Trader Talk with Bob Pisani


  Friday, 9 May 2008 | 9:23 AM ET

AIG, Oil Drag on Asia, Europe Markets & U.S. Futures

Posted By: Bob Pisani

Asian and European markets, as well as U.S. futures, weaker on the AIG news. Dollar stronger. For the moment, the risk aversion trade (long bonds, short financials) is back on. Oil at new high not helping.

Thoughts on AIG:

AIG down 6 percent pre-open, posted a much bigger loss than expected, a loss of $1.41 on an adjusted basis, compared to a loss of $0.76 per share expected. The usual culprits: weak housing and credit markets, but that doesn't quite do justice to what was going on.

If you want to know how tangled this can get, they had huge losses on Credit Default Swaps (CDS) that were written on Collateralized Debt Obligations (CDOs) which were in turn backed by Residential Mortgage Backed Securities (RMBS). Got that?

If that isn't enough, they also had losses in mortgage insurance, consumer finance, and domestic property & casualty. Uh, I think that's everything, and that is a little bit alarming: even the core insurance business showed signs of deteriorating.

With equity down, it's little surprise they announced a capital raising effort of $12.5 billion to shore up their balance sheet.

The question the Street is grappling with is pretty simple: have the conditions that created these losses abated? If they are abating, then a lot of these losses they are taking now might reverse.

Importantly, AIG is much more exposed to the sub-prime market than most other property and casualty insurers, so I would expected the impact to the P&C group to be somewhat limited.


1) Sotheby's reported a loss of $0.19 for their first quarter; a gain of $0.10 was expected. They blamed a shortfall in commission revenues and higher expenses. A loss is also expected in the current quarter. Their recent auction of Impressionist art seem to have come in roughly in line with expectations. Down 8 percent pre-open.

2) Citigroup said they intend to shed $400 billion in assets over the next two to three years. They are talking at a analyst meeting today.

3) Circuit City is allowing Blockbuster and Carl Icahn to conduct due diligence. Icahn indicates he may buy CC if Blockbuster can't get the financing. Wattles Capital also reached an agreement with the Circuit City board whereby they will select three of Wattle's director nominees and include them as nominees at the 2008 annual meeting. Circuit City up 13 percent.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 8 May 2008 | 2:46 PM ET

Long And Short Of It: Platinum ETNs On Their Way

Posted By: Bob Pisani

So we have a gold ETF, a silver ETF, an oil and natural gas ETF. How about a platinum ETF? Looks like it's coming--soon--and get this--you can go long and short the commodity. E-TRACS UBS should be launching two new ETNs fairly soon:

Long Platinum (PTM)

Short Platinum (PTD)

One note: these are Exchange Traded Notes (ETNs), not Exchange Traded Funds (ETFs); they are based on futures contracts, not on the spot-cash price. I have been told that the platinum industry has been opposed to a platinum ETF, on the grounds that an ETF which was required to hold physical platinum would drive up the price.

Platinum, in case you've been living under a rock, is used in catalytic converters (which converts harmful gases into less harmful gases) for automobile exhaust systems (palladium is also used for this), as well as the tips of spark plugs. It's also used for jewelry (it's more precious than gold).

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 8 May 2008 | 1:07 PM ET

Retail Sales: The Good, Bad And Bottom Line

Posted By: Bob Pisani

So there’s good and bad news on retail sales .

The good news:

--April better than March, even if you include the early Easter and better weather.
--Teen retailers terrific.

The bad news:

--We may be overly optimistic here. Some cynics believe this is a head fake, and that we should not extrapolate this into some kind of consumer turnaround. Expectations were extremely low for April.

--There is a clear trend toward non-discretionary items. So Wal-Mart did a little better than even Target, and the wholesale clubs were huge. Costco sales up 8 percent; BJ's up 17.8 percent. Off-price apparel like Ross Stores and TJ Maxx were strong.

Bottom line: consumer still looks stressed, hope is the tax rebate will help some in May. The question is whether oil trumps better sales.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 8 May 2008 | 9:16 AM ET

For Markets, Question Is Whether Oil Trumps Better Sales

Posted By: Bob Pisani

As expected, the ECB and the Bank of England left interest rates unchanged ; the ECB at 4.0 percent. Futures dipped a bit at 8:50 am ET as Mr. Trichet began talking, giving his usual speech on the importance of combating inflation.

