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Trader Talk with Bob Pisani


  Tuesday, 22 Apr 2008 | 12:21 PM ET

Soaring Oil a Drag on Markets

Posted By: Bob Pisani

Stocks dropped mid-morning as oil is spiking just shy of $120 . At this point, oil is a major drag on the markets.

Speaking of stocks: we are about one-third through with first-quarter earnings, and it is not shaping up to be a great start.

So far, 143 companies are reporting, 62 percent beat estimates (about in line with historic average), 15 percent matched, 24 percent miss -- which is higher than normal.

But that doesn't really tell the real story.

So far, if you take all 143 companies together, on average companies are missing their estimates by 2.3 percent, thanks to high profile misses by General Electric , Wachovia , Bank of America , Pfizer and others.

Typically, companies as a whole BEAT by about 3 percent. True, a good part of this problem comes from financials, but still it is a stunning reversal of a pattern that has prevailed for many years.

Surprisingly, we are not seeing analysts taking down estimates aggressively for the second quarter.

I say surprisingly, because analysts have been spectacularly wrong going into the last two quarters, forced to aggressively move numbers down. They are not doing it, so far, for the second quarter. They are making modest moves to take financials earnings estimates down, and even more modest moves to take consumer discretionary (retailers) companies down as well (from 0 percent gain to down 2 percent). Is that enough? We'll see.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Apr 2008 | 9:15 AM ET

Pisani: Hot Fertilizer

Posted By: Bob Pisani

Who said the IPO market was dead? Not if you have a hot product. Intrepid Potash (IPI) priced 30 million shares at $32 last night, and will be ringing the opening bell this morning. Was demand strong? You tell me: initial price talk was 24 million shares between $24-$26, then bumped up to 30 million shares between $27-$29, then finally priced at $32.

What's going on? You have a product -- potash -- a critical ingredient in fertilizer. Food supplies are getting scarcer, and fertilizer is one of the best ways to increase yield. So you have international demand, and somewhat constrained capacity. You can also thank demand for ethanol from corn and the need to increase yield there. (Read more about Intrepid here ).

It's amazing it took this long for another major fertilizer company to come along. Look at CF Industries -- they went public in 2005 at $16. Closed yesterday at $156.

We'll be discussing the state of the IPO market this morning at 10:50 ET on Squawk on the Street.


1) Southeast bank SunTrust missed earnings by a wide margin ($0.81 vs. $1.03 estimates). The usual suspects -- losses in real estate -- were cited, which is no surprise--they have lots of southeast real estate exposure. There was a spike in problem loans, again associated with residential construction, home equity and residential mortgages.

Traders tell me that management seems optimistic on the conference call, saying things will be better in two quarters. Much of this now depends on your view of the real estate situation in the southeast.

Down 4 percent pre-open.

2) Oppenheimer's Meredith Whitney was right--she said yesterday Citigroup would need to raise more capital, and they did--right after the bell yesterday announced an offering of $6 billion in preferred shares. Carries a dividend of 8.4 percent for 10 years and a floating rate after that. That makes roughly $36 b in capital raising Citi has done since November.

This comes after JP Morgan also raised $6 billion last week.

Speaking of capital raising--CIT raised $1 billion, half in common stock, the other half in convertible preferreds.

3) Dupont beat estimates and reaffirmed their full year guidance . It's important to realize that Dupont now gets about 25 percent of its sales from its Agricultural & Nutrition division, which includes genetically modified seed. Of course, they are most famous for their Performance Materials (polymers, about 25 percent of sales), automotive finishings and coatings (about 20 percent of sales), and safety materials like Tyvek, Kevlar, and Corian (also about 20 percent of sales.

4) McDonald's beat estimates handily, $0.81 vs. $0.70. International sales again were strong: Europe up 11.1 percent in constant currency, Asia/Pacific Middle East and Africa up 16 percent in constant currency, U.S. up 2.9 percent. Menu items, expanded hours, and the dollar all were positive factors.

A few other consumer discretionary stocks beat--Coach and Brinker. Coach reported earnings for their third quarter, affirmed guidance for the rest of the year (one quarter remaining), but declined to give guidance after that.

5) UnitedHealth Group continued the trend of earnings warnings from HMOs; they reduced 2008 guidance by 10 percent, citing unusually high influenza costs, as well as declining membership gains because prices have gone up. Down 10 percent pre-open.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Apr 2008 | 4:52 PM ET

Texas Instruments Numbers Coulda Been Worse

Posted By: Bob Pisani

Texas Instruments just reported earnings in line. Guidance for the second quarter is weak, 42-48 cents per share, estimate is 48 cents. Down about 2 percent after the close.

For today's trading, it could have been worse.

