Trader Talk with Bob Pisani


  Thursday, 15 May 2008 | 9:16 AM ET

UBS Upgrades Oil; Why GE Shares Popped

Posted By: Bob Pisani

1) UBS is pounding the table on oil: It upgraded oil to $115 for 2008, $120 for 2009, and initiates coverage of the offshore drilling sector, with buy ratings on Atwood , Diamond Offshore , Ensco , Noble , Rowan , and Transocean .

The reasons?
a) prices have been stronger and demand more resilient than expected at today's higher prices; and
b) higher than previously expected prices are required to limit demand growth, given anemic supply growth outlook.

2) A disappointing IPO: Verso Paper priced 14 million shares at $12. That is well below the price talk of 18.75 million shares at $16-$18 that was floated on the Street.

Verso was formerly a unit of International Paper; it is now majority owned by Apollo Global Management. All the money will go toward paying down debt of $153.3 million and related prepayment fees, which is the debt that was floated to buy the company.

3) J.C. Penney up 2 percent; they beat estimates by a few pennies. This is good news -- but here's a reality check: the reported earnings of $0.54 per shqre was almost half last year's $1.04. Total sales decreased 5.1 percent to $4.1 billion. Comparable store sales declined 7.4 percent.

4) General Electric (CNBC's parent company) up 1 percent on a Wall Street Journal report that are considering an auction of its appliance unit. Estimates are all over the place: the Journal mentioned it could fetch $5-$8 billion, but Citi's analyst estimated $3-$7 billion.

Tough time to sell an appliance business.

5) At the NYSE, they're having their annual meeting. CEO Duncan Niederauer is saying the American Express takeover is ahead of schedule and could close as early as August 1.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 14 May 2008 | 4:20 PM ET

Volatility Level Shows Complacency Too High

Posted By: Bob Pisani

The dangers of complacency were abundantly evident in the last hour.

I have remarked all day that the CBOE Volatility Index (VIX) was nearing its lowest level since July of last year. While this is an indication that the levels of fear are clearly dropping, it also indicates--given the real concerns with the economy--that complacency may be a bit too high.

And traders noticed. Big tech momentum names--Apple , Google , RIM, Baidu --all suddenly reversed and ended down on the day. Materials and industrial stocks, which were strong all day, also weakened in the last hour.

Still, there are equity-friendly trends here...new highs at the NYSE reached their highest levels since November...yesterday, retail sales were better than expected, today CPI better than expected.

Now, if the data the rest of the week (think industrial production, out tomorrow) is equity friendly we could see a drift higher--some bulls think all the way through Memorial Day. Bears, of course, note the lack of volume and the move up is due to an absence of sellers then real buyers.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 14 May 2008 | 10:59 AM ET

Why The Government Says Gas Prices Were Lower In April

Posted By: Bob Pisani

The government reported that gasoline prices in April were down 2 percent when "seasonally adjusted." How could this be, when we know prices went up at the pump?

Here's how it happened:

1) The actual increase in gasoline prices was 5.6%.

2) But the government statistics indicate that gasoline tends to rise by 7.6% in April.

3) But because they rose less than that--5.6%--gasoline was reported to be down 2 percent "seasonally adjusted"

It has to do with the phrase "seasonally adjusted." The government adjusts numbers to remove the impact of regular events that occur at the same time every year--like increases in gas prices in April, or the effect of cold weather on housing starts.

There is nothing nefarious about this--the question is whether the "adjustments" are fair and accurate.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 14 May 2008 | 9:20 AM ET

CPI Makes Fed Rate Increases To Fight Inflation Less Likely

Posted By: Bob Pisani

Futures popped 8 points as CPI was a bit below expectations. Prior to the CPI, the bond market broke to lows for the year as the Wall Street Journal's front page (subscription required) asks, "Recession? Not So Fast, Say Some."

Dollar dropped a bit as the CPI report made it a bit less likely the Fed might hike rates to fight inflation.