Retail sales, very encouraging. In general, April looked better than March, even if you include the early Easter and better weather. There are more beats than misses. The question is whether oil trumps better sales.

Beat: Wal-Mart ,Kohl's , and teen retailers like Abercrombie ,American Eagle , Buckle and Aeropostale . Aeropostale was terrific, sales up 25 percent, better, far better than up 7.1 percent expected, and they raised their earnings estimate for the first quarter. American Eagle backed first quarter guidance. Bulk sellers like BJ's Wholesaleand Costco were also strong.

Worse than expected: Limited ,Gap ,Dillards , Chico's .

JC Penney guided down for May comps.

Toyota sees a 40 percent fall in operating profit for the first half of the year . Partly this may be due to higher material costs and a stronger yen, but much of it is also due to worries about a slowdown in U.S. sales growth. They're talking 1 percent growth for the year up to March 2009, well below the growth of previous years.

Yamana Goldreported earnings better than expected.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 7 May 2008 | 4:03 PM ET

Dollar And Oil: Stop This Game Right Now

Posted By: Bob Pisani

Record oil, nat. gas, and gasoline douse our modest three or four day rally, this happening despite a rise in the dollar--WAIT A MINUTE! The dollar is DECOUPLING FROM OIL? This little game has to stop RIGHT NOW.

Is there any wonder that there is some support for the Democrats, who are proposing a new energy package that would increase margin requirements for trading oil futures?

Little wonder, too, that in the face of the energy onslaught traders have stepped back and taken profits across the board: from leaders in tech, right down to financials, industrials, and even (gasp!) energy stocks.

Most depressing, the S&P 500 has again dropped below 1,400; those of you think technical trading is voodoo should look at the intraday chart of the SPY; once it moved below 140.50 (1,405 on the S&P), volume picked up, markets moved down, and when it passed 140.0 (1,400 on the S&P), well, all hell broke loose.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 7 May 2008 | 2:52 PM ET

For Markets, Biggest Problem Of All Is Oil

Posted By: Bob Pisani

At the lows for the day. We have some problems:

1) The dollar is up, but oil will not go down;

2) President Bush was throwing rhetoric around , claiming the housing bill is a bailout of speculators, and hinting he might veto it (homebuilding stocks, along with the market, promptly dropped);

3) The CBOE Volatility Index is at its lowest level since October, indicating complacency is very high (it has come off its lows from this morning, however);

4) after advancing smartly the past couple weeks, there are parts of the market that are a big overbought;

5) Finally, Tom Hoenig, head of the Kansas City Fed, is not helping anything by commenting last night that the Fed must be ready to raise rates in a "timely" manner, given the inflation outlook.

By far the biggest problem is oil. Remember, the recent rally we have seen has been on light volume. There is only a small group of traders (maybe 10 percent of the market) who are willing to take on more risk by buying stocks, under the theory that the economy will improve in the second half and the Fed has provided a backstop with the Bear Stearns bailout.

The other 90 percent is either unconvinced of this bullish position, or outright think it is baloney. What has to happen is the mildly skeptical camp needs to be dragged into the market; the best way to do this is a slow move up which will force them in.

Here's where oil is the problem. It provides the bears--and the marginal skeptics--with continuing ammunition about why they should stay out of the market. And it's a strong argument. That's why bulls want the dollar rally to continue; it puts pressure on commodities.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 7 May 2008 | 9:12 AM ET

What Does The Market Need? More Demand

Posted By: Bob Pisani

Dollar finally rallying today after a couple of down days. Metal commodities lower, but energy commodities flat.

Modest pop in futures as first quarter productivity rose a better than expected 2.2% vs expectations of 1.5%.

What we need here is more DEMAND; we need heavier volume on up days, and a clearer rotation into techs (already evident), industrials, and financials. It's not enough to just say, "Well, we haven't really seen any serious selling in a month." That's true, but not enough. Necessary, but not sufficient.

Sprintup 7 percent on word of a $12 billion joint venture with Clearwire; they are merging their wireless broadband units. They will be trying to roll out the first high speed mobile unit using the WiMAX network. Financing is being provided by Comcast ,Intel , Time Warner Cable , and Google , and Bright House Networks , for a total of $3.2 billion. Google will be Sprint's preferred mobile search provider.

