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Trader Talk with Bob Pisani

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  Thursday, 11 Sep 2008 | 9:12 AM ET

Strong Dollar, Weak Commodities Now A "Problem"

Posted By: Bob Pisani

The combination of a strong dollar and weak commodities, which was greeted with relief in August, is now causing some concerns.

New Zealand cut rates 50 bp last night to 7.5 percent, twice what was expected. The dollar is again rallying to new highs against the Euro. Traders in Europe are awaiting a report on industrial production tomorrow; it's expected to show a decline, and there is considerable speculation the ECB could cut rates.

Commodities continue to drop, as they have for 7 of the last 8 trading sessions.

With futures weak again here, we are very close to breaking the recent closing low of July 15 of 1,214.

Elsewhere:

1) Lehman trading at $4.10, last night closed at $7.25, has already traded 23 million shares pre-open. There is considerable speculation about what, if any, price they will be able to negotiate for all or part of Neuberger.

2) Merrill Lynch (down 13 percent) and Wachovia (down 6 percent) are also heavily traded; other financials traded include AIG(down 5 percent), Morgan Stanley (down 7 percent), UBS(down 6 percent), Bank of America(down 6 percent).

3) CSXup 4 percent, raised full-year guidance on strong performance and continuing demand for coal shipments.

4) Wellpoint said it would take a third-quarter charge due to its holdings of Fannie Mae and Freddie Mac stock. Originally worth about $243 million, it's now worth about $39 million. However, guidance is within expectations.

5) European retail stocks are weak as several large players reported disappointing results. Strangely, one of the few bright lights in the U.S. are retail stocks like Home Depot, Lowe's, and Gap, which have outperformed the overall market for over a month. These are early cycle plays, so they are a good barometer for the bull position.

    • Oil Prices Still Under Pressure Despite Ike

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  Wednesday, 10 Sep 2008 | 5:02 PM ET

Meager Rally No Snapback

Posted By: Bob Pisani

Anyone who thought today's meager rally was some kind of significant snapback is not paying attention.

After a huge drop yesterday, we got almost no bounce, advancing stocks were just barely ahead of declining stocks. Modest advances in energy and materials after being mugged for the past 6 trading sessions.

After the close, Lehmanis again dropping, trading at $6.91 down from the $7.25 close; Merrill at $22.97, down from $23.30, and the dollar is rallying to new highs against the euro.

The only good news was the FedExannouncement,that lower jet fuel prices will help the bottom line this quarter. This will resonate with food companies, intensive energy users like aluminum companies, and other transportation stocks.

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  Wednesday, 10 Sep 2008 | 3:04 PM ET

What’s Up With Washington Mutual and AIG?

Posted By: Bob Pisani

Forget Lehman, the biggest debates on the Street involve the continuing fate of other financials, but particularly today Washington Mutualand AIG.

Washington Mutual. Down 38 percent this week, but this one is not hard to figure out. On Monday before the open, the company announced they were ousting their CEO and entering into a Memorandum of Understanding (MOU) with their regulator, the Office of Thrift Supervision (OTS). There are few details here, but it's obvious their regulator is requiring them to report to them about risk management and compliance issues.

In this hyper-charged environment, the shorts are using this as an excuse to continuing shorting: the implication is that OTS has placed them on some kind of probation, and there is SOMETHING that is worrying them, most likely the loan portfolio. The stock has been under pressure since the announcement.

AIG. Down 17 percent this week to a 13-year low. This is much more complicated.

Issues that come up include:

1) concern that another capital raise might be necessary. They already raised $20 b in May--another capital raise is certainly a possibility, particularly if there are notable losses this quarter. Of course, it would be dilutive and would not be met warmly by investors;

2) concern about possible ratings downgrades. Moody's on August 7th, a day after AIG earnings came out, bluntly warned AIG that their affirmation of their debt ratings was based on an understanding that AIG "will actively address potential liquidity and capital needs at various operating units...failure to address these concerns in the near term could lead to rating downgrades..." Morgan Stanley also raised this issue in an investor note;

3) the extent of ownership of Fannie and Freddiepreferred shares.

