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Trader Talk with Bob Pisani

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  Tuesday, 13 May 2008 | 4:22 PM ET

A Good Day For Stocks--Considering...

Posted By: Bob Pisani

I don’t want to make too much of this, but it was a pretty good day for stocks, considering all the negative stuff the markets had to deal with. Consider:

1) Oil up despite dollar strength.

2) Hewlett was a drag on the Dow, on debate it may have overpaid for EDS .

3) Wal-Martgave conservative guidance.

4) Oppenheimer lowered earnings on brokers.

5) Fed officials were saying that a quick rebound was unlikely ; bonds moved down.

Despite all this, we were basically flat.

And: the largest insurer in the world raised a heck of a lot of money. AIG priced 171 m shares at $38—that’s $6.5 b , and they raised another 5.4 b of equity units (they’re registered trusts in which investors purchase units from a fixed amount of AIG equities). AIG up 1.8 percent, off its 52-week low yesterday.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 3:07 PM ET

HP Shareholders Feeling EDS Deal May Be Too Expensive

Posted By: Bob Pisani

Want to know how frustrated Hewlett-Packard shareholders are today? Here's a couple stats:

Market cap yesterday: $123 b
Today: $107 b
Loss: $16 b

Now, here's the killer stat: they are buying EDS for $13.9 billion! Hewlett is now down more in market cap than they are paying for EDS ! The only good news is that since I reported this at 1 pm ET, Hewlett has come off its lows, now trading at $44.00, so it's market cap is up to $108 b.

Importantly, no one has complained that this is a bad deal, only that they may have overpaid for it.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 1:18 PM ET

Banks Hurt by Europe; EDS/HP No Threat to IBM

Posted By: Bob Pisani

Three points about today’s trading:

1) Financials again down on weak earnings from European banks like Societe Generale and Credit Agricole; and Oppenheimer’s Meredith Whitney continuing to take down 2008 and 2009 estimates on brokers.

2) Bulls hoping that strengthening in the dollar would lead to a decline in commodity prices are again having a hard time arguing their point today. Once again, we have modest strength in the dollar and while industrial metals are a tad weaker, energy commodities are rallying.

Credit Suisse attempted to explain this in a note this morning, by pointing out that:

a) commodities have risen 40% of the time when the dollar has strengthened; and

b) industrial commodity prices normally only fall significantly when global Industrial Production is below 2 percent year over year, compared to 4 percent now.

3) All those people arguing that the EDS/Hewlett-Packard deal would be a big challenge to IBM are missing the point: IBM is way, way ahead of even a combined entity.

IBM recognized very early the recognizing the competitive advantage associated with selling a bundled solution--software, hardware, services, financing, all together.

To compete effectively in global services, you need scale -- IBM has it, Hewlett and EDS don’t. That’s why they needed to do this deal.

How far off are they? Here's the total service revenues for the three companies:

IBM : $54 billion

EDS : $22 billion

Hewlett : $17 billion

Bottom line: even merging the two, they are not even close to exceeding IBM's service revenues.

IBM is at a 6 year high today.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 9:11 AM ET

Retail Sales Stronger, But Some Financials Get Earning Cuts

Posted By: Bob Pisani

Stronger retail sales than expected (ex-auto up 0.5 percent, the best showing since November) has caused an 8-point pop in futures.

Elsewhere:

1) Hewlett-Packard's$12.6 b deal for Electronic Data systems ($25.00 a share) is a direct challenge to IBM , and--bulls hope--the most recent of many strategic acquisition deals by large companies. Still, the IBM bulls are not shrinking--IBM closed at a 6 year high yesterday.

2) Engineering and construction giant Fluor again proved the value of being truly international. They get nearly 60 percent of their revenues outside the U.S. They are particularly strong in oil and natural gas engineering--where their revenues were up 55 percent. Industrial and infrastructure was flat. Power segment up over 100 percent. Most importantly, they have continued to land substantial new contracts, and so they have increased their earning guidance for 2008 by almost 20 percent. Up 9 percent pre-open.

3) Liz Claiborne cut their guidance (a day after Ann Taylor raised theirs), but stock is not down. Earnings better than expected.

4) Toll Brothers continued the trend of builders, noting that the spring selling season was "quite weak in most markets as buyers remained on the sidelines," according to CEO Robert Toll. He does note that "there is significant pent-up demand which is growing. When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm..."

5) Meredith Whitney again cut earnings estimates for Goldman Sachs, Merrill Lynch, Lehman, and Morgan Stanley--this time for 2008 and 2009.

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  Monday, 12 May 2008 | 9:35 AM ET

Out Of The Office Today

Posted By: Bob Pisani

I have today --Monday--off from work, but I'll be back with more posts tomorrow. See you then.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 9 May 2008 | 5:05 PM ET

Risk Aversion is Back -- Big Problem is Oil

Posted By: Bob Pisani

Risk aversion is definitely back today. You can see it in the dollar/yen, where the yen has really strengthened today.

The AIG news (down 8 percent) told us that a lot of the bad news is still not priced in. Big momentum stocks like Visa , Mastercard , Nucor , US Steel , Anadarko Petroleum , Apache , Baidu.com , Apple , and Google all saw profit-taking today.

But here's the big problem: oil closing up five straight days, closing at a new high. Last week, a small group of traders began to try to unwind the "long commodities/short dollar" trade, betting that the economy would improve in the second half of the year and oil would moderate.

It is not working out quite that way, and so those bulls have been unable to suck in fence sitters who would move the market up. Most traders are sticking with the long-commodity story.

This is a big problem for the bulls: For most of the bullish economists, the second half recovery is contingent on crude dropping. If that doesn't happen, the most likely scenario involves grinding sideways for several months on low volume.

