Trader Talk with Bob Pisani


  Tuesday, 18 Mar 2008 | 9:09 AM ET

Lehman, Goldman, Housing Start Numbers Better Than Expected

Posted By: Bob Pisani

Good reports from Lehman and Goldman , and housing starts are above expectations. Core PPI up 0.5 percent is higher than the 0.3 percent expected, but that is being pushed aside in favor of the more bullish housing starts data.

Lehman up 13 percent pre-open , earnings of $0.81 vs. estimates of $0.72 (for the quarter ending in February). Cynics will note that this is more than 50 percent below the earnings for the same period last year. Despite all the worries about Lehman, Wachovia's comment to their clients this morning is noteworthy: "...if Lehman can survive, we believe it will by default gain material market share in mortgages now and especially in the future if the business turns."

Goldman Sachs up 6 percent, earnings of $3.23 vs. estimates of $2.58. NYSE Euronext approved a $1 b buyback and raised their dividend 20 percent, to $0.30 a share. Speaking of dividend yields, several banks are now paying double digit yields: Countrywide , 14.7 percent, National City , 11.1 percent, and Wachovia Bank , 10 percent.

Ford among the most actively traded stocks pre-open, up 3 percent, on reports that India-based Tata Motors will be signing a $3 b deal to buy Jaguar and Land Rover. This has been rumored for some time.

Yahoo is backing their earnings estimates for the quarter and the full year, up 4 percent.

Delta pilots say they can't reach a seniority deal with Northwest Airlines . Unlikely this will scuttle a deal, but Delta clearly want to avoid the problems that US Air had when it merged with America West (they're still arguing about pilot seniority--three years after the merger!).

Questions? Comments? tradertalk@cnbc.com

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  Monday, 17 Mar 2008 | 12:58 PM ET

Financials, Commodities Both "Unwinding"

Posted By: Bob Pisani

There are two events occurring today:

1) The finanical services industry is systematically unwinding. Firms that are involved in financial execution are getting hammered midday: Interactive Brokersdown 25 percent, ETrade down 12 percent, TradeStation down 12 percent. What's going on? The brokerage system is not the banking system...a stock and a bond are not the same thing, and a trading account is not an FDIC account.

Simply put, customer accounts that are non-FDIC insured are now shown to be potentially at risk. There's clearly concern that some may be liquidating their trading accounts, either from fear or margin calls. There are also questions about how big the financial services markets will be in the future.

2) The commodities industry--and the brokers and exchanges around it--are systematically deleveraging and unwinding.

Commodity related trading firms are all weak: MF Global down 63 percent, FC Stone down 42 percent, Nymex down 21 percent, CMEdown 15 percent. Commodity-related stocks (steel, coal, aluminum, iron ore) are also weak because commodities are down.

Commodity rout:
Copper down 2.3 percent
Platinum down 3. 1 percent
Coffee down 9.1 percent
Heating oil down 2.3 percent

Questions? Comments? tradertalk@cnbc.com

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  Monday, 17 Mar 2008 | 9:08 AM ET

Bear Stearns Fallout: Journalists Stay Away (From Analyst)

Posted By: Bob Pisani

Pre -open trading:

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  Monday, 17 Mar 2008 | 8:51 AM ET

Bear Stearns: How This DID Happen--And Will There Be More?

Posted By: Bob Pisani

To everyone who called me or emailed me over the weekend saying, "How could this happen? How could Bear Stearns go from $57 to $2 in two days?" I would offer the comment of one astute trader, who said, "When you are levered 30 times and have no access to finance it doesn't take a huge move on $400 billion in assets and $260 billion of debt to wipe out the equity."

Two questions dominate the Street this morning:

1) What will Bear Stearns' shareholders--specifically Bear employees--do? The $2 per share deal is subject to shareholder approval, and Bear employees--many of whom have significant parts of their life savings in Bear stock--are certainly stunned enough to create at least a minor protest over the price. Sandler O'Neill noted that "we do not believe it is incomprehensible that this deal may have bought Bear Stearns additional time to assess its situation which may lead shareholders to reject the offer."