At any rate, we will not have to wait long for more news. A strategic review announcement is expected by September 25.

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CNBC's Names in the News:

Imclone

Lehman

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  Wednesday, 10 Sep 2008 | 11:38 AM ET

Trading Lessons 2008 And the Great Commodity Drop

Posted By: Bob Pisani

Trading Lessons 2008
Forget about Lehman--suppose its problems were magically solved by a buyout, or someone offered them oodles of money for Neuberger. What would happen next? The shorts would cover and simply find another target.

What have we learned about trading this year?

1) that (long-term) the most bearish position has been the one that made the most money;

2) that shorts have consistently cycled through names perceived to be weak--mortgage insurers first, then Bear Stearns, then Fannie Mae and Freddie Mac, now Lehman. Notice each time the “issue” is “addressed” the market rally gets shorter and shorter. When does it end? When taking short positions in select names doesn't work any more.

The Commodity Drop
The drop in oil and distillates, natural gas, and other commodities is finally starting to filter through. Federal Express raised estimates for their fiscal first quarter due to lower fuel costs, though they did not raise full year guidance.

Here's why it's such a big deal: In late June, FedExwas paying $3.85/gallon. By the end of August, it was paying $3.27/gallon. That's a $0.60 difference. Is that a lot? Yes! FedEx uses 300 MILLION gallons of fuel per quarter--300 m x $0.60 = $180 million in savings--PER QUARTER.

This good news is going to play out with all the commodity users--from aluminum companies to food companies to transports.

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CNBC's Names in the News:

Imclone

RIMM

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  Wednesday, 10 Sep 2008 | 9:11 AM ET

Lehman's Problem: No Deal To Raise Capital

Posted By: Bob Pisani

Not enough: that's the general verdict of the Street on the Lehman announcement. They pre-announced a loss of $5.92. They're selling a majority stake in its investment management division and spinning off commercial real estate assets into a separate public company. The good news: raising capital and selling investments is what the Street wants.

The problem: no actual deal to raise capital was announced, in fact Korea Development Bank made a point of noting that there was "a disagreement over conditions of a transaction;" in other words, they were far apart on price. Even if a deal was announced, it's not clear that enough capital can be raised.

    • Lehman In Talks To Sell Key Unit; Stock Rebounds

Financials are generally trading down, with Merrill, Citi, BofA down 2-3 percent. Europe down about 1 percent, but some of the European financials like AXA and UBS are trading up.

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  Tuesday, 9 Sep 2008 | 3:03 PM ET

Lehman: A Case Of Waiting Not Working

Posted By: Bob Pisani

Lehmanremains near the lows for the day, and we have now come full circle as the S&P 500 has given back all of the gains it made yesterday. Two observations:

1) this year, those who have been the most bearish have been the most correct;

2) waiting in the hope things will get better is not an effective strategy.

This is something Secretary Paulson learned regarding Fannieand Freddie; he had his "bazooka" to take them over a while ago, and doing nothing hoping things would get better just...made things worse.

So it is with Lehman today. We have heard of endless permutations about capital raising, but...no capital raise. We have heard of discussions to sell assets like Neuberger but...no sales.

Waiting is not working.

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  Tuesday, 9 Sep 2008 | 2:41 PM ET

Commodity Sell-Off? Where Does It End?

Posted By: Bob Pisani

In the last 7 trading sessions, commodity stocks have been in a free-fall. Look at what has happened to these big names, most of which hit historic highs in June or July:

Nucor: 52-week low on heavy volume (55% off high)

Potash: 6 month low on heavy volume (41% from historic high)

Freeport-McMoran: 52-week low on heavy volume (47% from historic high)

Valero: 3 year low on heavy volume, (59% from historic high)

Massey Energy: 5 month low on heavy volume (56% from historic high)

This is more than just normal trading, there is clearly margin calls of some sort going on that is leading to liquidation of positions. Aside from the uncertainties in financials, answering the question, "When does the commodity stock selloff end?" is the most important question on the Street.

