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Trader Talk with Bob Pisani

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  Tuesday, 1 Jul 2008 | 9:14 AM ET

How Bad Is It? Even Liquor Sales Are Down

Posted By: Bob Pisani

Historically, the first day of the third quarter is an up day, but we are starting on a down note. Housing numbers are weak in the U.K., so the FTSE is down nearly 3 percent and sitting near a 52-week low.

Traders are scanning the horizon for some kind of bottom--some kind of selling climax, but it is not immediately obvious what that will be.

Elsewhere:

1) The rest of Europe is weak as well, as UBS is down 5 percent after announcing a management restructuring, including the elimination of the Chairman position and a stronger role for the board of directors. Four board members are resigning; replacements will be elected in October. Remember UBS recently issued over $15 billion on a major rights issue; the stock is now trading below even that deeply discounted price. UBS, which was close to $60 13 months ago, has just broke below $19.

2) Morgan Stanley out late last night with positive comments on Lehman--"Bruised, Not Broken – and Poised for Profitability" was the title of the piece. They initiate coverage with an Overweight rating and a $31 price target. "We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing."

3) Auto sales, out later in the day, are also likely to be difficult, as Toyota may pass GM as the largest auto manufacturer and total numbers are expected to be down some 15 percent compared to June of last year; the numbers are likely to be well below 15 m annual sales projected just a couple months ago, somewhere in the range of 12-13 m.

4) How bad is it? People aren't even drinking as much, for cryin' out loud. Fortune Brands is down 6 percent after lowering their earnings guidance for Q2 and the full year--yes that Fortune Brands that owns liquor (Jim Beam, Maker's Mark, Canadian Club, Sauza, Courvoisier), golf equipment (Titleist, Cobra), and home products (Moen, MasterBrand cabinets).

OK, it's not surprising the home products division was weak--but a lot of traders were assuming the spirits division would hold up reasonably well--they had been doing well convincing the world to trade up to more expensive spirits.

It should be noted that some of the problems are also due to additional taxes on ready to drink alcohol in Australia, which is lowering consumption there.

If that wasn't enough, there are also additional cost pressures from steel & particle board.

5) Rio Tinto got increases in their iron ore prices (at least 80 percent) from South Korea.

6) Two IPOs may price tonight. On the NYSE, Galiot Capital, a mortgage REIT, is seeking to raise 16.7 m shares at $15-$18. It's a tough time to go public as a mortgage REIT.

The other, at the NASDAQ, is getting a lot of buzz: Energy Recovery (ERII) is seeking to raise 14 m shares at $7-$9. They are in a hot space: water desalination. Also pricing tonight.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 30 Jun 2008 | 4:09 PM ET

Ending One Strange Quarter--No Other Way To Describe It

Posted By: Bob Pisani

We are ending the quarter the way we lived most of it, with energy stronger and financials weaker. However, this is one of the strangest quarters in my nearly 12 years at the NYSE. Look at this strange spread between the major indices this quarter:

Dow down 7.1%
S&P 500: down 2.9%
NASDAQ up 1.2%
russell up 1.0 %
Midcap up 5.6%

Two points about this data:

1) It's the first time the Dow is down 3 quarters in a row since 1977-78.

2) The point spread between the Dow and the S&P: is the widest since Q4 2000. Why? First, many smaller cap stocks (some of which are in the S&P) did better than the larger cap stocks that are in the Dow; more importantly, financial stocks just got killed in the Dow.

Dow financials this quarter:

AIGdown 39%
BofAdown 37%
Citi down 22%
JP Morgan down 20%

Little wonder that financials are among the big sector losers this quarter:

Housing down 25%
Banks down 26%
Airlines down 40%

While the sector gainers are the usual suspects...energy:

Sector gainers Q2
Oil services up 26%
Natural gas up 24%
Oil stocks up 15%


Questions? Comments? tradertalk@cnbc.com

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  Monday, 30 Jun 2008 | 12:19 PM ET

Bear Market? Not There Yet

Posted By: Bob Pisani

Everyone is making a big point that the Dow has reached bear market territory, which is down 20 percent from its previous highs. This is true, but may not be interesting, since Lowry's and others have noted that the average bear market in the last last 80 years has been 30 percent off its highs.

Furthermore, while big caps are getting killed, it is a different story elsewhere. The small-cap Russell 2000 is down 18 percent from its July high but well off its lows in March. The Midcap Index (11 percent off its July 2007 highs) is also well above its March lows.

The hope here is for a short-term bounce. The Dow has been up 15 of the last 18 years on the first day of the third quarter (that's July 1, folks), according to Stock Trader's Almanac. I know, pretty obscure, but that's the kind of obscure stats that are being passed around these days.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 30 Jun 2008 | 9:29 AM ET

Traders Seek Positives In New Quarter

Posted By: Bob Pisani

Traders are again seeking some short-term catalyst out of the stock market doldrums. It's likely we will get a one or two-day bounce as the new quarter begins tomorrow, but with oil remaining at a record and the dollar rally falling apart last week, that hope is thin gruel indeed.