Particularly in financials, what with National City announcing a $7 billion capital raising, Bank of America disappointing, and Oppenheimer's Meredity Whitney continuing to be sour on Citigroup and Wells Fargo.

On top of that, record oil prices meant energy stocks at new highs , and airline stocks hit new lows, mergers or no.

Not to be outdone, coal stocks hit new highs as Arch Coal raised its guidance and predicted higher coal prices.

Tech outperformance continues: Microsoft , Hewlett have been big helps to the Dow recently.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Apr 2008 | 12:12 PM ET

April: The Cruelest Month Yet For S&P Or A Turnaround?

Posted By: Bob Pisani

Will April break the losing streak? The S&P is up 5 percent so far in April; but look what it's done the prior five months:

Nov. down 4.4%
Dec. down 0.9%
Jan. down 6.1%
Feb. down 3.5%
Mar. down 0.6%

The S&P has not seen six down months since 1981. Hold your breath.


Meredith Whitney at Oppenheimer is having none of this "it could have been worse" theory on big banks. She's still bearish. On Citigroup today she:

--Lowers ests.
--Says they are under pressure to cut/eliminate dividend.
--Says they will likely seek additional capital.

She also downgraded Wells Fargo, saying they are under-reserved for future losses.

My two cents on Bank of America ,which missed this morning : the bad news is asset quality continues to deteriorate, with nonperforming assets increasing in residential mortgages, home equity loans, commercial real estate. The good news is that they are building up their loan reserves in a very responsible manner, one reason the stock is only down 1.6 percent today.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 21 Apr 2008 | 9:37 AM ET

Bank Of America Continues Monday Woes

Posted By: Bob Pisani

Monday has not been a great day for bank earnings. Last Monday it was Wachovia that disappointed, today futures dropped at 7 am ET as Bank of Americacame short of expectations.

Considerably short: $0.23 vs. expectations of $0.41. Still, we are once again in the "it could have been worse" mode which proved to be a successful argument for Merrill Lynch and Citigroup .

B of A is more heavily exposed to the domestic economy than some of its competitors. They have by far the largest retail banking operations; they get about half of their revenues from loans and leases. Credit card income is about 10 percent of their revenues. So a lot are looking to them for comments on the state of the consumer.

They didn't say much, but the numbers could have been worse.

The bad news: about $2 b in writedowns for CDOs and leverage loans. The good news: some analysts, including UBS , were expecting much worse: $2-$4 b of losses.

Bad news: credit card losses rose, but (good news!) they were not as bad as some feared.

Surprisingly, they are still making plenty of loans, and deposit growth is strong (as it is at many banks).

More good news: no dividend cuts, no capital raising announcements. Bottom line: it could have been worse. Stock about unchanged.


1) Pharmaceutical companies are continuing to report comparatively poor earnings, on the heels of Pfizer's poor showing last week.

Merckbeat on bottom line , but revenue fell short of expectations, though they did affirm their full year outlook.

Controversial cholesterol lowering drugs Vytorin and Zetia showed significantly slower sales growth. Merck reiterated the full-year guidance they gave earlier in the year. Up 2 percent pre-open.

Lilly fell short of expectations . Sales of antidepressant drug Cymbalta were strong, as was Ciallis sales. But other drugs, including Zyprexa, were lower than expected. Down 2 percent.

2) Halliburton was in line with expectations. International profits were strong (Q1 revenue was up 24 percent outside of North America), and it was somewhat surprising to see North America up 11 percent as well. Up about 1 percent pre-open.

3) National City getting set for $6 b capital infusion from Corsair Capital, according to the Journal. Down 8 percent.

4) Mattel missed, reporting poor growth in the U.S.,somewhat offset by modest growth overseas.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Apr 2008 | 4:49 PM ET

Weak Start Ended Being A Strong Week

Posted By: Bob Pisani

The week started out poorly, with Wachovia Bank disappointing, and creating fears that the financials would simply fall apart. It didn't happen; Merrill Lynch and Citi reported big writedowns and poor earnings; but they were not dramatically worse than expected, and those stocks rose, along with most other financials.

Outside of that, earnings were good, with strong tech reports from IBM, Intel, Google, and AMD. Industrials like Caterpillar, United Technologies, and Honeywell were also strong.

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  Friday, 18 Apr 2008 | 2:43 PM ET

CAT CEO Owens: We Need Free Trade

Posted By: Bob Pisani

Caterpillar CEO Jim Owens was just on our air with Erin Burnett, and made very important comments about agricultural subsidies and the need to maintain global free trade.

Cat is at an 8 month high on its strong earnings . I'll again note the tremendous global growth they (and Honeywell ) are saying, which is soothing concerns about a global economic slowdown, at least in the industrial area.