Things are not going well in the U.K., where they are facing a real dilemma--the housing market is weakening, but inflation is high. They are unlikely to cut rates, despite the pressure from housing.

Deerereported earnings in line with expectations , but stock is down 6 percent because earnings projections for the current quarter are a bit below expectations. Those wondering how much a stronger currency is having on corporate earnings get a clear answer from Deere: they are expecting equipment sales to increase 20 percent for the full year, of which 5 percent is due to currency translation impact.

Freddie Mac reported a loss that was not as great as expected , up 4 percent. They're expecting to raise more capital ($5.5 b) soon.

Surprise! Macy's was supposed to report a modest loss of $0.02, but they reported a modest gain of $0.02, and on top of it reiterated their full year outlook. Up 8 percent.

Goldman Sachs jointed Oppenheimer and cut full year estimates for brokers, specifically Bear Stearns ,Lehman , and Morgan Stanley , citing an "extraordinarily challenging" operating environment.

Wells Fargo CEO John Stumpf headlines the UBS Financial Services Conference.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 4:22 PM ET

A Good Day For Stocks--Considering...

Posted By: Bob Pisani

I don’t want to make too much of this, but it was a pretty good day for stocks, considering all the negative stuff the markets had to deal with. Consider:

1) Oil up despite dollar strength.

2) Hewlett was a drag on the Dow, on debate it may have overpaid for EDS .

3) Wal-Martgave conservative guidance.

4) Oppenheimer lowered earnings on brokers.

5) Fed officials were saying that a quick rebound was unlikely ; bonds moved down.

Despite all this, we were basically flat.

And: the largest insurer in the world raised a heck of a lot of money. AIG priced 171 m shares at $38—that’s $6.5 b , and they raised another 5.4 b of equity units (they’re registered trusts in which investors purchase units from a fixed amount of AIG equities). AIG up 1.8 percent, off its 52-week low yesterday.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 3:07 PM ET

HP Shareholders Feeling EDS Deal May Be Too Expensive

Posted By: Bob Pisani

Want to know how frustrated Hewlett-Packard shareholders are today? Here's a couple stats:

Market cap yesterday: $123 b
Today: $107 b
Loss: $16 b

Now, here's the killer stat: they are buying EDS for $13.9 billion! Hewlett is now down more in market cap than they are paying for EDS ! The only good news is that since I reported this at 1 pm ET, Hewlett has come off its lows, now trading at $44.00, so it's market cap is up to $108 b.

Importantly, no one has complained that this is a bad deal, only that they may have overpaid for it.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 1:18 PM ET

Banks Hurt by Europe; EDS/HP No Threat to IBM

Posted By: Bob Pisani

Three points about today’s trading:

1) Financials again down on weak earnings from European banks like Societe Generale and Credit Agricole; and Oppenheimer’s Meredith Whitney continuing to take down 2008 and 2009 estimates on brokers.

2) Bulls hoping that strengthening in the dollar would lead to a decline in commodity prices are again having a hard time arguing their point today. Once again, we have modest strength in the dollar and while industrial metals are a tad weaker, energy commodities are rallying.

Credit Suisse attempted to explain this in a note this morning, by pointing out that:

a) commodities have risen 40% of the time when the dollar has strengthened; and

b) industrial commodity prices normally only fall significantly when global Industrial Production is below 2 percent year over year, compared to 4 percent now.

3) All those people arguing that the EDS/Hewlett-Packard deal would be a big challenge to IBM are missing the point: IBM is way, way ahead of even a combined entity.

IBM recognized very early the recognizing the competitive advantage associated with selling a bundled solution--software, hardware, services, financing, all together.

To compete effectively in global services, you need scale -- IBM has it, Hewlett and EDS don’t. That’s why they needed to do this deal.

