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Trader Talk with Bob Pisani

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  Thursday, 10 Apr 2008 | 9:10 AM ET

Lehman "Hunkering Down" For Tough Times

Posted By: Bob Pisani

The dollar is weak again; Band of England lowered rates , but Europe has been weak right from the open and that weakness has spilled over into our futures.

Elsewhere:

1) March retail sales were again fairly sluggish , one third beat estimates, two third missed, according to RetailMetrics. A couple standouts: discounters like Wal-Mart , Costco , BJ's , all did well, so we are clearly seeing tradedown. Teen apparel store Buckle sales were a big surprise up 20.9 percent (up 7 percent expected), Aeropostale also slightly better than expected. The good news is that comps will be easier for next month, because April last year did not include Easter. Rebate checks will not arrive until May.

Wal-Mart's same store sales for March were up 0.7 percent from a year earlier, below expectations of a 1 percent gain. However, they boosted guidance for the first quarter to $074 to $0.76, from $070 to $0.74, so it's up fractionally pre-open.

Men's Wearhouse reaffirmed their first quarter estimatesof $0.20 to $0.24 (analyst estimate $0.22).

2) DuPontraised first quarter and full year guidance. The agricultural business has been particularly strong (about 25 percent of sales), and overall sales in emerging markets has been strong (Asia/Pacific about 20 percent of sales).

3) Lehmanhas liquidated three investment funds that dropped notably in value and took $1 b of those assets onto its balance sheet. Down 3 percent. Most traders think they are basically bailing out investors hoping the parent can better fund those assets.

More important is Deutsche Bank's Mike Mayo, who met with Lehman's CFO and put out a widely-discussed note this morning. Mayo said his meeting was somewhat downbeat and sober: "Conditions remain tough, whether it relates to client flows, activity, or even hedging." He concluded by saying "Lehman's strategy is evolving to take on less risk to better hunker down in tough times and to generate lower risk earnings growth longer-term. This new harsh reality is sobering to those looking for a quick fix for the financial sector."


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 9 Apr 2008 | 5:10 PM ET

The Only Good News: Light Volume on Down Days

Posted By: Bob Pisani

Huh, what happened to our rally last week? Same thing that happened to the rallies in November, January, and March... it's dribbling away.

It's not the point moves that're troublesome, it's the news flow and the direction of trading. The only good news is the very light volume on the down days.

Want the rationale I am hearing from the trading community -- or are you just fed up by now and don't want any more excuses? I understand.

Here it is anyway:

1) We are back to a defensive trade, with commodities up, everything else down. The record oil prices are killing transports and retailers;

2) economic numbers are not improving, indeed they are going in the wrong direction. Greenspan and the IMF have become bears; the "recovery in the second half" crowd are under pressure, and there are early whispers that economists will be soon taking down 2009 estimates;

3) government efforts to help housing seem to be stalling; stimulus checks a one-time blip, not enough to overcome negative trend;

4) financials: fear of expansion of credit crisis outside of subprime and Alt-A still very real; credit cards and commercial real estate an especially soft spot right now;

5) earnings: every time we get near 1400 on the S&P 500, we sell off. At 1400 the S&P trades at about 15 times forward earnings; traders gripe that this is a rich multiple when earnings are melting under you.

So what's the trade? Keep cash high, keep real commodity exposure, and don't expect too much short-term from equities. Not that much downside, not much upside. Wait for more information.

Gee, thanks for that. Sounds like January again. And don't expect to hear any baseball analogies from me -- traders are fed up with guessing what inning we are in. Some days, it feels like we're in the eleventh.

Courage. Better days are coming.

Bed Bath and Beyond's Glum Outlook

Bed Bath and Beyond down about 6 percent after hours as they gave guidance for the current quarter (their fiscal first quarter) below expectations.

Here is the fear: that despite the fact that earnings estimates have been coming down week after week for the first and second quarters, analyst estimates are still too high. This puts a very clear ceiling on retail stocks; they will likely come down in anticipation there will be many more announcements like this from retailers soon.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 9 Apr 2008 | 9:30 AM ET

What's Citigroup Up To With Loan Sale?

Posted By: Bob Pisani

Citigroupclose to selling $12 b of leveraged loans and bonds to a wide group of private equity firms.

What will they sell the leveraged loans for? Not clear, but it could be as low as 90 cents on the dollar. Also, note that these are bridge loans for deals; short-term loans. They are not subprime or problem loans. These are good loans. That's the bad news: they are selling what they can to raise capital.

