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Trader Talk with Bob Pisani

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  Monday, 10 Mar 2008 | 3:43 PM ET

Credit, NOT Spitzer Is Street's Problem Today

Posted By: Bob Pisani

While theNew York Times story on Eliot Spitzer is generating enormous email traffic on Wall Street, it is not the cause of the market's problems today. Stocks are again near the lows for the day, again on the same worries about credit, but here the problems are a bit more specific: they revolve around worries on margin calls and counterparty risks.

It's public information that big firms like Thornburg and Carlyle have had margin calls recently, and have been forced to sell assets. These forced sales generate new prices for paper, which in turn generate additional margin calls. This "vicious cycle" is one of the main problems facing the market, and the brokers are right in the middle of it.

There is an additional problem: counterparty risk. If I as a firm go out and buy protection in the form of a credit default swap, who is the counterparty and are they strong enough in the event I need them? This was never an issue until recently, but now buyers are regularly asking who the counterparty is. In many cases, it is brokerage firms, and queasiness about that is putting additional pressure on them.



Questions? Comments? tradertalk@cnbc.com

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  Monday, 10 Mar 2008 | 9:35 AM ET

Financials Top Market Concerns

Posted By: Bob Pisani

U.S. futures up slightly, just off highs of morning, European markets flat, Asian markets down 2-3 percent. Malaysia's KLSE Composite down 9.5 percent; Malaysia stock market temporarily halted during session; political unrest after major upsets by opposition party during weekend elections.

McDonald's keeps knocking the cover off the ball. February same-store sales were strong in the U.S. up 8.3 percent, but Europe stronger, up 15.4 percent. Asia/Pacific, Middle East, Africa up 10.9 percent.

Financials very much in the news this morning. Countrywidedown 7 percent on reports that the FBI has begun a criminal inquiry for suspected securities fraud .

MBIA said they were seeking a withdrawal from Fitch's rating system, that the value of Fitch's ratings were "limited at this time" and only adds extra volatility to its stock. They see a $200m in mark-to-markets losses from CDO business.

Annaly Capital up 6.4 percent, they raised their quarterly dividend to $0.48 from $0.34. The company said, "Our leverage has been running at the lower end of our range, which enables us to manage portfolio financing operations with our diverse and strong roster of counterparties, including handling the haircut adjustments that are typical for volatile periods like this. Moreover, the vast majority of our assets are Agency pass-through MBS, the most liquid and financeable securities in the Agency space."

Blackstone reported earnings of $0.08, estimates were for $0.19, down 3 percent. Dividend (8.2 percent) appears safe . They are holding a conference call at 11 AM this morning.

Morgan Stanley cut estimates of several large-cap banks due to weaker market and credit condition, and said they saw a higher probability of "more cuts coming." Cut estimates for Bank of America by 21 percent, Wachovia and Citi by 20 percent.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 7 Mar 2008 | 3:08 PM ET

Financials, Techs Cave In to Selling Pressure

Posted By: Cindy Perman|CNBC.com

Stocks were mostly lower Friday as gains from a brief rally quickly evaporated and a second straight drop in nonfarm payrolls stirred recession fears.

The Dow Jones Industrial Average, S&P 500 index, and Nasdaq were all lower in afternoon trading. Even financials and techs, which had resisted selling pressure earlier, retreated.

The S&P 500 index on Thursday broke through its January low of 1310, and is heading toward a bear market, which would kick in at 1252. The Nasdaq is already in a bear market, falling 20 percent below its October high on Feb. 29 and remaining there for the past week.

The Nasdaq's "four horsemen" -- Google , Research In Motion , Apple and Amazon -- were what drove techs higher in October and they're what's holding the Nasdaq in a bear market now. Until these stocks, which account for about 8.4 percent of the Nasdaq's $3.6 trillion market value, recover, analysts say techs will remain underwater. That's a sharp contrast to the Dow and S&P, where catalysts for both upward and downward moves rotate.

Investors have fallen into a pattern of buying on the dips then selling on the rallies, making for one heck of a wild ride, which is what happened today.

The February jobs report, new record highs in oil every day and the ripple effect of the credit crunch show that "we have a long way to go until the economy is back up and running at full-tilt," Edward Bretschger, director of equity sales and trading at Calyon Securities, told Reuters. "You're looking for a silver lining and you just can't find it," he said.

Losses deepened in afternoon trading amid news that Thornburg Mortgage may not remain an ongoing concern and comments from Kansas City Fed President Thomas Hoenig that excessive rate cuts by the Fed could spur a build-up of inflation and create fresh asset bubbles. Hoenig, who isn't a voting member of the FOMC, was speaking at an Institute of International Finance meeting in Rio de Janeiro.

