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Trader Talk with Bob Pisani

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  Monday, 24 Mar 2008 | 9:16 AM ET

Markets: The Good News Is Bad Quarter Will End

Posted By: Bob Pisani

The most important fact about this week is that it is the last week of a dismal quarter. Traders got annihilated in January, as the market went against both longs (in the first half of the month) and shorts (in the second half).

March was no better; we are simply trading at the lows of February and closing lows of January. The S&P 500 is down 9.5 year to date, the worst overall quarter since the third quarter of 2002, when it was down 17 percent.

So everyone has been buried, there are still lots of shorts around, plenty of cash on the sidelines, investor sentiment is low, and there are lots of concerns that many funds are and will be seeing redemptions. For that reason, there is considerable speculation that this will be an up week, that many funds have little choice but to commit money.

There is even a smattering of bullishness that has broken out, particularly since Bear Stearns was perceived to be a watershed event.

For example, former Countrywide Financial President Stanford Kurland, in conjunction with BlackRock and Highfields Capital, is today launching Private National Mortgage Acceptance Company, or PennyMac, to buy distressed mortgages. They are adopting the politically correct posture by claiming that their goal is to avoid foreclosures by restructuring the loans of struggling borrowers.

Elsewhere:

1) Tiffanyreported earnings above expectations , revenues in line. As with many international companies, international sales (up 21 percent) far outperformed the U.S. (up 4 percent). They went out of their way to say they again expected non-U.S. markets (ex-Japan) to outperform. Net earnings should increase 11 percent to 15 percent for the full year to $2.75 to $2.85 ($2.49 is analyst consensus estimate). Up 11 percent pre-open.

2) Sherwin Williams has lowered its first quarter and full year guidance, citing lower domestic sales and the "severity of raw material cost increases." Down 8 percent pre-open

3) Bear Stearns trading up 65 percent to $9.86 on reports from the New York Times that JP Morgan may up the bid to $10 a share; JP Morgan trading down fractionally.

4) CIT, after drawing on a credit facility last week to help its funding, is in talks with overseas banks to find additional funding, according to the Journal. Up 16 percent pre-open.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 20 Mar 2008 | 4:37 PM ET

Making Money: The "Come In Every Other Day" Market Theory

Posted By: Bob Pisani

So Dow is up 400 Tuesday, down 300 on Wednesday, up almost 300 today...guys on the floor have finally figured out how to make money in this market. Come in every other day.

It started with Fannie Mae and Freddie Mac this week (both up over 50 percent for the week), but this week's rally quickly spread to financials, then finally to other large cap stocks like GE (our parent) and Wal-Mart (3 year high today.)

Dow movers this week:

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  Thursday, 20 Mar 2008 | 9:09 AM ET

Here's A Bold Analyst Call: "The Financial Crisis Is Over"

Posted By: Bob Pisani

Dollar rallying again today, up 1.7 percent since the close on Monday. The bold analyst call of the day (week, month, year?) goes to Punk Ziegel's Richard Bove, who last night titled his piece, "The Financial Crisis is Over," calling the Bear Stearns sale the watershed event, and concluded by saying "this is a once in a generation opportunity" to buy financial stocks.

FedEx beat, but by a narrow margin. Guidance for the current (4th) quarter at $1.60-$1.80 is below analyst expectations of $1.98. They see "limited earnings growth" in fiscal 2009. Down about 2 percent pre-open.

Nike reported strong numbers, well above analyst expectations. Again, growth was outside the U.S. U.S. up 5 percent, Europe up 23 percent, Asia Pacific up 27 percent. Up 5 percent pre-open.

Credit Suisse down nearly 8 percent pre-open, they say they are unlikely to be profitable in the first quarter, and took a valuation reduction in asset backed securities that resulted in a reduction of 2007 profit. After an internal probe revealed misspricings from a small number of errant traders (!).

Book news:

a) Barnes and Noble beat, revenues in line. Guidance was good.

b) Borders Group has suspended its dividendand hired JP Morgan and Merrill to explore options. The problem? They can't raise capital because of the credit crunch, and (in hindsight) the decision to go heavy into music a few years ago was not the right one. Book sales up 3.2 percent for the quarter, but music sales were down 14.2 percent. Up 20 percent pre-open on belief a sale is likely.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 19 Mar 2008 | 4:14 PM ET

Commodities Eating Up Market's Gains

Posted By: Bob Pisani

The Dow has given up more than half of yesterday's gain, but much of this is due to the commodities rout. The dollar has been rallying two days, giving some hope to those who believe that the dollar's seven year decline is coming to and end.

This is a pretty slim hope, but if you look at the Dow, forty percent of the decline is due to the decline in the Dow's four commodity stocks: Chevron,ExxonMobil,DuPont, and Alcoa.

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  Wednesday, 19 Mar 2008 | 1:02 PM ET

Is It Sell In The Rally Time?

Posted By: Bob Pisani

It’s the time of the day for the shorts to press their case. Remember, sell the rally is the only consistent trading methodology that has worked in the past six months. It’s natural we should see some pressure today.

Most traders would be happy to see the Dow down 100 points and would consider that a good test. The quadruple witching expiration makes predicting a close a near impossible task. Volume is heavy, approaching 1 b shares. Financials have led the rally in the past day and a half.

Financials roar back (since Monday close):

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  Wednesday, 19 Mar 2008 | 9:39 AM ET

Market Rally: Trustworthy Or Not?

Posted By: Bob Pisani

So what matters here is the answer to one question: can we trust a rally? We haven't been able to so far; you can bet some money will try sell into it, as they have for months.