The good news is that Citi continues the process of cleaning out its balance sheet, and we are at least getting pricing on the loans, which indicates there is demand for the assets. This will set benchmarks for other leveraged loans. Up 2 percent pre-open.

Of course, cleaning up the balance sheet is only part of the problem facing the big banks. As Sandler O'Neill pointed out this morning, housing related credit continues to deteriorate, investment banking activity levels remain soft, and commercial real estate is showing signs of deterioration.

Residential mortgage related credit deterioration has spread from subprime mortgages to Alt-A mortgages and home equity loans.

UPS cut its first quarter earnings guidance, from $0.94-$0.98 to $0.86-$0.87. Like Alcoa, it complained about high energy costs; they also cited lower volume trends in February which have continued into March. Down 3 percent.

Boeinghas finally thrown in the towel and said that its 787 Dreamliner airplane would be delayed; first flight is now moved to the fourth quarter of 2008, and the first deliveries would begin in the third quarter of 2009 (it was planned for the first quarter 2009). They are not changing their 2008 guidance. Up 1 percent.

Honeywellis happy this morning; their aerospace division won a $23 b contract to supply and maintain engines for Brazil's Embraer . Up 1 percent.

Proctor and Gamble increased its dividend 14 percent to 40 cents.

Circuit City posted stronger earnings than expected . Though acknowledging facing "the toughest macroeconomic environment in years," they say they have stopped the decline in warranties and service attachments, which is a critical part of their profit picture.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 8 Apr 2008 | 4:14 PM ET

Modest Drop Pretty Decent, Considering....

Posted By: Bob Pisani

The news was not particularly good today, and so a modest drop was certainly a decent performance. Consider:

1) Semis weak on AMD's poor guidance.

2) Materials mixed on Alcoa below estimates.

3) Fed minutes full of concern about economic slowdown.

4) White House opposes Senate housing bill (builders drop).

5) Washington Mutual raises $7 b in capital, but at the cost of 100 percent dilution (bad).

Still, we do not want to get into a pattern of drifting lower here. The big earnings report is our parent GE on Friday.

Tomorrow we get Circuit City --don't expect too much. Electronic sales have been weak across the board for most electronics companies, from camcorders to DVDs to satellite radio and home audio--all down. Computer sales seem to be OK.

What about flat panel TVs? The big growth period appear to be over. Everyone has bought a high tech TV, and because it is essentially a commodity, we are seeing margin compression--their margins are close to 20 percent for flat panel TVs, but it's in the single digits for discounters like Wal-Mart or Costco . That means pressure.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 8 Apr 2008 | 10:11 AM ET

Washington Mutual's Capital Deal: The Good And The Bad

Posted By: Bob Pisani

Washington Mutual did it, raising $7 b in capital ($2 b more than had been discussed yesterday).

TPG will purchase $2 b in newly issued securities. They also sold 176 m shares of common at $8.75 a share (closed at $13.15 yesterday), and issued $5.5 b in convertible preferred securities, along with warrants. Slashing quarterly dividend to $0.01 a share.

The good news: this makes it much more likely the company will survive.

The bad news: disastrous for shareholders, not only is it dilutive (100 percent!) but the terms were weaker than expected.

However, traders have noted to me that WM was not negotiating from a position of strength. This may be a negative for National City --the self proclaimed weak link in the financial chain.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 8 Apr 2008 | 9:19 AM ET

AMD's Problems: Industry Wide Or Speciifc To Them?

Posted By: Bob Pisani

Futures are down slightly, but have been stable throughout the morning, despite rather downbeat commentary from Alcoa and AMD . Metals a bit weaker (the IMF sold 12 percent of its gold stake, so gold is down 1 percent), dollar fairly stable, Europe down about 1 percent on average.

Alcoa reported adjusted profits of $0.44, several cents below expectations. Several analysts noted that the result was disappointing given the strong aluminum price seen in the quarter; the main problems seemed to be 1) higher than expected costs, 2) lower-than-expected realized price for aluminium, and 3) production a bit below expectations. Many analysts have lowered 2008 estimates.

Chip maker AMD down about 4 percent pre-open ; they said that revenues for the first quarter (ending in March) would be below expectations because sales were down across all business segments. They are expecting first quarter revenue to be about $1.5 billion, compared to consensus of $1.61 billion. They're planning to lay off 10 percent of the workforce by the end of the third quarter. Earnings will be reported April 17.

The question is, is this a company-specific problem or is there some kind of problem with the whole industry slowing down? Not entirely clear, but several analysts noted that AMD has had considerable delays in a number of products, supporting the idea that it is company specific.

