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Trader Talk with Bob Pisani

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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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  Tuesday, 18 Mar 2008 | 9:09 AM ET

Lehman, Goldman, Housing Start Numbers Better Than Expected

Posted By: Bob Pisani

Good reports from Lehman and Goldman , and housing starts are above expectations. Core PPI up 0.5 percent is higher than the 0.3 percent expected, but that is being pushed aside in favor of the more bullish housing starts data.

Lehman up 13 percent pre-open , earnings of $0.81 vs. estimates of $0.72 (for the quarter ending in February). Cynics will note that this is more than 50 percent below the earnings for the same period last year. Despite all the worries about Lehman, Wachovia's comment to their clients this morning is noteworthy: "...if Lehman can survive, we believe it will by default gain material market share in mortgages now and especially in the future if the business turns."

Goldman Sachs up 6 percent, earnings of $3.23 vs. estimates of $2.58. NYSE Euronext approved a $1 b buyback and raised their dividend 20 percent, to $0.30 a share. Speaking of dividend yields, several banks are now paying double digit yields: Countrywide , 14.7 percent, National City , 11.1 percent, and Wachovia Bank , 10 percent.

Ford among the most actively traded stocks pre-open, up 3 percent, on reports that India-based Tata Motors will be signing a $3 b deal to buy Jaguar and Land Rover. This has been rumored for some time.

Yahoo is backing their earnings estimates for the quarter and the full year, up 4 percent.

Delta pilots say they can't reach a seniority deal with Northwest Airlines . Unlikely this will scuttle a deal, but Delta clearly want to avoid the problems that US Air had when it merged with America West (they're still arguing about pilot seniority--three years after the merger!).


Questions? Comments? tradertalk@cnbc.com

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  Monday, 17 Mar 2008 | 12:58 PM ET

Financials, Commodities Both "Unwinding"

Posted By: Bob Pisani

There are two events occurring today:

1) The finanical services industry is systematically unwinding. Firms that are involved in financial execution are getting hammered midday: Interactive Brokersdown 25 percent, ETrade down 12 percent, TradeStation down 12 percent. What's going on? The brokerage system is not the banking system...a stock and a bond are not the same thing, and a trading account is not an FDIC account.

Simply put, customer accounts that are non-FDIC insured are now shown to be potentially at risk. There's clearly concern that some may be liquidating their trading accounts, either from fear or margin calls. There are also questions about how big the financial services markets will be in the future.

2) The commodities industry--and the brokers and exchanges around it--are systematically deleveraging and unwinding.

Commodity related trading firms are all weak: MF Global down 63 percent, FC Stone down 42 percent, Nymex down 21 percent, CMEdown 15 percent. Commodity-related stocks (steel, coal, aluminum, iron ore) are also weak because commodities are down.

Commodity rout:
Copper down 2.3 percent
Platinum down 3. 1 percent
Coffee down 9.1 percent
Heating oil down 2.3 percent


Questions? Comments? tradertalk@cnbc.com

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  Monday, 17 Mar 2008 | 9:08 AM ET

Bear Stearns Fallout: Journalists Stay Away (From Analyst)

Posted By: Bob Pisani

Pre -open trading:

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  Monday, 17 Mar 2008 | 8:51 AM ET

Bear Stearns: How This DID Happen--And Will There Be More?

Posted By: Bob Pisani

To everyone who called me or emailed me over the weekend saying, "How could this happen? How could Bear Stearns go from $57 to $2 in two days?" I would offer the comment of one astute trader, who said, "When you are levered 30 times and have no access to finance it doesn't take a huge move on $400 billion in assets and $260 billion of debt to wipe out the equity."

Two questions dominate the Street this morning:

1) What will Bear Stearns' shareholders--specifically Bear employees--do? The $2 per share deal is subject to shareholder approval, and Bear employees--many of whom have significant parts of their life savings in Bear stock--are certainly stunned enough to create at least a minor protest over the price. Sandler O'Neill noted that "we do not believe it is incomprehensible that this deal may have bought Bear Stearns additional time to assess its situation which may lead shareholders to reject the offer."

2) What will happen to the other major brokers and banks, and what will the reaction of the credit markets be? With a book value at nearly $80 per share for Bear, the $2 price makes it tough on other brokers. A flight to firms with the strongest balance sheets seems obvious. Analysts were out this morning with various comments on who does have the strongest balance sheet: Goldman Sachs , for example, opined that Morgan Stanley and JP Morgan had the strongest balance sheet. Street seems to be treating it that way: Lehman down 28 percent pre-open, Merrill down 16 percent, Goldman and Morgan Stanley down down 8 percent, JP Morgan up.

Meredith Whitney, who has become an ax in this space through her coverage at Oppenheimer, put out a note this morning titled, "BSC Fire Sale to Cause Valuation Adjustment for All Financials: Banks at Risk," in which she argues that financial stocks have further downside of as much as 50% based upon 1990/1991 multiples of tangible book values. She says most banks are trading well above their price to book lows of the 1990-1991 cycle.

So, what will finally end all this turmoil? The Street is screaming that the government should directly or indirectly begin buying mortgage backed securities, and, to a lesser extent that a wider bailout program needs to be devised to stem home price depreciation.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 14 Mar 2008 | 3:04 PM ET

Visa Moves Up IPO Offering For Wednesday Trade

Posted By: Bob Pisani

Bear Stearns is not the only one making changes to their calendar. Credit card giant Visa, which was scheduled to price its mammoth IPO Wednesday night for trading Thursday, is moving the offering up to price Tuesday night for trading trade on Wednesday.

Four hundred and six million shares will be offered between $37-$42, all by the company (42 percent of the company is being sold). This should eventually translate into a nice windfall for JP Morgan (23.3 percent), Bank of America (owns 11.5 percent), Citigroup (5.5 percent), and Wells Fargo (5 percent), who are all shareholders. JP Morgan and Goldman are the lead managers.

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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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