So skepticism is in order. Bulls argue that after events on the weekend, when the fed acted aggressively to help sell Bear Stearns and stabilize the markets, there's a greater sense of confidence that the Fed is getting creative in trying to deal with this credit crises. There's also a double bottom on the major indices, which soothes the nerves of technicians.

The biggest help short term will likely be the quadruple witching expiration tomorrow; the Street has been net short the market for months and the remains a lot of trapped shorts in the market. This is part of the reason we are seeing this morning's sharp 15-point rally in the futures, which occurred in the forty minutes.

The other major factor is Fannie Mae and Freddie Mac , which have won the capital relief that will allow them to buy more mortgages. VISAsuccessfully pricing the largest U.S. IPO in history is also helping.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 19 Mar 2008 | 9:10 AM ET

Fannie And Freddie: What Capital Relief Would Mean

Posted By: Bob Pisani

There are reports this morning that Fannie Mae has won the capital relief some have asked for. At 9 am OFHEO (Office of Federal Housing Enterprise Oversight--Fannie's regulator) has scheduled a conference call to discuss alleviating some of the capital constraints on Fannie and Freddie.

This is not going to solve the central problem--credit deterioration, which will continue to pressure earnings and capital, but it will make it easier for Fannie and Freddie to expand their purchasing of mortgages. The good news is that the spread between mortgage backed securities and Treasuries is finally starting to narrow.

Fannie Mae stock up 3 percent pre-open and 50 percent since bottoming on March 17.

Visa priced the largest IPO in history, pricing at 406 m shares at $44 ($37-$42 was the expected range) raising nearly $18 billion. Trading under the symbol "V." As for everyone who thought that Mastercard would be sold off to buy Visa...uh, no. Deutsche Bank said it best this morning: "The historic offering vastly improves the visibility, liquidity, and overall importance of the payments space. We think most investors came away from their work on Visa convinced that both names should be core holdings."

Morgan Stanley reported $1.45 vs. $1.03 expected, revenues also far higher than expected, up 7 percent pre-open.

Fixed income sales and trading revenues were $2.9 b, the second highest quarter ever, despite writedowns from mortgage prop trading of $1.2 b (!). Up 5 percent pre-open.

General Millsreported earnings of $0.87 vs. $0.79 expected; they reaffirmed their full year guidance.

Good news: the average 30 year mortgage rate fell to 5.98 percent from 6.36 percent last week. Bad news: mortgage applications have fallen to the lowest level of the year.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 18 Mar 2008 | 4:01 PM ET

Fed "Speak" On Inflation Helps Move Markets

Posted By: Bob Pisani

The Fed commentary, on top of the positive Lehman and Goldman numbers, are helping move stocks to the highs of the day.

The Fed has:

1) Reduced the growth forecast, and increased the inflation forecast

2) Talked less on credit problems

The tougher talk on inflation has helped the dollar, and the fact that there were two dissenting votes are making the Fed look much more balanced in their concern over growth and inflation. This is being greeted as good news by the markets because traders feel a little more confident that the Fed is addressing the liquidity crises given the events over the weekend.

Also note that the market is net long going into a quadruple witching expiration. There are a lot of trapped shorts here that is adding to the rally.

Watch the VISA IPO after the close. Should price in the range of $37-$43, talk that demand is strong, may open up $3-$5.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 18 Mar 2008 | 1:25 PM ET

Morgan Stanley "Sticking Leg Out" To Find Financials' Bottom

Posted By: Bob Pisani

Morgan Stanley's financial analyst team put out a long report on the state of financials this morning. The title is: "Looking for a Bottom." They are not bullish, they're just less bearish. They argue it's time to reduce short positions on large cap banks, for example, and are less bearish toward other financial sectors.

Their reasoning:

1) The yield curve is now steep enough to signal economic recovery.

2) Unprecedented step of providing secured financing to non-bank broker-dealers means the government is now weighing aggressively.

3) Fixed-income markets are now pricing in plenty of risk. Finally, Morgan notes that traders have now come face to fact with systemic risk--the failure of Bear Stearns , while shocking, is part of the bottoming process, and that while other firms may yet fail, "the shock of contemplating additional failures should not be as severe."

Of course, "the bottom for financials is going to be long and difficult, in our view." This is hardly bullish, but it's one of the first firms to come out and gently stick their leg out to find a bottom.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 18 Mar 2008 | 11:56 AM ET

Bear Stearns: The Reality Of The JP Morgan Deal

Posted By: Bob Pisani

Bear Stearns is moving up again, up 58 percent to $7.62. There is no way to explain this move up other than there are some people who believe that the terms of the deal will be improved or there will be a white knight to make a counter bid.

Many believe that a large block of shareholders will vote against the deal, including Bear employees, who own 30 percent of the stock, and Joe Lewis, who has said he will vote against the deal.

As much as we might want to think it will be worth more, the reality is difficult to change. Assuming JP Morgan does not improve the terms of the deal (why should they?), the company will go into bankruptcy.

At that point, assets will be sold. What assets? The firm has a building, but it appears JP Morgan owns it no matter what happens.

What else? Prime brokerage? It appears to be gone. Investment banking? In a bankruptcy? I doubt it. The brokerage business and the retail sales force? Wouldn't most of them leave if they could?

What about the assets? We don't know, but there would certainly be a fire sale that would drive down prices even more. There are rumors of a white knight, but how many are there who could do this deal and go against the wishes of everyone else, including the Fed?

I am sure you will hear people floating valuations that are much higher than $2 in the coming days. They may have a point, but getting to that reality will not be easy, unless JP Morgan suddenly, magnanimously changes the terms.


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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