Increased oil and gas production, as well as higher oil and natural gas prices, helped Devon and Transocean reported earnings well above expectations. Transocean up 4 percent, Devon 3 percent.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 6 May 2008 | 4:06 PM ET

Tech, Financials Give Market A Lift But Volume Still A Concern

Posted By: Bob Pisani

Inoted earlier that there were a lot of reasons to sell , and not many to buy today...but the market rose quietly throughout the morning and afternoon. The Volatility Index (VIX), a fear indicator, is at its lowest levels since October.

While energy and commodity stocks remained strong throughout the day, it was tech, financials, and industrials that provided the market lift midday. There were only 800 stocks advancing at 10 am; but at 3 pm ET, there were 1,600 advancing—twice as many.

A small group of traders are clearly willing to take on more risk, betting that the U.S. economy will improve in the second half and that the Fed has provided a backstop with the Bear Stearns bailout. The majority of the Street thinks these are questionable assumptions, but when you have light volume a small group of early adopters (and it can be as small as 10 percent of the trading pool) with conviction and modest money can move the markets...as they are doing today.

If there is some disappointment, it is in the volume, which is again light. It's been light since April, in fact, on up and down days. Old-school types will want to see a pickup in volume before they are convinced that this is much more than a few early adopters sticking their necks out.

As for Fannie Mae , wonder stock of the day…it’s amazing what short-covering can do. But make no mistake about it: their regulators have reduced their capital requirements, which means they are more highly leveraged than ever, at a time when their credit quality is deteriorating, and they are being asked to take on more and more of the burden of the housing industry. Professional financial traders I spoke to today through up their arms in frustration over this one.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 6 May 2008 | 1:41 PM ET

Market Buyers "Betting" On Better U.S. Economy

Posted By: Bob Pisani

This is a very interesting, and potentially important, day. There are a lot of reasons to sell, not a lot of reasons to buy...and the market is rising to the highest levels since January. What is going on?

I have been grousing for the past 24 hours that we have been in a time warp for the past couple days, back to March headlines:

Dollar weaker
New highs for heating oil, nat gas, oil
Energy, materials outperform
Financials faltering

So why are we getting this slow, modest, midday rally? Traders are divided here, but the most common answer I am getting is that traders are getting more comfortable with taking on more risk. There are several reasons for this, but the two most important are a belief that: 1) the U.S. economy will gradually improve in the second half of the year, and 2) the Federal Reserve has essentially provided a backstop with the Bear Stearns bailout.

Both of these are rather bold assumptions, and may prove wrong, but there is clearly a class of traders (a minority, but enough to move the markets: call them "first adopters") who are willing to make the bet here. And you can see it in the VIX: again sitting at the lowest levels since October.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 6 May 2008 | 9:22 AM ET

Fannie Mae, Oil Comments Not To Market's Liking

Posted By: Bob Pisani

Futures lower here by about 9 points, partly due to Fannie Mae, but Goldman's bullish comments on oil aren't a big help either.

1) Disappointing report from Fannie Mae . They reported a loss of $2.57 per share, well above the loss of $1.48 estimated by analysts . A larger provision for credit losses was the main culprit. They're also raising $6b in new capital through offerings of common and convertible and non-convertible preferred stock.

To top it off, they cut their dividend to $0.25 from $0.35 per quarter. Their outlook on the housing market is a tad gloomier; they now expect prices to decline 7-9 percent on a national basis in 2008; they had previously seen prices down 5-7 percent. Fannie is down 7 percent pre-open. Freddie Mac down 4 percent.

2) Goldman is getting even more bullish on oil. A note out this morning asks, "Has the super-spike end game begun?" They say the current energy crisis may be coming to a head, that lack of adequate supply growth could spike oil to $150-$200 a barrel in the next 6-24 months. They remain bullish on most of the energy sector.

Vulcan Materials will be a big loser. They missed big, and sales were well below expectations. Down 10 percent.

3) Home builder DR Horton , like their colleagues,reported losses much greater than expected. Like their colleagues, there were large pre-tax charges (about $834 m) for inventory impairments (read: our houses and land are worth less) and write-offs of deposits and pre-acquisition costs. The only good news here is that orders were down about 25 percent, that is certainly an improvement over the prior quarter, when orders were down over 50 percent.

4) NYSE Euronextalso reported earnings better than expected. The gain appears to have come from lower expenses and lower taxes. Takeaway: they're doing a good job on cost control, with merger-related savings a big plus. It will be the same with the takeover of the AmEx: up to 75 percent of the AmEx staff may lose their jobs through costs savings. Now if only they can stop the decline in market share...

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.


  • Bob Pisani

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

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