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Trader Talk with Bob Pisani

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  Friday, 15 Feb 2008 | 11:30 AM ET

Weak Economy News, Inflation Weigh On Stocks

Posted By: Bob Pisani

A slew of weak economic news and stronger than expected inflation news is weighing on stocks ahead of the Presidents’ Day weekend. Consider:

--Consumer confidence: lowest since Feb. 1992
--NY Fed survey weakest since May 2003.

Inflation is also an issue:

--Food prices up 3.1 percent in Jan.
--Gas prices up 5.5 percent.
--China import prices up 0.8 percent (As I posted earlier, one trader noted, "The days of importing deflation from China is over.").

There is also a bit of jitteriness over the long weekend (remember what happened over the MLK weekend); Europe is closing down nearly 2 percent for most of the major national indices, the worst showing of the week.



Questions? Comments? tradertalk@cnbc.com

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  Friday, 15 Feb 2008 | 9:23 AM ET

China Imports Costing More: Days Of "Cheap Items" Over?

Posted By: Bob Pisani

Huh? Import prices from China rose 0.8 percent for the month. How did that happen? As one trader noted, "The days of importing deflation from China is over."Futures were also down as the February NY Fed survey was negative 11.7, the weakest since May 2003.

Elsewhere:

1) Abercrombie & Fitch is one of the first retailers to report earnings. Their results are a few penny above expectations, though it seems to be due to a more favorable tax rate; comp store sales were up 1 percent. Guidance of $1.61-$1.65 for the first half of the year looks below analyst estimates of $1.73. Down 2 percent pre-open.

2) Best Buyis saying they will earn $3.05-$3.10 for full year 2008 guidance.They had previously provided earnings guidance of $3.10-$3.20 a share. Down 4 percent pre-open; Circuit city also down 2 percent. They cited "soft domestic customer traffic in January." Buried in their report was a long discussion of international sales: they are expanding aggressively in China; by the end of 2009, nearly 22 percent of the company's total retail space will be outside the U.S.

3) Goldman Sachs sours on coal. We've been telling you about the 40 percent increase in coal prices in the last month, and noting the increase in coal stocks. Goldman has noticed it too; now they are turning cautious on the whole industry. Here's the key point from their report: "Coal is abundant and, at these prices, supply will come to the market much faster than bulls may expect In addition, our supply/demand forecast for inventories indicates that they will be at high historical levels through 2009-making it hard for us to believe that pricing could go much higher from here."

Massey Energy , which was at a new high yesterday, down about 4 percent pre-open.

4) Campbell Soupreported earnings about in line with expectations; they reaffirmed the full year guidance of $2.05-$2.09.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 14 Feb 2008 | 10:27 AM ET

Energy Sector Leading Market--Again

Posted By: Bob Pisani

Once again, the energy sector is leading the market--in fact the AmEx Oil Index is up six days in a row. What's going on? Oil commodity traders don't believe the International Energy Agency's claim that oil prices will drop in response to slower U.S. growth (which they said yesterday), and have been bidding up oil, which at $94.40 is at its highest level in a month.

The rest of the energy sector is strong as well: natural gas is near a new high, as is heating oil.

Throw coal into the mix: it's up 40 percent in a month! What's up? China is now an importer, there's been torrential rains in Australia, and lots of logistical issues. Coal producer Massey at a new high.

Elsewhere:

I mentioned earlier that Goldman upgraded the entire trucking sector, but in particular took YRC Worldwide and Arkansas Best off the "sell" list. The reason? The American Trucking Association (ATA) publishes a widely watched monthly Tonnage Index that tracks shipments by truck. The index posted positive growth for the second month in a row after declining for 14 of the prior 16 months.

According to Goldman, trucking freight shipments typically fall before a recession and stabilize once the U.S. is in recession on the back of easier comparables.

They go on to state:

"We believe that (1) the U.S. is in or will soon fall into a recession, (2) the ATA tonnage index has likely begun its stabilization period, and (3) the Fed will continue to cut rates to spur growth - all positive signs for trucking stocks..."


