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Trader Talk with Bob Pisani


  Tuesday, 12 Aug 2008 | 4:22 PM ET

Financials (And Housing) Remain Center Of Economy's Problem

Posted By: Bob Pisani

We were reminded today that lower commodities and a higher dollar were not going to solve all the world's problems. What happened is that financials again came to the fore and reminded everyone that:

--financials (and housing) remain the center of the economy's problem.

--their problems won't be solved by a decline in commodities.

Late in the day, Richard Bove at Ladenburg Thalman issued a report critical of the entire philosophical foundation of JP Morgan. Mr. Bove called his piece "The Original Concept is Not Working." He cited two specific problems:

1) JP Morgan buying BankOne year ago was supposed to combine a consumer finance bank with a capital markets company which was going to be contra-cyclical: if one was weak, the other would do better, and vice-versa.

It didn't work that way. Both the consumer finance bank and the capital markets company have been declining in tandem.

2) Buying Bear Stearns may have "accentuated the negative impact of the capital market downturn"

Combine this with negative comments from Deutsche Bank and Oppenheimer on Goldman, as well as a Bloomberg interview with value fund manager Michael Price where he state that he is still short Citi and Wachovia, and you have all the makings for a day when financials overwhelm the market.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Aug 2008 | 12:36 PM ET

Traders Are 'Renters' Right Now

Posted By: Bob Pisani

If the trading seems a bit tentative and confusing, you're on the right track. And don't blame it on traders on vacation; there's plenty of that, but there's a reason for the market's uncertainty.

Traders are in a "Don't fall in love with anything" phase right now -- is the financial rally over? Is the decline in materials over for the moment? Has big energy finally bottomed? There aren't strong convictions on these major issues.

That's why you get a day like today:

-- Materials are clearly oversold and are up today, but most traders are only playing them for a 1-2 day bounce, so Potash , Mosaic , Freeport McMoRan, Alcoa are all up in a notable downtrend.

-- Exxon, Chevron, BP , and all the other big energy names have stopped dropping, but neither their trading volumes nor their news flow suggest a strong reason to buy;

-- Financials continue to have negative headlines, and have been mostly sideways for the last 2 weeks.

Does this sound cynical? One trader this morning -- a momentum trader -- noted to me that the stock market has become a rental market, meaning it's not clear how long you can own anything.

In this environment, is it any wonder that the talk is more technical in nature, more about Stochastics and Relative Strength than about Price-to-Book? When you can get 20-25 percent moves in a stock in a single week, how can you not become a short-term trader?

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Aug 2008 | 9:37 AM ET

Commodities and Inflation in Slow Global Economy

Posted By: Bob Pisani

Commodities and inflation remain the main story, and while stocks are well off their July lows, the advance remains tentative due to concerns about a slower global economy.

Oil was down as Russia announced it was halting its offensive in Georgia early this morning, but has since rebounded. The Russian stock market, which hit a new low this morning, has rebounded and is now up 3 percent.

Same with gold, which hit a 7-month low intraday, then rebounded. Copper also hit a 6-month low. The Goldman Sachs Commodity Index entered bear market territory, 20 percent off its July high, last week.

Commodity-related stocks like BHP Billington , and shipping company Frontline are all trading down this morning.

Inflation in the U.K. rose 4.4 percent from a year earlier, twice expectations. Still, economic conditions in the U.K. are deteriorating: home prices and retail sales have been falling, while oil and food costs have been rising. Bottom line: it's going to be tough to raise rates in this environment; the bet is that the next move in London will be lower rates, not higher.

Similar situation in France, where French CPI rose 4% year-over-year; Japanese PPI also rose more than expected.


1) UBS posted a worse than expected loss of about $330 million for the second quarter, but the more important news is the splitting off its investment banking business from its more-profitable wealth management businesss--many think this is the first phase of selling off the business entirely.

2) JP Morgan incurred losses of about $1.5 b since July as credit spreads have widened on mortgage-backed securities.

3) Goldman Sachs downgraded at Deutsche Bank , saying the firm's high exposure to equities would result in weaker than expected earnings, estimates were also cut by Meredith Whitney at Oppenheimer. The brokers have seen very little in the way of a rally since the July botttom.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 11 Aug 2008 | 12:56 PM ET

Why Small Caps Are "Shining"

Posted By: Bob Pisani

This post is from CNBC producer Robert Hum.

Many of the trends seen last week continue at the midway point of today’s trading session.

Stocks have moved to their highs of the day as the dollar rally/commodity drop continues. Airlines and consumer discretionary stocks lead the way, benefiting from oil falling over $2, to under $113.

