Trader Talk with Bob Pisani


  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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  Tuesday, 12 Feb 2008 | 11:09 AM ET

Markets Up On "Efforts" To Solve Credit Crisis

Posted By: Bob Pisani

Rally on strength in cyclicals, agricultural stocks, insurance and banks. Markets are up for a couple reasons this morning. Most importantly, there is a sense that efforts are being made to address the credit problems, whether it is:

a) Major players in the mortgage business offering to freeze foreclosure for 30 days in an effort to get home owners into longer-term, more stable mortgages they can afford.

b) As mentioned before , Buffett offering to assume $800 billion of municipal bond-related insurance liabilities from Ambac , MBIA and FGIC. The good news here is that it would free up capital for these companies, but more importantly it would prevent contagion into a healthy market (munis) by separating the businesses into "good" (munis) and "bad" (CDOs).

Also, one trader noted to me that Buffett had said stocks appeared to be fairly valued; while this is hardly a ringing endorsement of the market, it does appear to be an improvement over last year, when he said he couldn't find any value in the market.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 9:56 AM ET

Buffett's Bond Insurer "Rescue" Offer Lifts Futures

Posted By: Bob Pisani

Stock futures have rallied about 6 points, bond futures have declined as Warren Buffet appeared on CNBC saying he has offered to take over the muni bond insurance exposure from the big 3 bond insurers (MBIA, Ambac, and FGIC)--about $800 billion worth.

He did not offer to take over the CDO exposure. The plan would give bond insurers thirty days to come up with a better deal. One bond insurer (he did not say who) has already rejected the offer.

Ambac ,MBIA up about 4 percent.

The International Council of Shopping Centers said sales for the week rose 1.8 percent from the year ago period and fell .7 percent week over week. They gave their expectations for Feb sales to be up .5 percent to 1 percent y/o/y. Jan sales were the slowest in at least 38 yrs of monthly tracking according to the ICSC.

The Greenwich Global Hedge Fund Index fell 2.4 percent in January, the biggest monthly decline since July 2002, amid severe declines in global equity markets; the S&P 500 fell 6.0 percent.

During January, 79 percent of hedge funds outperformed the S&P 500, with 33 percent ending the month in positive territory.


1) Credit Suisse said its profit dropped 72 percent from the same period last year, largely on writedowns of $1.88 billion related to subprime.

2) Monsanto was up 3 percent pre-open as they raised their full year guidance based on a strong outlook for its seed business.

3) GM posted a confusing earnings report . Earnings excluding charges came in at $0.08; expectations were for a loss of $0.54. However, there was also a $1.6 billion tax benefit. Should that be included or excluded? That is typically excluded, which would drop the number well below expectations (to a loss of perhaps $0.72). GM down 3 percent pre-open.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 12 Feb 2008 | 9:40 AM ET

Masco (Materials Supplier) Echoes Downbeat Housing Market

Posted By: Bob Pisani

Building materials supplier Masco this morning is parroting the downbeat comments of home builders recently. They're down 13 percent pre-open, on an earnings report that was below expectations.

The 2008 guidance of $0.85 to $1.15 was well below expectations of $1.65; revenue projections were also below expectations.

Comments: "The Company expects a further decline in housing starts in 2008 and continued softness in sales of existing homes...the Company anticipates a decline in consumer spending for home improvement products..."

They estimate that 2008 housing starts will decline an additional 25 to 33 percent, after declining 25 percent in 2007.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 11 Feb 2008 | 4:15 PM ET

Markets Going The Way Of Disco? Some Buyers Disappear

Posted By: Bob Pisani

"It's dead, Bob. Like Disco." That was the response of one trading desk to my usual round of middday email asking how business was doing and what was moving.

Technically, there is a specific problem with the market: for the last six weeks, natural buyers have almost disappeared.

What's a natural buyer? It's someone who doesn't have to buy (unlike a trader who is covering a short: he is being forced to cover), but buys because he sees opportunity.

What have we seen since January 1? Here's what:

--On days when stocks are up or sideways, volume is light;

--On days when stocks move down, volume picks up.

Traders, who watch these patterns carefully, have concluded that natural buyers are still scarce, and that selling interest is still not exhausted. That's what my trader friend quoted above means about today: it was a modest up day, but there was no buying interest.

Never fear. The markets--and disco--always return.

With that said, it was not a bad day. The contagion from worries about subprime writedowns at AIG confined itself pretty much to the insurance companies; brokers and financials were only modestly to the downside, and this gave bulls some cheer.

Also giving cheer to the bulls is the bull market in commodities, which is continuing to thumb its nose in the face of bears who insist that the global economic slowdown will surely bring down commodities. Energy and material stocks were among the biggest gainers today.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 11 Feb 2008 | 9:17 AM ET

Dow Changes: BofA And Chevron Are In, Altria, Honeywell Out

Posted By: Bob Pisani

Dow Jones just announced a change in the Dow Jones Industrial Average. Chevron and Bank of America will replace Altria and Honeywell . Chevron is making a second tour; it came out in 1999.