The dollar is again an issue, as euro zone inflation jumped to a record 4.0 percent in June, and the ECB will almost certainly raise rates this week.

Elsewhere:

1) H&R Blockearnings beat expectations , and 2009 earnings guidance is slightly above expectations. Once again, international growth was stronger (6.1 percent) than U.S. growth (3.8 percent). Up nearly 9 percent pre-open.

2) Good heavens, someone finally said something positive about our parent GE! No less an ax than Robert Cornell at Lehman today said that "shares could be near a bottom." Why? He notes that history suggests that shares of GE could trough at a 25% discount to the S&P500 (where they were about 1989-1992). Cornell says shares are currently at an 18% discount to the market. "We think shares could return to up to 20% premium as current headwinds from GECS exposure, 1Q08 miss & evolution dissipate," Cornell concludes.

OK, it's not an upgrade, but it is a positive comment.

3) The Chicago Mercantile Exchange is moving its listing from the NYSE to NASDAQ--what's going on? The NYSE wants to get into the futures business, that's what's really going on here.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 27 Jun 2008 | 8:40 AM ET

Out Of The Office

Posted By: Bob Pisani

I am not on the trading floor today so no blog posts. I'll be back on Monday so I'll see you then. Have a good weekend all.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 4:05 PM ET

Traders Just Plain Confused

Posted By: Bob Pisani

There is a change in sentiment as traders are trying to get their hands around the extent of the slowdown in global growth.

New issues for the market:

--global growth slowing

--poor guidance from Oracle,RIMM

--sector weakness spreads beyond financials & autos

At the same time, some old issues won't go away:

--housing bottom uncertain, as indicated by Lennar'sresults;

--oil & dollar not moving in right direction.

--endless cutting of estimates for financials

Of the issues the market has addressed today, slower global growth is a particular concern. Oshkosh, which makes heavy-duty vehicles for many commercial industries, is getting a lot of trader attention because they talked about weak business here and overseas, with specific reference to softer conditions in western Europe, so companies that make any kind of heavy equipment are weak today, including Terex,Caterpillar, Federal Signal , or heavy duty truck companies like Navistar and Paccar .

On top of the slowing growth issue, we have central banks raising rates in all the markets where growth is occurring, particularly emerging markets, which is adding fuel to the fire.

Bottom line is traders are confused. The market is messing with their heads:

1) blue chips dropping 3-5% a day? What's cheap anymore? They don't know.

2) traders complain stocks are oversold, but they are not Oversold, they're Underowned. No one wants them right now, which makes cash attractive.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 2:08 PM ET

Global Growth Slowing And It Hurts

Posted By: Bob Pisani

Stocks are weaker here today, and while I have enumerated many reasons (see my previous post) , the main concern is that global growth appears to be slowing.

Here, you want to look at capital goods companies. In the last two days, two midcap companies have lowered their guidance:

1) Today Oshkosh, which makes heavy-duty vehicles for many commercial industries, talked about weak business here and overseas, with specific reference to softer conditions in western Europe, so companies that make any kind of heavy equipment are weak, including Terex, Caterpillar, Federal Signal, or heavy duty truck companies like Navistar and Paccar.

2) Yesterday Rockwell Automation, makes factory automation systems, yesterday warned that business was slowing in the U.S. and Europe and lowered its fiscal year guidance, which ends in September.

This may not seem like a lot, but on the heels of warnings by UPS and other companies about suddenly slowing business in June traders are clearly nervous that more companies will be revising their earnings outlook downward.

And they are increasingly nervous about slower growth in Europe, as well as slower emerging market growth.

The comments from Oshkosh are particularly important, since they sell to many different industries, including the non-residential construction industry. Today stocks that have significant exposure to this area are also weak, including Tyco, United Technologies, Emerson, and H&E Equipment Services.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 12:59 PM ET

Market At Bottom--Or Not? Answer Seems No

Posted By: Bob Pisani

The market is dealing with multiple issues today:

--initial jobless claims creep up

--GMdowngrade

--Financial weakness on downgrades

--techs weak on guidance

--aerospace continues weak

--oil trading at top end of its range

--dollar at a three week low.

The Dow is at a 21-month low; recall that the Dow has underperformed the other indices this month because financials and autos have been getting killed, but now we have other sectors under assault, particularly aerospace, and today even techs, which have held up comparatively well, are under assault thanks to Oracleand RIMM's comments.

And still we wait for a bottom, scanning the horizon like sailors lost at sea. We look for the classic signs, including a capitulation bottom, which is not evident.