On the flip side, the declining commodity prices are moving energy and material stocks sharply lower. Gold stocks headline this weakness, posting a 6 percent decline today. In fact, they have now been down three days in a row, posting a 12% decline during that time.

Once again, the small cap Russell 2000 index is shining. Its 2 percent gain is outperforming the 1 percent gains that the other major indices are seeing. Recall that the dollar strength generally hurts the larger U.S. multinational companies more as their exports become more expensive overseas. With a more U.S.-centric focus, the small cap companies listed on the Russell 2000, however, typically don’t have this international exposure and are less affected by a rally in the dollar.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 11 Aug 2008 | 9:30 AM ET

Russian, Chinese Stocks Look Even Weaker

Posted By: Bob Pisani

Bob Pisani has the day off. This post is from his producer, Robert Hum.

U.S. stock futures point towards a flat open this morning, following the market’s best week since April. The dollar index is a bit higher this morning, while commodities are slightly lower. The dollar index has been up for six straight days, prior to today.

Keep an eye on more weakness in Russian and Chinese stocks today. Over the weekend, tensions escalated between Georgia and Russia, as fighting continued. In China, the Shanghai composite hit new lows again, falling 5 percent as inflation worries remain in focus. The country’s PPI came in with a greater-than-expected gain of 10 percent from a year ago. China’s benchmark index is now down more than 9 percent over the past two trading days.


Waste Managementraised its all-cash offer for Republic Servicesto $37 per share, a 9 percent increase from its prior $34 per share bid. Republic Services had previously spurned the initial offer as it remained committed to its own $6.2 billion offer to acquire rival Allied Waste.

After the close on Friday, Berkshire Hathawayreported Q2 earnings fell 7.6% on weak insurance results. Insurance underwriting operating earnings fell 43%. Despite the weakness, earnings still beat analysts’ estimates.

The president of UPS’s international business shot down reports that the company was weighing a bid for the Dutch package delivery company TNT. The executive told Reuters that such an acquisition would be “something that devalues our shares.” However, others believe acquiring TNT would provide UPS with a greater presence in the European and Asian markets

Diebold announced preliminary Q2 results that beat analysts’ estimates. It saw strong demand for its ATMs and raised its full-year guidance. Diebold’s stock is up 3 percent pre-open.

Finally, FBR lowered its price target for Fannie Mae, as it believes the company would need to raise $5-$10 billion in additional capital.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 4:14 PM ET

Winners And Losers For The Week

Posted By: Bob Pisani

For the week, the Dow up 3.6%, Transports up 5.4%, S&P up 2.9%, NASDAQ up 4.5%. Best week for all four since April.

Many cross-currents:

--lower commodities help, but concerns about slower global growth persist

Winners this week:

--autos, retailers, airlines


--energy, materials

Things have changed. Consider that one month ago:

--oil was at $145
--commodity stocks were slowly coming off historic highs
--the dollar was near historic lows against the euro
--financials were at their lowest levels in over 10 years

All of these conditions have now reversed:

--oil is 21 percent off its high
--commodity and energy stocks are down more than 20 percent on average
--the dollar is at 6-month highs
--financials are off their lows

Financials may be off their lows, but they are not outperforming. What is? Of big cap stocks, the big winners this week were Consumer dscretionary stocks (retailers and autos), as well as techs. Consumer discretionary are benefiting from lower oil, but why techs? Sector rotation: with financials still a mess, energy a tough call, techs are a relatively safe rotation, but even here the strong dollar makes it tougher for firms like Hewlett-Packard.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 3:18 PM ET

Why It's A Different Market One Month Later

Posted By: Bob Pisani

There are notable shifts occurring in the stock market on the dollar rally/commodity drop this week.

1) lower oil has been a notable help to retailers and airlines

2) lower commodity costs in general, from copper to grains to plastics, have been a big help to consumer and material stocks, many of whom have bitterly complained of rising raw material costs

3) the dollar rally has helped small cap stocks. Again today the Russell 2000, the main small cap index, is outperforming the S&P 500. In fact, since the dollar hit its recent low (July 15, the market bottom), the Russell 2000 has rallied 10 percent, while the S&P 500 is up only 5.6 percent.

Why small caps? They are not dependent on exports to grow, as multinationals are. The strong dollar makes exports more expensive and less competitive.

As for the large caps, modest rallies in airlines, autos, and retailers is to be expected on the lower commodities, particularly oil.