What to do in the meantime? If you believe in the "grind sideways" scenario, you will clearly do better if you can make a few good bets than own the broad market. That is why so many people are sticking with their long commodity position: because it is still working.

Globally, that continues to support Brazil and Asia as an investment thesis; the Brazilian Bovespa hit a new high this week.

Will anything reverse this trend, i.e., strengthen the dollar, weaken commodities? The ECB could be key. Germany has been the strong spot in Europe, but there are signs it too is weakening. There is growing pressure on the ECB to cut.

Bottom line: it will take a lot for the market to really break down, because it has been through so much. But the skepticism is still high, with a notable lack of visibility. That's why many are coming to believe the "grind sideways" scenario. In the meantime, the bulls pray for oil to come down.

For the week: Dow down 2.4 percent, S&P down 1.9 percent, Nasdaq down 1.3 percent, Russell 2000 down 0.8 percent.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 9 May 2008 | 11:45 AM ET

Citi Conference Call: Happy Antidote to AIG

Posted By: Bob Pisani

The AIG damage is limited, and that is good news.

-- Other P&C insurers are not showing any serious declines

-- Financials in modest rally

-- The VIX is already dropping.

The biggest factor: the Citigroup conference call, with new Chief Executive Vikram Pandit and CFO Gary Crittenden, appears to have gone well. A few headlines:

-- Consumer finance business "wonderful"

-- Credit card business "great"

-- Re-engineering will save $15 billion

-- Talking that in next few years they will decide how to handle extra capital, whether to boost dividend or buy back shares.

Is this happy talk? Telling the Street what they want to hear? Maybe. But the quotes are being passed around on the Street -- and they're a perfect antidote to AIG's downbeat report.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 9 May 2008 | 9:23 AM ET

AIG, Oil Drag on Asia, Europe Markets & U.S. Futures

Posted By: Bob Pisani

Asian and European markets, as well as U.S. futures, weaker on the AIG news. Dollar stronger. For the moment, the risk aversion trade (long bonds, short financials) is back on. Oil at new high not helping.

Thoughts on AIG:

AIG down 6 percent pre-open, posted a much bigger loss than expected, a loss of $1.41 on an adjusted basis, compared to a loss of $0.76 per share expected. The usual culprits: weak housing and credit markets, but that doesn't quite do justice to what was going on.

If you want to know how tangled this can get, they had huge losses on Credit Default Swaps (CDS) that were written on Collateralized Debt Obligations (CDOs) which were in turn backed by Residential Mortgage Backed Securities (RMBS). Got that?

If that isn't enough, they also had losses in mortgage insurance, consumer finance, and domestic property & casualty. Uh, I think that's everything, and that is a little bit alarming: even the core insurance business showed signs of deteriorating.

With equity down, it's little surprise they announced a capital raising effort of $12.5 billion to shore up their balance sheet.

The question the Street is grappling with is pretty simple: have the conditions that created these losses abated? If they are abating, then a lot of these losses they are taking now might reverse.

Importantly, AIG is much more exposed to the sub-prime market than most other property and casualty insurers, so I would expected the impact to the P&C group to be somewhat limited.

Elsewhere:

1) Sotheby's reported a loss of $0.19 for their first quarter; a gain of $0.10 was expected. They blamed a shortfall in commission revenues and higher expenses. A loss is also expected in the current quarter. Their recent auction of Impressionist art seem to have come in roughly in line with expectations. Down 8 percent pre-open.

2) Citigroup said they intend to shed $400 billion in assets over the next two to three years. They are talking at a analyst meeting today.

3) Circuit City is allowing Blockbuster and Carl Icahn to conduct due diligence. Icahn indicates he may buy CC if Blockbuster can't get the financing. Wattles Capital also reached an agreement with the Circuit City board whereby they will select three of Wattle's director nominees and include them as nominees at the 2008 annual meeting. Circuit City up 13 percent.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 8 May 2008 | 2:46 PM ET

Long And Short Of It: Platinum ETNs On Their Way

Posted By: Bob Pisani

So we have a gold ETF, a silver ETF, an oil and natural gas ETF. How about a platinum ETF? Looks like it's coming--soon--and get this--you can go long and short the commodity. E-TRACS UBS should be launching two new ETNs fairly soon:

Long Platinum (PTM)

Short Platinum (PTD)

One note: these are Exchange Traded Notes (ETNs), not Exchange Traded Funds (ETFs); they are based on futures contracts, not on the spot-cash price. I have been told that the platinum industry has been opposed to a platinum ETF, on the grounds that an ETF which was required to hold physical platinum would drive up the price.

Platinum, in case you've been living under a rock, is used in catalytic converters (which converts harmful gases into less harmful gases) for automobile exhaust systems (palladium is also used for this), as well as the tips of spark plugs. It's also used for jewelry (it's more precious than gold).


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 8 May 2008 | 1:07 PM ET

Retail Sales: The Good, Bad And Bottom Line

Posted By: Bob Pisani

So there’s good and bad news on retail sales .

The good news:

--April better than March, even if you include the early Easter and better weather.
--Teen retailers terrific.

The bad news:

--We may be overly optimistic here. Some cynics believe this is a head fake, and that we should not extrapolate this into some kind of consumer turnaround. Expectations were extremely low for April.

--There is a clear trend toward non-discretionary items. So Wal-Mart did a little better than even Target, and the wholesale clubs were huge. Costco sales up 8 percent; BJ's up 17.8 percent. Off-price apparel like Ross Stores and TJ Maxx were strong.

Bottom line: consumer still looks stressed, hope is the tax rebate will help some in May. The question is whether oil trumps better sales.


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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