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  Tuesday, 9 Sep 2008 | 9:17 AM ET

Commercial Real Estate: The Next Big Credit Problem?

Posted By: Bob Pisani

At a hedge fund idea dinner I attended last night, many of the participants seem focused on what they feel is the next leg of the credit problem that will manifest itself: commercial real estate.

After the close yesterday, RBC Capital put out a note essentially echoing that concern: "Next Credit Shoe to Drop on Banking Industry: We believe commercial and industrial loans (C&I), commercial real estate and non-resi construction loans will be the next credit problems for the banking industry brought on by the weakening in the US and Global economies."

Oil is at a fresh 5-month low, and airlines are trading up in the mid-single digits on light volume. OPEC is meeting in Vienna. European banks like UBS, Deutsche Bank, and HSBC are also trading up.

Elsewhere:

1) As expected several banks announced impairment charges related to investments in Fannie Mae and Freddie Mac preferred securities.

a) Wells Fargo said its charge relates to $480 million of securities it holds for sale. Wells said the preferreds now trade at 5 to 10 percent of face value. Oppenheimer's Meredith Whitney lowered her third quarter estimates by 9 cents to 17 cents.

b) Sovereign Bank, the second-largest savings and loan, said it held $622.6 m of Fannie and Freddie preferred stock.

2) BHP Billiton said the slowing world economy would likely cause commodities to continue to decline in price, but the decline would not their proposed buyout of Rio Tinto.

3) Proctor & Gamble downgraded at Merrill Lynch, saying they can't just the premium the stock trades at relative to its peers.

4) CapitalSource,a REIT that specializes in commercial finance and residential mortgages, down 9 percent pre-open as they cut their dividend 92 percent.

5) Forrester Research says that 43 percent of large businesses cut their overall tech budget this year.

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CNBC's Names in the News:

Freddie Mac

Fannie Mae

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  Monday, 8 Sep 2008 | 4:18 PM ET

Bears, Bulls And The Dilemmas They Each Face

Posted By: Bob Pisani

This was a day of many emotional ups and downs for bulls:

--up on a strong open;

--down as techs, materials, energy and some financials were sold into the rally;

--up as techs, financials and consumer discretionary rallied modestly in the last 45 minutes.

The central dilemma for bulls is how to entice those sitting on cash back into the market; yesterday's rescue of Fannie and Freddie does help deal with a major systemic risk, but it does not repeal the economic or housing cycle.

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  Monday, 8 Sep 2008 | 3:05 PM ET

Bulls: Why They Are Having A Problem

Posted By: Bob Pisani

Bulls have a major problem today: the action so far is unlikely to convince fence-sitters to jump back into the market in a big way.

This is not an academic question. Both bulls and bears agree that many funds have accumulated cash as a result of deleveraging and the reversal of the long commodities/short dollar/short financials trade.

Those sitting on that cash may be the crucial players determining whether we move up or down from here.

Unfortunately, the internal evidence is not compelling. At the open, there was hope: the highest level of Advancing Stocks since June, along with strong volume. But that quickly dissipated, as we saw waves of selling in financials, materials, energy, and tech stocks; at 3 pm ET, there are only 3 stocks advancing for every 2 declining. Volume will be higher than it has been in a month, but that is not saying much.

In other words, "sell into any rally" is still an effective mantra.

This is why technicians are not impressed. The oldest of technical services, Lowry, reviewed the evidence thus far, looking at weakening demand for stocks in the past month, along with higher supply, and concluded there was "no tangible evidence that a major market bottom is close at hand."

Bears note that since December of last year we have had:

--several rate cuts by the Fed, including a 75-basis point Inter-meeting cut on January 8th;

--the creation, on March 16th, of the creation of special liquidity-enhancing facilities for banks and investment banks;

--the bailout of Bear Stearns; and now

--the bailout of Fannie and Freddie.

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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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