On the Street, bitter complaints we are Oversold and due for a bounce, but are we Oversold, or Underbought? Lowry's, the oldest technical analysis service in the U.S., notes that while traders are bitterly complaining about oversold conditions, the trading patterns do not indicate that heavy selling is occurring. Rather, this current down phase looks more like the market is Underbought; traders show no interest in adding to stock positions.

This is different than January and March, when we did indeed see heavy selling.

So are we at a bottom or not? Lowry's suggest we are not: "Capitulation selling has, historically, been considered one of the primary elements in signaling the final phase of a bear market. If that's the case, then the recent market low fails to qualify, as the selling that preceded the low was substantially lighter than the selling leading to either the Jan. or Mar. lows."


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 26 Jun 2008 | 10:12 AM ET

Looks Like Downbeat Day For Market

Posted By: Bob Pisani

So let's see, we have problems:

1) it's another beat-up-the-brokers day, let's take the estimates down (see below);

2) With the Fed out of the way, it is now all about second half earnings and guidance. Several important companies have been notably downbeat on their outlooks today:

--RIMM,one of the last darlings of momentum traders , down nearly 10 percent after their second quarter guidance is below analyst consensus;

--Oracleissued a conservative forecast that has got tech buffs worried that tech sales may be weaker than bulls expected,

--to illustrate how downbeat the Street is, Nikeis trading down, though they reiterated 2009 revenue growth targets "in the high single digit" percentages;

3) initial jobless claims continue to creep up.

Back to brokers:

What is this, beat up on Merrill Lynch day? Yesterday I noted that the biggest fear on the Street was the lack of catalysts for owning stocks this summer, post-Fed announcement, particularly for financials. That fear is being born out by financial analysts today.

Start with Goldman Sachs cutting estimates on all the brokers. Your first reaction should be, "So? Everybody has!" And you would be right, but now we are entering a new period of one-upmanship (you can thank Meredith Whitney for this), where brokers are trying to get out ahead of the companies (and the rest of the Street) by taking numbers WAY DOWN.

Back to Goldman: remember they raised their view of brokers after the Bear Stearns debacle? Well, today they reduced their view (to Neutral from Attractive), "as we see limited near term catalysts."

They added Citi to the Conviction Sell List, because they see additional write-downs ($9 b for Q2), higher consumer provisions as a result of rapidly deteriorating consumer credit trends, and the potential for additional capital raises, dividend cuts, or asset sales. Anything else? Oh, they moved estimates to a loss of $0.75 from $0.25.

They cut estimates for Merrill too, estimating $4.2 b of Q2 write-downs, and lowered quarterly estimate to a loss of $2.00 from $0.25.

On top of that, Bernstein slashes estimates for Merrill to well below consensus as well: to a loss of $0.93 per share, down from a gain of $0.82 per share.

Nyah-nyah: Wachovia downgrades Goldman! Oh, they make apologies: it's the top name in the space, etc. etc. But the bottom line is "we see both banking and prime brokerage slowing as we enter slower months."

Get it? Fear of the summer, lack of catalysts. Bulls are now arguing that the Street is cutting second half numbers so much that there will be a rally when the numbers do not come in as bad as expected--but that, if it happens, is months away, and we have the summer to get through.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 25 Jun 2008 | 4:45 PM ET

Fed's Nuanced Statement No Help To Market

Posted By: Bob Pisani

The market rallied modestly after the Fed announcement, then came back down. Why? While the Fed statement was nuanced, and clearly indicated the Fed was increasingly concerned about inflation, it was perhaps too nuanced for bulls. The dollar deteriorated, and oil moved higher.

Stock bulls want the Fed to protect the dollar, which will push oil lower and will help the airlines and the autos and the FedEx'sof the world.

Aerospace was notably weaker. Boeing had a Sell rating slapped on it from Goldman Sachs. While the downgrade is due partly to the general observation of "continued weakness in the economy, continued high fuel prices, and our view that Aerospace stocks underperform when both occur simultaneously," they also went on to take a specific shot at Boeing's critical 787 business: "we believe there is more risk to the 787 program than is currently priced in as the program has yet to even enter flight test, where historically most issues on development aircraft are found."

Boeing closed at a two-year low, and other stocks that had aerospace exposure, like United Technologiesand Rockwell Collins, and those in the aerospace supply chain like BE Aerospace, Honeywell,Triumph Group and Precision Castparts, were all weaker.

Elsewhere, financials could not maintain even a modest two-day rally; most came down late in the day and ended on either side of fractionally positive or negative.

The hope for a summer rally is predicated on a notable crack in oil (a sustained drop below $120 or so). After that, the notably oversold conditions (which could last a long time), and the lopsided bearishness of the Street should enable some kind of short-term bounce, bulls hope.


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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