Last time there were changes in the Dow was April, 2004, when AIG,Pfizer and Verizon replaced the old AT&T, Eastman Kodak, and International Paper.

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  Monday, 11 Feb 2008 | 9:11 AM ET

Earnings Forecasts (Reliability) Worry Traders

Posted By: Bob Pisani

Want an illustration of why traders are nervous about how stable earnings forecasts are? New York State Governor Eliot Spitzer is lowering projections for tax revenue by $384 million, only three weeks after presenting his budget! It's a drop in the bucket compared to the $124 billion budget, but it's a sign of how fast economic forecasts are changing.

Europe flat, but Asia showing some weakness: India's Bombay Sensitive Index was down 4.8 percent (lowest close since September); one of the largest IPOs of the year, Reliance Power, which went public in a $3 billion offering in January, was down 14 percent as the formerly hot IPO market there appears to be cooling off. Two large IPOs were pulled last week. Sterlite Industries, an Indian company which trades here, is down 5 percent pre-open.

Hong Kong down 3.7 percent, Korea down 3.3 percent as well.

Commodities advancing again this morning after moving up aggressively last week; the CRB Index, a basked of commodities, hit an historic high on Friday. Platinum and silver at new highs.

At the G7 meeting in Tokyo over the weekend, there were warnings that global markets could lapse into turmoil again, and participants vowed they would take "suitable measures to calm the financial markets" if they need to, according to EuroGroup Charmin Jean-Claude Juncker.

The IMF noted that economic slowdown in the U.S. could last for some time. The IMF lowered its 2008 global growth forecast last month to 4.1 percent from 4.8 percent.

Markets are hopeful that some kind of bailout of the bond insurers can be done this week--either an increase in the lines of credit or more equity capital. Ambac successfully raised $1 billion in capital last week, $300 million of that from Warburg Pincus, though at a 14 percent discount.

In stock news:

1) Hasbro up 6 percent pre-open as they beat earnings and revenue expectations on strong sales of their Transformer toy line. Last week they increased their dividend 25 percent and authorized an additional $500 m in buybacks.

2) Korean handset maker LG Electronics says it has no interest in buying Motorola's handset business.

3) Loew's reported earnings well below expectations ; the main problem seems to have been a 50 percent decline in profits at CNA, one of the largest commercial insurers in the country. CNA had investment losses tied to their subprime exposure.

4) SocGenannounced they were set for a rights offering at a 39 percent discount to its stock price. They also revealed about $900 million of previously undisclosed write-downs.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 8 Feb 2008 | 2:24 PM ET

Nanotechnology: What About Investing In It?

Posted By: Bob Pisani

One of the most fascinating things to watch as a Wall Street reporter is the emergence of new technologies, and attempts to fund them. Biotech was the big one a decade ago, but now there are others: robotics, genetics, artificial intelligence, and now nanotechnology.

These technologies can and will be enabling--that is, they will assist companies to improve existing products and offer (startlingly) new products in the near future, but they will also likely be disruptive of many business plans.

A new research firm started up last week. iNano Capital Advisors is a registered investment advisor in Florida focusing exclusively on nanotechnology. Nanotechnology attempts to manipulate structures at the atomic level, and it has the potential to change whole industries. A nanometer is a billionth of a meter, about the size of six carbon atoms in a row.

The firm is run by Arthur Pacheco, a former president of the Securities Traders Association with a long history in the securities industry. The firm is partnering with research institutes and universities like the Smalley Institute at Rice University, which is the oldest and most respected research institute in the nanotech field, as well as the Alliance for Nanohealth, which is a research partnership of eight medical centers and colleges that do research and development.

But iNano wants to be more than just an institutional research firm. They want to nurture nanotech firms and expose them to the investment community.

They will produce research on a universe of about 200 stocks that will be directly impacted by developments in nanotchnology. The research will discuss stocks as diverse as Kimberly Clark (who are interested in developing better fibers) to medical technology companies (nanocoatings for stents to make sure they are not rejected or to decrease the possibility of infection) to our parent, General Electric , who are making a large investment in R&D for nanotech.

What about investing in nanotech? Two problems:

1) right now, it's difficult to play nanotech directly, and

2) the science is extremely complicated and involves a lot of cross-disciplinary work. This has led a lot of investors to get discouraged by the sheer complexity of the business.

That's a mistake. This technology will--along with artificial intelligence and the advances in genetics--change the world.

But all ventures begin modestly. iNano just initiated coverage on their first pure-play nanotech investment, Harris and Harris Group with a buy recommendation. Here is a link to the report.

I'll keep an eye on them, and other companies with their eye on these disruptive technologies.

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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