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 14 Feb 2008 | 9:22 AM ET

International Growth Once Again "Big Deal"

Posted By: Bob Pisani

The story is on international growth today. Marriott beat, and along with everyone else on the planet reported stronger revenues (revenue per available room, or RevPAR, in this case) internationally than domestically: up 9.2 percent vs. 6.2 percent.

First quarter guidance a tad below expectations. Remember, Starwood cut its 2008 forecast a short while ago.

Talk about international growth: look at Goodyear . Eastern Europe, Asia and Latin America grew sales 20 percent.Sales grew 10 percent in North America (but there was a strike in 2006, so sales are higher than they otherwise might have been).

Ingersoll Rand : As with most international companies, they are expecting slow growth in North America and (surprisingly) Western Europe and "brisk growth" in Eastern Europe, Asia and Latin America. Ingersoll gets about 45 percent of its earnings overseas. Remember, Ingersoll Rand has gone big into climate control technologies (about 30 percent of their sales), so the slowdown in housing is definitely affecting them. Guiding current quarter and the full year a bit above analyst estimates.

Lehman cut estimates for brokerage firms (Bear Stearns, Goldman, Merrill, and Morgan Stanley). They particularly cut Merrill's estimates for the first quarter, from $0.91 to $0.19 (!). They are following the lead of Bank of America, who cut estimates earlier in the week.

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  Wednesday, 13 Feb 2008 | 12:19 PM ET

Retail Sales Good News--Debt News Not So Good

Posted By: Bob Pisani

There is good news and bad news today. The good news is that there have been some signs of stabilization: retail sales better than expected, commodity off their highs, and the stock market is behaving better this week.

The bad news is that we keep getting wild cards on the debt side.

The AIG story yesterday is a good example . There was also word of a series of failed municipal bond auctions yesterday, including one for the Port Authority of New York and New Jersey. Also this morning: S&P reported that 50 percent of the European company's involved in leveraged buyouts had more debt on their balance sheets than originally forecast, and as a result the risk of defaults are rising.

If you picture the debt market as a series of rooms, each room containing a separate "wing" of the debt market (U.S. gov't treasuries, mortgage backed securities, muni bonds, leveraged debt, and emerging market debt), we are in a situation where, every time you open a door to one of those rooms, a bat comes out. And that has kept the market on edge.

It's important to note that the U.S. debt market--at $29.2 trillion--is bigger than the U.S. equity market, at about $21 trillion.

Here's the size of the U.S. debt market, along with the size of its components.

U.S. bond market debt: (trillions)

Mortgage-related $7.1
Corporate debt $5.7
Treasuries $4.4
Money markets $4.1
Fed, agency securities $2.8
Munis $2.6
Asset-backed $2.5
Total 29.2 trillion



Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Feb 2008 | 9:14 AM ET

Retail Sales (Not A Disaster) Boost Futures

Posted By: Bob Pisani

Surprise! Retail sales were not a disaster in January; futures rose about 5 points on that news.

Elsewhere:

1) Deere's earnings of $0.83 handily beat estimates (note they earned $0.52 for the same period last year, a 60 percent increase in earnings!) They cited favorable conditions in the farm sector and strong customer response to the lineup.

However, the 2008 guidance of $700 to $725 million for net income in the second quarter is below analyst expectations of $734 million. The company was upbeat about Agricultural Equipment sales (50 percent of sales), saying "farm conditions throughout the world remain quite positive," but were cautious on sales in its Construction & Forestry Division (21 percent of sales) due to the ongoing housing slump. Despite increasing sales abroad in the last few years, Deere still gets about two-thirds of its sales from the U.S. and Canada.

2) Dean Foods reported earnings a bit below expectations, with the CEO saying "2007 was the most challenging year in the history of Dean" and went on to list record high dairy costs, oversupply of organic milk that drove down prices, increased competition, etc.

3) Coke reported earnings of $0.58 ahead of estimates of $0.55. International volume growth was again strong, up 7 percent, while North America was up only 1 percent. This is consistent with other international companies reports.

4) Rio Tinto said it had received "a great deal of encouragement" from company shareholders concerning its rejection of a takeover bid from BHP Billiton.

5) Waste Management beat expectations for earnings and revenues.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 3:23 PM ET

Markets Debate Buffett's Bond Offer (Good And Bad)

Posted By: Bob Pisani

The Buffett offer to take over the insurance liabilityof the municipal bond part of the mortgage insurers portfolio is causing a lot of debate on the Street.