However, it's one thing to unwind the "long commodity trade"--that's already being done. It's another entirely to unwind the "short financial" trade. After a brief rally in mid-July, most big financials--Citi , JP Morgan , Bank of America , have gone nowhere. Indeed, those perceived to be weakest--Wachovia , Washington Mutual , and many regional banks--are all down this week.

That's because traders are passing around bearish analysts reports like this one from UBS: "the availability of credit is declining-even for good customers. For example, BAC [Bank of America] is cutting credit lines for home equity and card-especially in the weakest housing markets. And many other banks are in the process of reducing commercial credit lines."

Bottom line: this is a very different market than one month ago, with the Dow and S&P at 6-week highs, but we are not out of the woods yet.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Aug 2008 | 9:20 AM ET

Dollar Gains Hurt Overseas Profits

Posted By: Bob Pisani

Happy start of the Olympics! The Shanghai Composite Index hit a new low this morning.

The big story this morning is not Fannie Mae, it's the dollar--and if "going parabolic" is an overstatement, it's not too far a stretch. Dollar having best day against the Euro since 2004. What's up? No specific news today, but clearly concerns over a global economic slowdown is what's driving the move.

This has important implications for multinational companies--the majority of the S&P 500. Dollar strength for U.S. based corporations implies profits will be smaller when profits made overseas are repatriated back to the U.S.; does it mean the biggest multinationals are now partly for sale?

If so, what do you buy? Sherwin Williams? Housing stocks?

On the strong dollar, commodities are down, as are gold stocks.


1) Fannie Mae down 13 percent pre-open; like Freddie Mac, reported a loss far in excess of expectations: $2.3 b (following a loss of $2.51 b in the previous quarter), loss of $2.54 a share (loss of $0.69 is the estimate), as well as an 86% cut in dividend (to $0.20).

--while 2008 will be the peak year for credit-related expenses, the total amount for credit-related expenses will still be "significant" in 2009;

--due to volatile market conditions, they have less visibility into their capital position in 2009;

--credit performance continued to deteriorate into July, and charge-offs were higher than expected.

Bottom line: deterioration in the mortgage book is spreading into Alt-A loans (no or low-documentation loans), and it will take well into 2009 before the awful 2006-2007 mortgage vintages fully play out.

2) Hertz beat but guided below expectations, they complained about higher costs, but noted they had raised prices TWICE this summer.

3) Food manufacturer Hormelalso guided below expectations, noting that "while we hae continued to implement price increases in this segment, they have not been adequate to offset the higher input costs."

4) An IPO: Web hosting company Rackspace priced 15 m shares at $12.50 a share, at the low end of the range expectation of $12-$16.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 4:14 PM ET

Consumer Negatives Make A Rough Day For Market

Posted By: Bob Pisani

The markets had to contend with a raft of negative news, much of it centered around the consumer. Late in the day, Moody's said they may downgrade the debt of American Express; Moody's say they were concerned about AmEx's lending exposure to areas of the country that have experienced sharp home price declines. AmEx dropped 5 percent.

At the same time, consumer credit for June --a lagging indicator and not normally a market mover--came out much higher than expected--$14.3 billion vs. $6.3 billion estimate. May's reading was revised upward as well, from $7.8 billion to $8.1 billion. This statistic is very volatile and often revised heavily. Simply put, consumers are charging more on their credit cards.

Add in the weakness in retail sales, the disappointing weekly jobless claims report, and AIG--as well as a 360-point gain in the Dow in the prior two days--and you have all you need for a down day.

Financials were weak across the board, in fact they were far and away the weakest group; not just property and casualty firms on the AIG news, but also brokers like Lehman, Merrill and Goldman were weak.

Freddie Macclosed near its old low of $5.26; Fannie Mae reports tomorrow.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 7 Aug 2008 | 1:58 PM ET

Why Dollar Is More Attractive

Posted By: Bob Pisani

A lot of cross currents today--on the negative side, we have AIG, the weakness in retail sales, the disappointing weekly jobless claims report.

On the positive side, we have 1) oil moving down midday which provided a modest boost to stocks, 2) the dollar rallying for the fifth straight day, largely on comments from the ECB's Trichet (he gave no indication that more rate hikes were coming), and 3) continuing outperformance from techs.

The good news for the U.S.--and the dollar--is that we do not need to cut interest rates, as they are already low. Other countries with heavy commodity-based currencies like New Zealand and Australia are likely to keep cutting rates; elsewhere the U.K. has not yet but probably will soon, and many are betting that even the ECB will be forced to cut rates soon. All this makes the dollar more attractive.

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.


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    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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