Thornburg said it has as much as $610 million of margin-call exposure that significantly exceeds its available cash, putting its survival at stake.

Meanwhile, Bill Gross, chief investment officer of PIMCO, told CNBC that he's been buying "high-quality" rated Thornburg paper, with yields between 9 and 11 percent. He also suggested that the Fed should shift its focus to lowering long-term mortgage rates by buying mortgage assets and selling Treasurys.

Some analysts said the market has already priced in the worst of the downturn, which helped spur the short-lived rally.

The market "is a forward-looking animal," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "This market was struggling for the last six to seven months when the economic data was good ... it was correctly telling you what we got today in the data," he said. Now, the market is "already looking ahead to what the economy is going to be doing in late May or June."

"You've got the Fed ... lowering rates, stimulating lending," Scott Fortune, an analyst with Magee Thomson Investment Parters, told CNBC. The market has been "overly pessimistic" about earnings, and now, he sees the possibility for a stronger second half with mid-single-digit earnings growth in percentage terms for most companies.

Nonfarm payrolls declined by 63,000 jobs in February, the second straight monthly decline. Revisions showed the January decline was steeper than previously thought and the December gain was cut in half to 41,000. The unemployment rate slipped to 4.8 percent.

Big industrials including heavy-equipment maker Caterpillar and conglomerate General Electric, parent of CNBC, were among the biggest decliners.

Energy companies also skidded despite another new high for oil. Exxon Mobil and Chevron both shed about 2 percent.

Crude oil topped $106 a barrel as dollar weakness outweighed recession worries. The dollar touched another record low against the euro Friday, with the euro hitting $1.5463.

Just before the employment report, the Federal Reserve announced measures to ease liquidity pressures , including raising the amount of money it will auction to banks this month to $100 billion. Fed officials said they are in close consultation with foreign central bank counterparts to address liquidity issues.

The move "was an attempt by the Federal Reserve to start showing some leadership" and to be creative, Jack Bouroudjian, a trader with Brewer Investment Group, told CNBC.

"If they can do something with the banks overseas, that will be the catalyst that gives a bottom not only in the dollar but also in the market," he said. "Until then, if you're an investor, you have to let the market come to you. Look for those multinationals... it's going to be very difficult to make money in this environment."

The Fed move gave beaten-down financials a boost, but the Thornburg news and comments from a Fed official in the afternoon dragged down the sector.

Washington Mutual and other lenders have apparently been approaching private-equity firms and sovereign-wealth funds to discuss cash infusions, the Wall Street Journal reported, citing people familiar with the situation.

Bond insurer Ambac Financial Group said it sold $1.5 billion of shares and convertibles , protecting the company from ratings cuts.

Punk Ziegel recommended investors buy Citigroup amid rumors that the bank's capital strength is greater than previously thought.

"There has been a leak/rumor ... that Citigroup's Tier One Capital could be at 8.8 percent of assets at the end of the first quarter," analyst Richard Bove said.

A day earlier, Citigrioup said it aims to cut its home loan exposure by $45 billion , reduce risk and save $200 million a year in an overhaul of its U.S. residential mortgage business.

Semiconductors rallied amid some encouraging earnings from the sector but also gave in to selling pressure in afternoon trading.

The Philadelphia Stock Exchange semiconductor index was down about half a percent. Intel was off slightly.

Analog chip maker National Semiconductor reported results on target, while communications-equipment maker Ciena said its fiscal-first-quarter profit jumped and forecast a 27 percent increase in full-year revenue.

On the downside in techs, diversified-chip maker Marvell reported it swung to a profit in its fiscal fourth quarter but its revenue guidance disappointed investors.

Alcoa was the biggest decliner on the Dow after Friedman Billings Ramsey cut its rating on the stock to "market perform" from "outperform," primarily based on valuation. Friedman also raised its forecast on prices of aluminum, copper, zinc and gold, citing dollar weakness and investment-fund flows.

Send comments to Cindy.Perman@nbcuni.com.

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  Friday, 7 Mar 2008 | 12:08 PM ET

Stocks Turn Mixed; Financials, Techs Rise

Posted By: Cindy Perman|CNBC.com

Stocks were mixed Friday as a second straight drop in nonfarm payrolls and hopes that the worst is over tugged the market in both directions.

The Dow Jones Industrial Average, S&P 500 index, and Nasdaq were all lower at midday, though financials and techs held onto gains.

Stocks had a rollercoaster morning, tumbling after the jobs report, then quickly rebounding before turning mixed.

So, why did the rally fade so quickly?

