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Trader Talk with Bob Pisani

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  Tuesday, 1 Apr 2008 | 11:43 AM ET

Has Dollar Reached Bottom? Not Clear Yet

Posted By: Bob Pisani

What's up with the dollar rally? In Europe, youhavetwo big European banks announcing writedowns ; in Japan, you have the worst business sentiment survey in four years, so initially it was more Euro-Yen weakness than dollar strength.

But after 10 am ET, the dollar rallied on the slightly better than expected ISM news . Is this the bottom in the dollar? Not clear; but bad news globally would counter the continued Fed rate cuts.

As a result, commodities are down big. Gold, silver, palladium down 4-5 percent. Gold in a correction: gold is at a 6 week low, down 14 percent from its recent intraday highs. Who cares about six week lows?

Hey, when was the last time gold was in any kind of downtrend? 2006, and that lasted for all of a month. What happened? In addition to the dollar strength, yesterday was the futures expiration day...today you have to get out or take delivery. Looks like a lot of people (speculators) opted to get out. Same with platinum, palladium, and silver.

Looks like they took the money, and put some of it in the stock market. Financials, specifically.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Apr 2008 | 9:29 AM ET

Q2 Same As Q1? The Writedowns Begin

Posted By: Bob Pisani

OK, the second quarter is starting a lot like the first quarter. How so? Once again, a bunch of financial institutions are out with big writedowns, or trying to raise capital. Sound bad? No, no, say the bulls, you don't understand, this is good. They're getting all the bad stuff out--no, this is the bottom, this is the kitchen sink quarter (please ignore the fact that the first quarter was supposed to be the kitchen sink quarter: hey, it's an art, not a science).

UBSwrote down an additional $19 billlion on U.S. real estate and other assets , then announced they will be seeking to raise $12 billion via a rights issue. Results were so stellar Chairman Marcel Ospel said he would be leaving. UBS up 9 percent.

Not to be outdone, Deutsche Bank made a similar announcement, taking $3.9 b in writedowns . They said "conditions have become significantly more challenging during the last few weeks."

The response? European banks are higher because because this is the kitchen sink quarter! Pay attention! Banks are reducing their exposure! There's less uncertainty! We've seen the worst!

Lehmanis raising at least $3 b in capital . Meredith Whitney at Oppenheimer, who has now become the ax in this space due to some prescient calls in October, said that there would be a "barn rush" of capital raising in the coming months from financial firms. Lehman up 7 percent.

Oh, and pay no attention to the curmudgeons at Morgan Stanley, who issued a report this morning say that investment banking was taking its worst hit to earnings in twenty years. They think longer-term return on equities will fall due to de-leveraging and more regulation that will force banks to hold more capital as a cushion.

Finanicals are rallying. Merrill up 6 percent. Citi,Fannie Mae , Morgan Stanley, Wachovia up 4-5 percent.

What does all this mean? Enormous frustration and confusion for professional traders. Think about it: a lot of traders right now think it's unlikely there will be any kind of huge follow-through on the upside, and unlikely there will be a huge follow-through on the downside. How do you short a stock, for example, when you know that the government is backing them? How do you go long when the earnings have been so severely damaged?

Meantime, commodities down big again...gold stocks weak.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 31 Mar 2008 | 4:41 PM ET

First Quarter Worst Performers

Posted By: Bob Pisani

The quarter ended quietly, with many burned out from false rallies. The S&P 500 down 10 percent, the worst quarter since Q2 2003. While financials got the attention, there were plenty of other poor performers.

First quarter:

Tech down 15 percent
Telecom down 14 percent
Financials down 14 percent
Healthcare down 12 percent

Gold stocks were one of the few gainers, up 7.1 percent; though oil was up, most energy stocks were down.

The second quarter starts with the Street net short and large amounts of cash on the sideline; the hope for the bulls is that lower prices will begin attracting some of that cash.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 31 Mar 2008 | 1:33 PM ET

Lowry's Tech Analysis: "Calls To Buy May Be Premature"

Posted By: Bob Pisani

So where's the bottom? Lowry's, the oldest technical analysis service in the United States, put out a long note this morning in which they somewhat sourly concluded, "Our analysis of the forces of Supply and Demand suggests that calls to buy may be premature."

