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Trader Talk with Bob Pisani

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  Thursday, 21 Feb 2008 | 9:24 AM ET

Oil Drops On Pickens' Comment--But Other Commodities Rise

Posted By: Bob Pisani

Oil dropped about $0.60 after Boone Pickens said that he was short oil on our air . Natural gas also dropped, as he said he was short that also.

However, gold, platinum, and palladium are once again at new highs this morning, and it's not just those: soybeans, steel, freight, iron ore, coal, are all at highs. Base metals like copper and zinc are strong as well. While materials stocks are up a bit this month, none of them are anywhere near new highs. There seems to be some kind of decoupling going on between commodities and the stocks.

JC Penneybeat their earnings expectations, though comp store sales decreased 2.3 percent . Guidance is so-so, the range for the quarter and the full year is just below analyst expectations; comp store sales projected to decline for the year. Remember, yesterday launched a whole new line, American Living--co-developed with Polo Ralph Lauren. See Margaret Brennan's Retail Detail post on this.

Sun Capital announced that they had acquired a 9.45 percent stake in Furniture Brands and was seeking to buy the whole company. They didn't say for how much, but they did say it would be at a "substantial premium" to the close of $10.18 a share. Up 16 percent pre-open.

Research in Motion up 10 percent pre-open, they said net subscriber additions would be 15 to 20 percent higher previously forecast. They affirmed their forecast.

Steel giant Arcelor Mittal said they were raising prices ; so is everyone else in the commodity world, it seems.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 20 Feb 2008 | 12:07 PM ET

Rio Tinto CEO Albanese: China Is Reason For Commodity Price Hike

Posted By: Bob Pisani

In case you are wondering why commodity prices continue to rise in the face of a U.S. slowdown, please listen to what Rio Tinto CEO Tom Albanese told our David Faber a short while ago. He discussed how China was continuing to suck up a greater and greater part of the world's commodity supplies, and concluded by noting that China now consumes:

--0ne-third of the world's aluminum
--0ne-fourth of the world's copper
--50 percent of the world's steel
--50 percent of the world's iron ore

The interview is here.

Wireless price war? Yesterday's announcement of a flat wireless rate of $100 from AT&T, Verizon,T-Mobile, done in response to fears that Sprint would announce a $60 a month plan, has driven Verizonand AT&Tto new lows.

There are two problems:

--Could accelerate a decline of wireline
--Price war in wireless

But that's not all. There's other issues:

--Residential broadband growth slowing
--Less consolidation opportunities
--Less certain regulatory environment (benign recently, now uncertain with the elections)

The problem here is that there has been an assumption that there will be robust growth in wireless revenues and EBIDTA. If pricing continues to move down, that assumption may now be out the window.

What to do? Some firms--including Atlantic Equities--are recommending the tower stocks, including Crown Castle and American Tower. They say the will benefit from the volume growth driven by unlimited voice and data plans.



Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 20 Feb 2008 | 10:29 AM ET

Asia Weak, Commodities Taking A "Break"

Posted By: Bob Pisani

Asia is weaker (Japan down over 3 percent). Some chatter abouta unit of KKR asking for restructuring of billions of dollars in short-term debt, reported overnight by the Wall Street Journal in Tokyo.

Commodities--including energy, base and precious metals--taking a breather this morning.

Unlike UBS,ING reported only a small impairment charge. Net profit was up 18 percent from a year ago. BNP Paribas also had a decent report.

Credit Suisse , a day after the big writedown of $2.85 billion, saw its price target cut by Lehman. HSBC, and Goldman Sachs.

Host Hotels beat on top and bottom line earnings (the metric for earnings is Funds From Operations), but gave guidance for the year below expectations. They are one of the biggest hotel REITs in the country and partner with the biggest luxury brand owners--Ritz-Carlton, Westin, St. Regis, Four Season.

Hewlett Packard up 4 percent as they beat both earnings and revenue estimates for the quarter. According to Pacific Crest Securities, notebook unit growth was 49 percent (!), deskktop sales also increased 15 percent. U.S. consumer demand softened in January, but international demand was strong. International sales account for about 69 percent of total sales for Hewlett. Bottom line: Global demand for PCs remains strong.

Chinese solar firm Suntech Powermissed on top and bottom line, down almost 20 percent as they provided very poor revenue guidance.They said they were impacted by the poor weather in China, as well as the Chinese New Year.



Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 20 Feb 2008 | 9:32 AM ET

Inflation Is Back As An Issue

Posted By: Bob Pisani

Futures were already down on the poor mortgage news (both purchases and refinancings were below expectations, and 30-year mortgage rates are now over 6 percent). They dropped again at 8:30 AM when core CPI came in at 0.3 percent in January, the biggest increase since June 2006.

This is not welcome news, as Tony Crescenzi points out, since what the market needs now is low rates to help the housing market and inflation worries will work against that.

Then we have the commodity problem. Good news for commodity stocks, bad news for consumers. Natural gas, for example, sitting right at two-year highs, up again today.

Add to this the news from last week that the price of imported goods from China was actually rising, and you have inflation back as an issue. All this will show up in February inflation numbers, which won't be pretty on headline basis.



Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 19 Feb 2008 | 3:07 PM ET

Commodities Surge -- But Look at The Reasons

Posted By: Bob Pisani

What's up with commodities? They're roaring again today, with strength in grains, energy, metals. There are some broad issues: it's an inflation hedge, many commodities price in dollars. Also, remember that most of these markets are a tiny fraction of the stock and bond markets, so it's easier to move them around.

Let's look at a few of these commodities and why they are moving.

Coal. Tight supply issues and strong demand. Problems in Australia and South Africa.

Iron ore. Contract pricing will be up 65 percent for 2008 (!). This will help not just iron ore stocks, but also steel makers like Nucor and Steel Dynamics who make steel from scrap and arc furnaces. Steel makers also look poised to raise prices.

Oil. Prints at $99.65 about 1:40pm ET -- after striking an intraday record of $100.10 on the Nymex . Plenty of talk about a slowdown on U.S. growth issues, but the bottom line is that it is very rare to actually have demand contraction in energy.

Gold. New high. Production issues in South Africa, where electricity is a problem; also considered a safe haven.

Platinum. New high, backwardation (front month contract price is higher than months farther out) thanks to high demand for catalytic converters.

Copper: 4 month high.

No surprise that energy and material stocks are the leaders, many up 3-5 percent.



Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 19 Feb 2008 | 9:25 AM ET

Europe Recovers after Credit Suisse Writedown

Posted By: Bob Pisani

European markets have recovered in the past two hours after a rough start.

Credit Suisse roiled the markets early, as it announced $2.85 billion in writedowns, just a few days after posting relatively strong fourth-quarter profit. They will be cutting bonuses and much of that writedown will be covered by tax credits. Still, it will wipe $1 billion off of profits from the first quarter. Remarkably, they say they will still be profitable.

Credit Suisse is down 4.15 percent pre-open, but other banks like ING are up 9 percent, AXA up 6 percent in pre-open trading here.

In the U.S., futures have been rallying for the past couple hours. Traders note a combination of factors: 1) Europe holding up fine yesterday, and recovering from a brief dip this morning, 2) U.S. markets held up Friday and didn’t break in the face of bad consumer confidence, 3) further signs of bond market weakness, 4) Wal-Mart Stores okay, 5) a bit of relief regarding monoline restructuring and 5) frustration of shorts to bring the S&P 500 below their January lows (many note that if this continues it could pick up steam).

Finally, there may be a small boost from Cuban dictator Fidel Castro stepping down, but the two most obvious beneficiaries -- Carnival and Royal Caribbean Cruises -- are barely moving.

Elsewhere:

1) Wal-Mart was in-line at $1.02. Outlook in line with expectations $0.70-$0.74 vs. expectations of $0.74. Up 2 percent pre-open.

2) Ambac discussing a plan to raise at least $2B in capital to help it retain its AAA credit rating, according to The Wall Street Journal. The extra cash would likely be a prelude to a trickier and lengthier move: splitting itself into two businesses

3) The chief executive of the nation's largest bond insurer, MBIA , has stepped down and is being replaced by a predecessor in the post: Gary Dunton, 52, has resigned. Joseph (Jay) W. Brown, 59, will be chairman and chief executive officer, roles he held from January 1999 until May 2004. He retired as executive chairman in May 2007.

CNBC's David Faber said he had spoken with Brown and that Mr. Brown was optimistic that a deal might happen in next two weeks with New York State Insurance Commissioner Eric R. Dinallo.

4) Conagra and General Mills both raised guidance, somewhat surprisingly. They cite stronger sales growth, and in the case of General Mills, cost-savings efforts.

5) Iron ore prices still going up: Vale announced a 65 percent increase in 2008 iron ore prices, which could add $10 billion to the company's bottom line. No wonder the Chinese are opposed to consolidation in this business. They also plan to sweeten their bid for Xstrata.


Questions? Comments? tradertalk@cnbc.com

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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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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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