Trader Talk with Bob Pisani


  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.


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.


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.


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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  Wednesday, 13 Feb 2008 | 12:19 PM ET

Retail Sales Good News--Debt News Not So Good

Posted By: Bob Pisani

There is good news and bad news today. The good news is that there have been some signs of stabilization: retail sales better than expected, commodity off their highs, and the stock market is behaving better this week.

The bad news is that we keep getting wild cards on the debt side.

The AIG story yesterday is a good example . There was also word of a series of failed municipal bond auctions yesterday, including one for the Port Authority of New York and New Jersey. Also this morning: S&P reported that 50 percent of the European company's involved in leveraged buyouts had more debt on their balance sheets than originally forecast, and as a result the risk of defaults are rising.

If you picture the debt market as a series of rooms, each room containing a separate "wing" of the debt market (U.S. gov't treasuries, mortgage backed securities, muni bonds, leveraged debt, and emerging market debt), we are in a situation where, every time you open a door to one of those rooms, a bat comes out. And that has kept the market on edge.

It's important to note that the U.S. debt market--at $29.2 trillion--is bigger than the U.S. equity market, at about $21 trillion.

Here's the size of the U.S. debt market, along with the size of its components.

U.S. bond market debt: (trillions)

Mortgage-related $7.1
Corporate debt $5.7
Treasuries $4.4
Money markets $4.1
Fed, agency securities $2.8
Munis $2.6
Asset-backed $2.5
Total 29.2 trillion

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 13 Feb 2008 | 9:14 AM ET

Retail Sales (Not A Disaster) Boost Futures

Posted By: Bob Pisani

Surprise! Retail sales were not a disaster in January; futures rose about 5 points on that news.


1) Deere's earnings of $0.83 handily beat estimates (note they earned $0.52 for the same period last year, a 60 percent increase in earnings!) They cited favorable conditions in the farm sector and strong customer response to the lineup.

However, the 2008 guidance of $700 to $725 million for net income in the second quarter is below analyst expectations of $734 million. The company was upbeat about Agricultural Equipment sales (50 percent of sales), saying "farm conditions throughout the world remain quite positive," but were cautious on sales in its Construction & Forestry Division (21 percent of sales) due to the ongoing housing slump. Despite increasing sales abroad in the last few years, Deere still gets about two-thirds of its sales from the U.S. and Canada.

2) Dean Foods reported earnings a bit below expectations, with the CEO saying "2007 was the most challenging year in the history of Dean" and went on to list record high dairy costs, oversupply of organic milk that drove down prices, increased competition, etc.

3) Coke reported earnings of $0.58 ahead of estimates of $0.55. International volume growth was again strong, up 7 percent, while North America was up only 1 percent. This is consistent with other international companies reports.

4) Rio Tinto said it had received "a great deal of encouragement" from company shareholders concerning its rejection of a takeover bid from BHP Billiton.

5) Waste Management beat expectations for earnings and revenues.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 3:23 PM ET

Markets Debate Buffett's Bond Offer (Good And Bad)

Posted By: Bob Pisani

The Buffett offer to take over the insurance liabilityof the municipal bond part of the mortgage insurers portfolio is causing a lot of debate on the Street.

The general conclusion is, good for municipal bond holders, good for furthering a solution to another piece of the credit mess, but bad for the bond insurers, and the market is reflecting that in the down prices of the insurers today.

The reason it is not a good deal for the bond insurers? This is no bail-out. The insurers are left with risky CDOs, the counterparty risk remains for banks and brokers, and--most important of all--this offer may not prevent a ratings downgrade, even though it would free up some capital.

So it's fairly clear the companies do not want this deal. Still, if the ratings are downgraded, Buffett may still make this deal happen because it's likely a solution by the regulators would be sought and he would be brought in to "save" the muni part.

The best hope for the bond insurers at this point appears to be some kind of bail-out by the banks and brokers, who hold significant counterparty risk. But where is the offer? Nothing yet.

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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