Why? Because the average bear market is a lot worse than this. The average bear market since 1949 has seen the S&P 500 decline 29 percent from its high to its low. The current bear market is down only 18.6 percent from its high (Oct. 2007) to its low (March 10).

Other bear markets have been far more severe:

1973-74: 49.9 percent
2000-02 50.5 percent
1987: 35.9 percent
1994: 8.3 percent

That last one, in 1994, was the shallowest decline in the last 60 years.


Questions? Comments? tradertalk@cnbc.com

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  Monday, 31 Mar 2008 | 11:35 AM ET

Drug Stock Scorecard: MRK, SGP Losers--Pfizer A Winner

Posted By: Bob Pisani

Who’s the winner and loser in drug stocks today? As mentioned earlier, Schering-Plough down 25 percent (!) and Merck down 16 percent pre-open on a study that showed that the companies cholesterol lowering drugs Vytorin and Zetia were not more effective than less expensive drugs.

There is now serious question about whether Schering can survive as an independent company, given its dependence on Vytorin.

We know the losers, but here's who traders tell me are the likely winners:

1) Abbott, which has a big cholesterol franchise, and new products coming to market.

2) Pfizer, because there is less competition for Lipitor until the patent expires.

3) AstraZeneca, because of their statin drug Crestor.

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  Monday, 31 Mar 2008 | 9:08 AM ET

Paulson Proposal A Bit "Mind-Less" For Markets

Posted By: Bob Pisani

In theory, Treasury Secretary Paulson's announcement that he wants to shake up the regulatory environment on Wall Street is the main news.

Lehman's Roger Freeman noted that the new rules, which include a proposed merger of the SEC and the Commodities Futures Trading Commission, would benefit the NYSE and NASDAQ, "as the proposal calls for a simpler SRO [Self-Regulatory Organization] rule-making process among other things, which should make these exchanges more competitive." It would also likely increase trading volumes.

In reality, traders' minds are not focused on this proposal--it will not come to fruition for a long time; implementation is far away, and the second quarter is very, very close. Traders are concerned that bulls have been wrong about the first quarter--that it is not the bottom, not for the economic news and possibly not for the credit crisis.

Analysts have been taking down estimates for the first quarter for weeks, for everything from retailers to financials to oil refiners.

Earnings estimates for the S&P 500 are already negative for the second quarter (-1.8 percent); financials estimates are already down over 30 percent. There are new calls that the second quarter will be the bottom. Skepticism is very high now; this is good news, as it is well known that there are large amounts of cash on the sideline.

Elsewhere:

1) Schering-Plough down 22 percent (!) and Merck down 13 percent pre-open on a study that showed that the companies cholesterol lowering drugs Vytorin and Zetia were not more effective than less expensive drugs. Vytorin (which is a combination of Merck's Zocor and Schering's Zetia) is a big money-maker for Schering, accounting for 60 percent of its EPS.

2) Driller Noble up 4 percent on word it has signed a memorandum of understanding with Brazil's Petrobras for deepwater drilling rigs--the contracts are worth up to $4 billion.

2) Philip Morris International finally begins trading today under the ticker PM. The international business is growing much faster than the domestic tobacco business; Philip Morris USA will remain part of Altria Group.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 28 Mar 2008 | 4:47 PM ET

After Tough Week, Street Looks to Q2

Posted By: Bob Pisani

By any stretch, it’s been a tough week for bulls: dismal economic news; no sign of a bottom in housing; financials have been unstable; and retailers have declined on concerns that not just March, but the second quarter, will be difficult.

Still, the markets held up well, considering the news. The Dow was down 1.1 percent, the Nasdaq eked out a small gain.

The issues are now around the second quarter. Has the Street factored in:

-Q2 economic weakness?

-Q2 writedowns for brokers & builders?

-Q2 consumer spending deterioration?

Given the miserable economic data this week, next week's raft of data is unlikely to surprise on the upside:

1) The ISM survey on Tuesday may be below expectations, certainly below 50 (which would indicate continuing contraction in manufacturing).

2) Domestic auto sales on Tuesday will be restrained by tighter credit conditions and the economic slowdown.

3) Nonfarm payrolls on Friday will likely indicate that the weakness in February has continued into March.