"Fast money traders came in and aggressively bought financials at the open, then took profits a half hour later," CNBC's Bob Pisani explained. There was also some short-covering in the sector. "Now we need real money to sustain the move off the lows," Pisani said, "and that's where we will likely have a problem ... Right now, we are in a 'sell on the rally' phase."

The concern now is that the market will idle for the rest of the day as "the fast money has already made money and may just sit on the sidelines," Pisani said. (Read Pisani's "Trader Talk" Blog .)

Some analysts said the market has already priced in the worst of the downturn, which helped spur the short-lived rally.

The market "is a forward-looking animal," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "This market was struggling for the last six to seven months when the economic data was good ... it was correctly telling you what we got today in the data," he said. Now, the market is "already looking ahead to what the economy is going to be doing in late May or June."

"You've got the Fed ... lowering rates, stimulating lending," Scott Fortune, an analyst with Magee Thomson Investment Parters, told CNBC. The market has been "overly pessimistic" about earnings, and now, he sees the possibility for a stronger second half with mid-single-digit earnings growth in percentage terms for most companies.

"Looking out, it's more positive," Fortune said. "The market is reflecting that."

Nonfarm payrolls declined by 63,000 jobs last month -- economists had forecast a flat to slightly higher reading. It was the biggest decline since March 2003. Revisions showed the January decline was steeper than previously thought and the December gain was cut in half to 41,000.

The unemployment rate slipped one-tenth of a percentage point to 4.8 percent. Economists said the discrepancy -- a drop in payrolls and the unemployment rate -- reflects the fact that job seekers are increasingly discouraged and dropping out of the labor market.

Just before the employment report, the Federal Reserve announced measures to ease liquidity pressures , including raising the amount of money it will auction to banks this month to $100 billion. Fed officials said they are in close consultation with foreign central bank counterparts to address liquidity issues.

The move "was an attempt by the Federal Reserve to start showing some leadership" and to be creative, Jack Bouroudjian, a trader with Brewer Investment Group, told CNBC.

"If they can do something with the banks overseas, that will be the catalyst that gives a bottom not only in the dollar but also in the market," he said. "Until then, if you're an investor, you have to let the market come to you. Look for those multinationals... it's going to be very difficult to make money in this environment."

The Fed move gave beaten-down financials a boost, with the S&P 500 financial index, the best performer among 10 key S&P sector indexes, up 1.2 percent.

J.P. Morgan and AIG gained more than 2 percent, making them some of the top gainers on the Dow.

Washington Mutual and other lenders have apparently been approaching private-equity foirms and sovereign-wealth funds to discuss cash infusions, the Wall Street Journal reported, citing people familiar with the situation.

Bond insurer Ambac Financial Group said it sold $1.5 billion of shares and convertibles , protecting the company from ratings cuts.

Citigroup said it aims to cut its home loan exposure by $45 billion , reduce risk and save $200 million a year in an overhaul of its U.S. residential mortgage business.

Semiconductors rallied amid some encouraging earnings from the sector after the closing bell Thursday.

The Philadelphia Stock Exchange semiconductor index was up 1.5 percent. Intel joined J.P. Morgan and AIG to round out the top three gainers on the Dow.

Analog chip maker National Semiconductor reported results on target, while communications-equipment maker Ciena said its fiscal-first-quarter profit jumped and forecast a 27 percent increase in full-year revenue.

On the downside in techs, diversified-chip maker Marvell reported it swung to a profit in its fiscal fourth quarter but its revenue guidance disappointed investors.

»Read more
  Friday, 7 Mar 2008 | 11:44 AM ET

Why The Stock "Nose Dive" Did An About Face

Posted By: Bob Pisani

What happened to our nosedive? After a down open, stocks continue to hold up well in what could only be described as a fairly flat market--about even number of stocks advancing to declining, modest volume, financials and techs modestly to the upside. Only a few metals companies like Freeport McMoran and Alcoa are down a couple percent.

So what happened? Fast money traders came in and aggressively bought financials at the open, then took profits a half hour later. Some financials shorts covered as well. Good for them. Now we need real money to sustain the move off the lows, and that's where we will likely have a problem. The general trend has been to buy dips, sell rallies, and believe it or not we did have a rally today.

But now we are in "sell on the rally" phase, and stocks are a bit weaker already. The concern is that we are now easily set up to drift lower for the rest of the day, as the fast money has already made money and may just sit on the sidelines.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 7 Mar 2008 | 9:18 AM ET

S&P Futures Down 14 on Payrolls Report

Posted By: Bob Pisani

S&P futures down 14 on the nonfarm payroll report, which showed a loss of 63,000 jobs in February and downward revisions in December and January. That's two straight months of job losses (the first two-month drop in jobs since May and June 2003).