The general conclusion is, good for municipal bond holders, good for furthering a solution to another piece of the credit mess, but bad for the bond insurers, and the market is reflecting that in the down prices of the insurers today.

The reason it is not a good deal for the bond insurers? This is no bail-out. The insurers are left with risky CDOs, the counterparty risk remains for banks and brokers, and--most important of all--this offer may not prevent a ratings downgrade, even though it would free up some capital.

So it's fairly clear the companies do not want this deal. Still, if the ratings are downgraded, Buffett may still make this deal happen because it's likely a solution by the regulators would be sought and he would be brought in to "save" the muni part.

The best hope for the bond insurers at this point appears to be some kind of bail-out by the banks and brokers, who hold significant counterparty risk. But where is the offer? Nothing yet.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 11:09 AM ET

Markets Up On "Efforts" To Solve Credit Crisis

Posted By: Bob Pisani

Rally on strength in cyclicals, agricultural stocks, insurance and banks. Markets are up for a couple reasons this morning. Most importantly, there is a sense that efforts are being made to address the credit problems, whether it is:

a) Major players in the mortgage business offering to freeze foreclosure for 30 days in an effort to get home owners into longer-term, more stable mortgages they can afford.

b) As mentioned before , Buffett offering to assume $800 billion of municipal bond-related insurance liabilities from Ambac , MBIA and FGIC. The good news here is that it would free up capital for these companies, but more importantly it would prevent contagion into a healthy market (munis) by separating the businesses into "good" (munis) and "bad" (CDOs).

Also, one trader noted to me that Buffett had said stocks appeared to be fairly valued; while this is hardly a ringing endorsement of the market, it does appear to be an improvement over last year, when he said he couldn't find any value in the market.



Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 9:56 AM ET

Buffett's Bond Insurer "Rescue" Offer Lifts Futures

Posted By: Bob Pisani

Stock futures have rallied about 6 points, bond futures have declined as Warren Buffet appeared on CNBC saying he has offered to take over the muni bond insurance exposure from the big 3 bond insurers (MBIA, Ambac, and FGIC)--about $800 billion worth.

He did not offer to take over the CDO exposure. The plan would give bond insurers thirty days to come up with a better deal. One bond insurer (he did not say who) has already rejected the offer.

Ambac ,MBIA up about 4 percent.

The International Council of Shopping Centers said sales for the week rose 1.8 percent from the year ago period and fell .7 percent week over week. They gave their expectations for Feb sales to be up .5 percent to 1 percent y/o/y. Jan sales were the slowest in at least 38 yrs of monthly tracking according to the ICSC.

The Greenwich Global Hedge Fund Index fell 2.4 percent in January, the biggest monthly decline since July 2002, amid severe declines in global equity markets; the S&P 500 fell 6.0 percent.

During January, 79 percent of hedge funds outperformed the S&P 500, with 33 percent ending the month in positive territory.

Elsewhere:

1) Credit Suisse said its profit dropped 72 percent from the same period last year, largely on writedowns of $1.88 billion related to subprime.

2) Monsanto was up 3 percent pre-open as they raised their full year guidance based on a strong outlook for its seed business.

3) GM posted a confusing earnings report . Earnings excluding charges came in at $0.08; expectations were for a loss of $0.54. However, there was also a $1.6 billion tax benefit. Should that be included or excluded? That is typically excluded, which would drop the number well below expectations (to a loss of perhaps $0.72). GM down 3 percent pre-open.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 9:40 AM ET

Masco (Materials Supplier) Echoes Downbeat Housing Market

Posted By: Bob Pisani

Building materials supplier Masco this morning is parroting the downbeat comments of home builders recently. They're down 13 percent pre-open, on an earnings report that was below expectations.

The 2008 guidance of $0.85 to $1.15 was well below expectations of $1.65; revenue projections were also below expectations.

Comments: "The Company expects a further decline in housing starts in 2008 and continued softness in sales of existing homes...the Company anticipates a decline in consumer spending for home improvement products..."

They estimate that 2008 housing starts will decline an additional 25 to 33 percent, after declining 25 percent in 2007.


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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