But once again, there is some good news:

1) Analysts are actively taking down estimates for the first quarter and are starting to look at the second quarter; this is the major reason the markets are having trouble advancing.

2) There is some hope that, if redemptions are not as bad as feared, we may get a modest rally at the start of the quarter as cash on the sidelines come back in.

The Street can now clearly see that, even if liquidity issues are being addressed, the broader economic statistics continue to look poor; the quicker it digests this news, the better.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 28 Mar 2008 | 1:20 PM ET

Retail Debate: Is The Worst Over Or Not?

Posted By: Bob Pisani

So plenty of debate on the retailers as JC Penneylowers estimates. The crux of the debate is, is this the worst for the year?

Lehman Brothers thinks so, in a note to clients a short while ago they said: "we are optimistic that 1Q08 represents the low point of the year as we expect inventory levels to improve throughout 2008."

But that is hotly debated. Management itself seems to be hinting that it expects this difficult environment to continue into the rest of 2008.

Credit Suisse agrees. This morning they said, "Today's announcement is in our view a clear sign of tremendous pressure and deceleration in department store business in March across the board. Early signs from several of JCPenney's competitors indicate a similarly tough March, with sales trends decelerating materially even from January and February levels."

They concluded, "We would not be interested in buying department store stocks until they are completely washed out and investors have fully factored in down earnings year-over-year in 2008 and at best flat year-over-year 2009 earnings."

Doesn't sound like a bottom to me, but remember these stocks are already down 20-25 percent from their highs, and much of this information has already been discounted. The risk here is that Q2 numbers deteriorate in the same way Q1 has.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 28 Mar 2008 | 10:50 AM ET

Street Fear: Q1 Bank Earns, Dividend Cuts

Posted By: Bob Pisani

I said yesterday that the Street was already talking about first-quarter bank earnings, and specifically about who might cut their dividends.

Today, Meredith Whitney at Oppenheimer argued the same point : With a current average yield of 5.9 percent (the second highest of any year since 1990) the banks "are dangerously approaching earnings levels that simply will not support such high relative payouts."

As an example, she points to Citigroup .

She estimates Citigroup will earn $1.43 per share SHORT of its dividend payment this year. In other words, Citi will pay out $1.43 per share more than it earns this year. That is clearly untenable, and while they are attempting to sell assets, they are not going to use those sales to continue to pay dividends.

She expects Citi, Wachovia Bank and others to announce dividend cuts in April.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 28 Mar 2008 | 9:12 AM ET

Bear Stearns' Jimmy Cayne: Stock Sale "Bad Timing"

Posted By: Bob Pisani

The talk today is not about stocks but about Jimmy Cayne selling his Bear Stearns stock for $60 million.

Yes, he sold it for only $10 and change, far below the $175 peak and its $57 price just a few weeks ago, but don't kid yourself. This was bad timing. One trader wrote to me: "If you are a blue collar worker in Pennsylvania or Ohio in fear for your job or your livelihood you don’t give a tinker's damn if he sold for $10 or $170 and you don't view $60 million profit in one day as a bad day..."

He may be right. When you hear Hank Paulson talking about regulation of investment banks, you know the regulation train is coming to town. And it will hit when Congress returns next week. And, as several traders have already pointed out, Jimmy Cayne...who has also moved from Park Avenue to the Plaza...will likely be the poster boy. It doesn't mean the Bear deal won't get done, but expect a lot of rhetoric.

Elsewhere:

1) Futures weakened as JC Penneyslashed its guidance for the quarter to $0.50 (from $075 to $0.80); sales for Easter were well below expectations. CEO Mike Ullman III noted that "consumer confidence is at a multi-year low." Down 12 percent pre-open.

This is going to revive the central bear thesis on the stock market: a) that estimates for retailers and other consumer companies are too high, and b) that consumer balance sheets are damaged and the Fed can't simply wave a magic wand and fix it. Macy's ,Kohls down about 5 percent. Bulls argue that retailers have already corrected more than 20 percent.

2) Like Lennar ,KB Home reported a loss . The comments are very similar to Lennar's remarks yesterday: "Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand. We do not anticipate meaningful improvement in these conditions in the near term..."

Steelcase , the world's largest manufacturer of office furniture, missed and guided below expectations for the first quarter. They too complained about inflationary pressures.


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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