The Fed is raising the size of the March TAF auctions to $50 billion from $30 billion. Remember, these are short term loans (28 days) and their purpose is to provide additional liquidity to the system.

Ambac priced $1.25 billion of common shares at $6.75 per share (below yesterday's close of $7.42), and $250 million in mandatory convertibles, making good on their plan to raise $1.5 billion in capital. It is heavily dilutive, nearly tripling the common shares outstanding.

National Semiconductor up 6 percent as earnings met expectations. National Semi also said sales in the current quarter (Q4) would range from $440 million to $460 million (estimates are about $462 million).

Short-selling positions hit a record at the NYSE during the two week period ending Feb. 29.



Questions? Comments? tradertalk@cnbc.com

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  Thursday, 6 Mar 2008 | 1:05 PM ET

New Ways to Play Gold

Posted By: Bob Pisani

Gold's at a new high, what to do? How about shorting gold with a new Exchange-Traded product?

Talk about timing--a few days ago Deutsche Bank launched three new Exchange-Traded Notes (ETNs) linked to a gold index they maintain.

Wanna go long gold? How about doubling your bet? The DB Gold Double Long ETN gives you two times the monthly performance of the gold index plus a monthly T-bill index return, which is one of the factors that distinguishes an ETF from an ETN.

If this whole gold rally sounds suspect to you, weak dollar or not, how about shorting the whole thing? The DB Gold Short ETN offers the inverse of the old index plus a T-bill index return.

And if you're really convinced the rise in gold is a sham try the DB Gold Double Short ETN .



Questions? Comments? tradertalk@cnbc.com

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  Thursday, 6 Mar 2008 | 9:25 AM ET

Dollar Falls To New Low But Retail Rises In February

Posted By: Bob Pisani

The U.S. dollar hit a new low as the Fed's Pianalto says the U.S. economy has stalled . Dollar weakness again helping oil. Jumbo mortgage lender Thornburg Mortgage failed to meet a margin call of about $28 million which has triggered cross-defaults.

The Bank of England stuck to its inflation fighting credentials byleaving rates unchanged at 4 percent and the ECB did the same

Retail sales: Retailers reported retail sales for February up 2 percent , according to RetailMetrics. That is at the high end of expectations.

Discounters and club stores are doing very well:

--Wal-Mart beat up 2.6 percent, better than 1.1 percent. They expect March comps to come in between 0 to 2 percent (thanks a lot!), with some recovery in discretionary items.
--Targetwas a bit better.
--Costco , BJ's Wholesale , and Big Lots , which reported yesterday, were all better than expected.

Teen retailers mixed: Aeropostale and Hot Topic were better than expected, but American Eagle lowered first quarter estimates

Department stores struggling: JC Penney down 6.7 percent, well below expectations, Nordstrom's down 3.3 percent (3 straight months of negative comps for Nordstrom) Nieman Marcus down 7.4 percent.

Apparell mixed: Ann Taylor a little better than expected, but Gap, Abercrombie, Chico's worse than expected; TJX up 3 percent, a bit shy of expectations but still pretty good

March will probably be difficult for retailers, because last year Easter fell on the last day for the fiscal month and caught a long Easter selling period, so overall comps were up 6 percent, but this year Easter is very early and in years when Easter is early the colder weather has not usually benefited retailers.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 5 Mar 2008 | 4:11 PM ET

Ambac's Impact on Markets

Posted By: Bob Pisani

Ambac down 12 percent and the rest of the market dropped, as Ambac announced a $1 billion common stock offering and $500 million equity units (which must be converted to common stock by 2011).

Why the drop?
First, no white knight came in -- no bank that offered to bail them out -- which was a sign to investors.

Second, there may have been some disappointment that this deal was merely dilutive; some were hoping they might be bought outright.

Third, traders noted that this does nothing to relieve the negative outlook the ratings agencies have on them. There is the possibility that Ambac could need to raise more money in the next few months.

Finally, the company has announced that they are essentially in runoff, meaning they are taking in little if any new business -- even in the muni business. Also, they are paying $100 million in dividends to the holding company from the $1.5 billion in proceeds.



Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 5 Mar 2008 | 12:19 PM ET

Weak Dollar Lifts ALL Key Commodities

Posted By: Bob Pisani

I know that oil is getting a lot of buzz today: It's up 4 percent on reports that Venezuela is moving troops to the Colombia border and on a strong Dept. of Energy report on oil.

But the fact is that it is the weakness of the dollar -- another record low against major currencies -- that is lifting ALL major commodities today, with new highs in copper, silver, gold, and heating oil.

As a result, commodity-related stocks across the board -- including steel, copper, aluminum, gold, fertilizer, etc. -- are all up roughly 3 to 6 percent.



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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