Here's what happened in the last quarter:

North America up 3 percent
Europe/Australia/Middle East up 27 percent
Asia/Pacific up 35 percent
Latin America up 18 percent

What about Caterpillar's future? They have adjusted their regional revenue forecasts DOWN for North America but UP for everywhere else.

Revenue forecasts:

North America: lower
Rest of world: higher

There are still plenty of worries. The weak dollar has been a big help to them with all the overseas growth, but what happens if the dollar strengthens. Perhaps more importantly, how do you meet your earnings targets when costs are inflating, and due to the weaker U.S. and European economy you are likely to experience softer pricing?

Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Apr 2008 | 11:07 AM ET

Caterpillar's Global Growth Story

Posted By: Bob Pisani

Caterpillaris an excellent example of how global growth is helping the bottom line of big corporations. Here's the story: global growth is NOT decelerating to any appreciable extent; in fact, it is strong and, in some cases, getting stronger.

Caterpillar now gets two-thirds of its sales outside the U.S.; they are maintaining 2008 guidance even though North America looks weak, because global sales are so strong.

Here's what happened in the last quarter:

North America up 3 percent
Europe/Australia/Middle East up 27 percent
Asia/Pacific up 35 percent
Latin America up 18 percent

More importantly, they have adjusted their regional revenue forecasts DOWN for North America but UP for everywhere else.

Asia/Pac sales up 15-20 percent from previous up 10-15 percent
Europe/Australia/Middle East up 7-12 percent from earlier up 5-10 percent
Latin Am. up 15-20 percent from up 10-15 percent
N. America down 2 percent to up 2 percent from previous flat to +5 percent

It's not all sunshine; rising raw material costs is a real problem for them. But the international sales are extremely encouraging.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 18 Apr 2008 | 9:25 AM ET

Citi, Industrials Providing Some Relief

Posted By: Bob Pisani

Citiis providing the main upside impetus, but relief that big industrials like Caterpillar and Honeywell did not repeat GE's concern that last two weeks of March fell apart, is also a big help; the dollar has rallied. Today is an options expiration day.

For Citigroup , similar to Merrill Lynch : earnings a tad worse than expected, but not much (loss of $1.06 vs. estimated loss of $0.95), writedowns a bit worse but not dramatically so. Non performing assets were up 16 percent, but that seems less than expected. Perhaps most importantly, CEO Vikrim Pandit is out on the conference call saying the leveraged loan market is beginning to trade. Citi up 8 percent pre-open.

What's up in China? Reported strong GDP growth of over 10 percent this week, but you wouldn't know it looking at the Chinese stock market: the Shanghai Composite Index is at a 52-week low, though Hong Kong is holding up a bit better. The Chinese government has been tightening its monetary policy to slow economic growth.

What happened to the deterioration in the last two week of March that GE talked about? It didn't happen to Caterpillar . They reported earnings of $1.45, 12 cents ahead of expectation, revenues ahead of expectations as well. Maintaining 2008 guidance. Again, look at the U.S. vs. international machinery sales: North America up 3 percent, but Europe/Australia/Middle East up 27 percent, Asia/Pacific up 35 percent, and Latin America up 18 percent. Caterpillar now gets two-thirds of its sales outside the U.S. Up 4 percent.

Honeywell also beat expectations, and raised its full-year guidance . Stronger growth overseas. Aeorpsace (about 35 percent of sales) up 7 percent, Automation and Control Solutions (also about 35 percent of sales) up 14 percent, Transportation Systems (about 15 percent of sales) up 14 percent, and Specialty Materials (also about 15 percent of sales) up 18 percent. Up 4 percent.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 17 Apr 2008 | 4:37 PM ET

The Case For Being Bullish

Posted By: Bob Pisani

Futures popped right after the close as Google reported strong numbers ; up 10 percent.

Major indices stable today, despite mixed earnings report. IBM , good, Marriott , ok on strong international sales, but Conway ,Nokia and Pfizer were notable disappointments.

Dow, S&P are now approaching 3-month highs.

What's up with the brokers? Really closing strong here: Lehman up 5 percent, Merrill up 5 percent, Morgan Stanley and Goldman up 2-3 percent.

Seems like a lot of short covering, but the theory is...what? Earnings out, brokers unlikely to get worse? Well, sort of. As one trader in financials noted to me, "earnings have to be real bad, not just in line" to keep short positions on.

That's true, but the case for getting bullish is broader than that. Simply put, here's out the bulls are explaining it to me:

1) The write downs mean anything anymore, the story is old, the numbers are meaningless.

2) Probably one or two more rounds of it but the sentiment doesnt really change that much.

3) They are historically cheap, they have survived the meltdown and had no problems raising outside capital.

The downside to this game, as others have noted, is that if the quarter progresses and business is not getting any better, shorts will go right back on again.

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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