How far off are they? Here's the total service revenues for the three companies:

IBM : $54 billion

EDS : $22 billion

Hewlett : $17 billion

Bottom line: even merging the two, they are not even close to exceeding IBM's service revenues.

IBM is at a 6 year high today.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 May 2008 | 9:11 AM ET

Retail Sales Stronger, But Some Financials Get Earning Cuts

Posted By: Bob Pisani

Stronger retail sales than expected (ex-auto up 0.5 percent, the best showing since November) has caused an 8-point pop in futures.


1) Hewlett-Packard's$12.6 b deal for Electronic Data systems ($25.00 a share) is a direct challenge to IBM , and--bulls hope--the most recent of many strategic acquisition deals by large companies. Still, the IBM bulls are not shrinking--IBM closed at a 6 year high yesterday.

2) Engineering and construction giant Fluor again proved the value of being truly international. They get nearly 60 percent of their revenues outside the U.S. They are particularly strong in oil and natural gas engineering--where their revenues were up 55 percent. Industrial and infrastructure was flat. Power segment up over 100 percent. Most importantly, they have continued to land substantial new contracts, and so they have increased their earning guidance for 2008 by almost 20 percent. Up 9 percent pre-open.

3) Liz Claiborne cut their guidance (a day after Ann Taylor raised theirs), but stock is not down. Earnings better than expected.

4) Toll Brothers continued the trend of builders, noting that the spring selling season was "quite weak in most markets as buyers remained on the sidelines," according to CEO Robert Toll. He does note that "there is significant pent-up demand which is growing. When we have held promotions, buyers have come out to play and put down deposits. Often, however, a lack of confidence in the direction of home prices overcomes their enthusiasm..."

5) Meredith Whitney again cut earnings estimates for Goldman Sachs, Merrill Lynch, Lehman, and Morgan Stanley--this time for 2008 and 2009.

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  Monday, 12 May 2008 | 9:35 AM ET

Out Of The Office Today

Posted By: Bob Pisani

I have today --Monday--off from work, but I'll be back with more posts tomorrow. See you then.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 9 May 2008 | 5:05 PM ET

Risk Aversion is Back -- Big Problem is Oil

Posted By: Bob Pisani

Risk aversion is definitely back today. You can see it in the dollar/yen, where the yen has really strengthened today.

The AIG news (down 8 percent) told us that a lot of the bad news is still not priced in. Big momentum stocks like Visa , Mastercard , Nucor , US Steel , Anadarko Petroleum , Apache , Baidu.com , Apple , and Google all saw profit-taking today.

But here's the big problem: oil closing up five straight days, closing at a new high. Last week, a small group of traders began to try to unwind the "long commodities/short dollar" trade, betting that the economy would improve in the second half of the year and oil would moderate.

It is not working out quite that way, and so those bulls have been unable to suck in fence sitters who would move the market up. Most traders are sticking with the long-commodity story.

This is a big problem for the bulls: For most of the bullish economists, the second half recovery is contingent on crude dropping. If that doesn't happen, the most likely scenario involves grinding sideways for several months on low volume.

What to do in the meantime? If you believe in the "grind sideways" scenario, you will clearly do better if you can make a few good bets than own the broad market. That is why so many people are sticking with their long commodity position: because it is still working.

Globally, that continues to support Brazil and Asia as an investment thesis; the Brazilian Bovespa hit a new high this week.

Will anything reverse this trend, i.e., strengthen the dollar, weaken commodities? The ECB could be key. Germany has been the strong spot in Europe, but there are signs it too is weakening. There is growing pressure on the ECB to cut.

Bottom line: it will take a lot for the market to really break down, because it has been through so much. But the skepticism is still high, with a notable lack of visibility. That's why many are coming to believe the "grind sideways" scenario. In the meantime, the bulls pray for oil to come down.

For the week: Dow down 2.4 percent, S&P down 1.9 percent, Nasdaq down 1.3 percent, Russell 2000 down 0.8 percent.

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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