Coca Cola

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 2 Sep 2008 | 5:34 PM ET

Why Tuesday Was a Let-Down

Posted By: Bob Pisani

There's no getting around it: Tuesday was a disappointment. A half hour before the market opened, oil was at $106, down about $9 and traders on the floor were anticipating that the Dow would hold onto what looked like a 200-point up day, the S&P a 20-point up day.

  • Video: Pickens Doesn't See Oil Below $100

But the high was right after the open, and we drifted lower from there, until a tech-led selloff just before 2pm ET ignited the final down leg in the market.

Why a disappointment? Because bears have successfully argued that the decline in commodities is due to the global slowdown. They say savvy stock investors know this: with oil down nearly $40 from its highs in July (a decline of 27 percent), the S&P has only managed to eke out a gain of about 5 percent since its July 15 low. That is a disappointment.

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Bonds seem to have attracted the money that came out of the stock market. Bears note that a rally in bonds is in keeping with the global slowdown theme that was behind today's selloff.

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CNBC's Names in the News:

- Lehman Bros.

- Apple

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 2 Sep 2008 | 12:07 PM ET

Great Commodity Unwind Picks Up Steam

Posted By: Bob Pisani

The Great Commodity Unwind of 2008, which began in July, picked up steam this morning. Remember the trade: investors have not only been long commodities, they have been long the currency of major commodity producers like Australia, and short the dollar. That unwind is now accelerating, with positive implications for U.S. consumers and stocks.

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Need To Know:

Where Oil Prices Head Next: Experts Weigh In

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Lower commodities, particularly lower oil prices, gives households more purchasing power. What would benefit most from that effect? Autos, housing and retailers -- consumer discretionary stocks, and that is exactly what is rallying today.

Financials are also rallying, since more purchasing power from consumers means more loans, fewer defaults.

But bears are urging reality check on all the bullishness:

1) we have not heard the end of the negative story on financials. Forget the credit crunch; how's business in general?
(Contd.)

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Here's what Meredith Whitney at Oppenheimer said this morning:
"For example, last year during this time, almost $900 billion of mortgage backed paper was issued in the U.S. Year to date, the comparable number is $140 billion...While debt and equity underwriting volumes has grounded to all but a halt for several months now, trading volumes have now slowed materially. In August, trading volumes on each of the major exchanges were down double digits."

2) What about tech? As one trader noted, techs were preferred as an early "safe" play since most companies are not dependent upon debt and the credit markets for financing, and the sector has been a primary beneficiary of global growth. (See: "Ex-Bear: Time for Tech Stocks ")

But Dell's downbeat commentary has thrown doubt on the extent of global growth techs will see.

3) Finally, for the true cynics, let it be noted that we crossed 1,300 on the S&P 500 once again this morning; the first time we crossed it was in the beginning of 1999, almost ten years ago!

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CNBC's Names in the News:

- Alcatel-Lucent

- Google

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 2 Sep 2008 | 9:34 AM ET

Dollar/Euro Highest Since Feb.; Commods Drop

Posted By: Bob Pisani

Stocks opened stronger in Europe on a generally more positive tone for stock markets; however, the economic weakness in Europe is front and foremost. The British pound is at the lowest level in two years: the Chancellor of the Exchequer said that the British economy could be in its worst slump in 60 years.

Dollar at the highest level since February against the euro.

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Commodities are down across the board: not just natural gas down 7 percent, oil down 6 percent, gasoline down 6 percent, but also cocoa down 6 percent, platinum down 6 percent.

Ahead of the OPEC meeting next week OPEC may need to cut oil supplies by as much as 1.5 million barrels per day, or nearly 5 percent, Iran's OPEC governor said on Tuesday.

The commodity drop is having a predictable effect on equities pre-open:

1) airlines are catching a notable bid, with US Air, AMR , Delta , Northwest and Continental all up double-digits.

2) commodity stocks like Rio Tinto , BHP Billiton , Statoil, British Petroleum, and Harmony Gold are all trading down high to mid single digits.

Elsewhere:

1) Lehman Bros. up 7 percent after state-owned Korea Development Bank confirmed it was in talks about a possible investment. Note that the head of KDB, Min Euoo Sung, was the former head of Lehman's Seoul branch before he joined KDB in June.

2) financials in general are rallying.

3) re-insurers and some insurers in are rallying in Europe on Gustav not the event that was feared.


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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