Elsewhere:

Goldman upgrades brokers and asset managers like American Express and Franklin Resources.

Lehman upgraded Fannie Mae and Freddie Mac, noting that capital requirements are coming down for them, enabling them to play an even bigger role in the housing markets. They are indeed gaining market share. Of course, no one wants to talk about the considerable additional credit risk they are taking on.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Apr 2008 | 5:06 PM ET

Earnings: Get Ready For Some Disappointments

Posted By: Bob Pisani

A rally in commodities and financials was halted midday as Arch Coal gave guidance for the full year that disappointed investors . It was a reminder that the upcoming earnings season was likely to provide a fair share of disappointments. This was confirmed after the close, when aluminum giant Alcoaalso reported earnings that were below expectations; futures are down about 5 points.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Apr 2008 | 3:26 PM ET

Arch Coal's Surprise Takes Down Market

Posted By: Bob Pisani

Stocks came off their highs on a surprising announcement from Arch Coal midday that their earnings would be below expectations at $2.00-$2.50 a share (ests. $2.42). It was a reminder that earnings are coming.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Apr 2008 | 12:46 PM ET

Markets Eye Commodities and WaMu Story

Posted By: Bob Pisani

Two big stories today: commodities and Washington Mutual.

What's up with commodity prices? Copper, gold, oil all moving up again. Goldman Sachs raises aluminum price estimates on strong Chinese demand during 2008 (somewhat offset by a contraction in aluminum consumption in the U.S., Japan and Europe, they say), combined with supply constraints in China and South Africa. Massey raises estimates for how much it can charge for coal. Morgan Stanley raised estimates for prices on hot rolled steel.

The upshot? New highs for many commodity stocks. Now if Alcoa would give positive comments after the close--but expect them to bitterly complain about high energy prices.

1) WM dropped precipitously on Friday near the close, so this story came at the right time;

2) If this happens it happened with no government intervention;

3) Throw this news together with the news that National City has buyers sniffing around, and the feeling is if WM and NCC can get through it, maybe the worst is over. The longer we go without another failure (even if there is another one), the calmer the sentiment will be;

4) Everybody sat out the second quarter (lots of cash on the sidelines).

5) Investors appear to be looking ahead to increase earnings in late 2009 or 2010.

Three reasons bears think this is nonsense:

1) It's not even announced yet! Plus its 100 percent dilution at 50 percent discount!;

2) Earnings will not be so great and the market will pull back in the next 2 weeks;

3) The recession story will continue to weigh on stocks.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 7 Apr 2008 | 9:08 AM ET

Financials Moving Markets

Posted By: Bob Pisani

Three big financial stocks are the top volume movers this morning--Washington Mutual, UBS, and Citigroup.

Washington Mutual up 16 percent pre-open on a Journal story that private equity firm TPG and others may invest $5 b in the company, which would provide it with much-needed capital. That's the kind of confidence-building gesture that helps convince investors we are closer to the bottom, and is the primary catalyst for the 11 point rally in the S&P 500 this morning.

Also helping the banks: Merrill is upgrading UBS . Separately, UBS says it will respond to activist shareholders Olivant Advisors "in due course." Olivant owns an 0.7 percent stake in UBS and recently called for a restructuring of the company. Calls for an outright breakup have been getting louder recently.

UBS up 5 percent pre-open, but many financials are up 2 to 4 percent.

Citigroup has hinted they may start unloading nonessential assets, and they have started today with the sale of Diners Club International operations to Discover, for $165 million. Citi up 4 percent.

In the endless merger dept: the FT reports that Delta and Northwest are once again revving up their merger discussions, despite the fact that the pilots could not even agree on the seniority levels of a merged company. This time, the two companies may take a run at each other without the pilot's approval.

What's up with China? Shanghai up another 4 percent after similar gains on Friday, Hong Kong has been bouncing for the past two weeks. Maybe it's the commodity "reflation" play again--gold, copper, oil all have been rallying.


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.

Wall Street

  • JPMorgan & Chase Co. signage outside of the company's headquarters in New York.

    JPMorgan Chase is close to a deal to sell half its private equity business, the Wall Street Journal reported, citing people familiar with the matter.

  • Regulators are expected to vote to end the fixed $1 share price for money-market mutual funds - at least for some money funds used by big investors.

  • Traders work the floor of the New York Stock Exchange.

    Shaking off geopolitical flare-ups for now, analysts say the S&P 500 is taking aim at the 2000 level.