2) What will happen to the other major brokers and banks, and what will the reaction of the credit markets be? With a book value at nearly $80 per share for Bear, the $2 price makes it tough on other brokers. A flight to firms with the strongest balance sheets seems obvious. Analysts were out this morning with various comments on who does have the strongest balance sheet: Goldman Sachs , for example, opined that Morgan Stanley and JP Morgan had the strongest balance sheet. Street seems to be treating it that way: Lehman down 28 percent pre-open, Merrill down 16 percent, Goldman and Morgan Stanley down down 8 percent, JP Morgan up.

Meredith Whitney, who has become an ax in this space through her coverage at Oppenheimer, put out a note this morning titled, "BSC Fire Sale to Cause Valuation Adjustment for All Financials: Banks at Risk," in which she argues that financial stocks have further downside of as much as 50% based upon 1990/1991 multiples of tangible book values. She says most banks are trading well above their price to book lows of the 1990-1991 cycle.

So, what will finally end all this turmoil? The Street is screaming that the government should directly or indirectly begin buying mortgage backed securities, and, to a lesser extent that a wider bailout program needs to be devised to stem home price depreciation.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 14 Mar 2008 | 3:04 PM ET

Visa Moves Up IPO Offering For Wednesday Trade

Posted By: Bob Pisani

Bear Stearns is not the only one making changes to their calendar. Credit card giant Visa, which was scheduled to price its mammoth IPO Wednesday night for trading Thursday, is moving the offering up to price Tuesday night for trading trade on Wednesday.

Four hundred and six million shares will be offered between $37-$42, all by the company (42 percent of the company is being sold). This should eventually translate into a nice windfall for JP Morgan (23.3 percent), Bank of America (owns 11.5 percent), Citigroup (5.5 percent), and Wells Fargo (5 percent), who are all shareholders. JP Morgan and Goldman are the lead managers.

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  Friday, 14 Mar 2008 | 9:12 AM ET

CPI Helps But Trend Is Still To Sell Into Rally

Posted By: Bob Pisani

The trading pattern remains the same: the market does not move up unless there is some outside piece of news. Today, it is the better than expected CPI. Yesterday it was comments from Standard and Poor's and hopes for a government rescue of the mortgage market.

Absence some piece of news, the overwhelming trend is to sell into any rally. The lesson to traders is pretty clear: the market will have a hard time rallying consistently until there is a belief that the mortgage crises is being resolved.

The most important factor short term may be the calendar. We are coming up on the end of the quarter and very few people are long the market. The bearishness, the ratio of shorts to longs, all are at very high levels.

Another point about the calendar: remember next week Goldman , Lehman , and Bear report. Opinions are all over the map: some think the writeoffs next week are huge, many are thinking that’s going to be the end of the writeoffs. Other think they will do better than expected.

There's also a very clear pattern developing with retailers: in general, they are coming in at or very close to expectations for the quarter just ending, but they are guiding below expectations for the current quarter and, in many cases, below guidance for the year. Three examples today:

1) Ann Taylorcame in at $0.19, a penny short of expectations , but guidance for the current quarter is below expectations;

2) Aeropostalebeat expectations but guidance for the current quarter is below expectations;

3) Pacific Sunware also reported decent earnings, but current quarter and full year guidance is below expectations

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 13 Mar 2008 | 1:05 PM ET

Active Managed ETFs: They Are Coming, Really

Posted By: Bob Pisani

First actively managed ETF coming next week (I think). As you know, Exchange Traded Funds (ETFs) are baskets of stocks tied to indices. Still, most mutual funds are actively managed, that is, they are not tied to indices and they have managers to make picks.

ETF fans have been waiting for actively managed ETFs to hit the market. The hope is that these actively managed funds will be at a cost lower than a comparable mutual fund and take more business away from mutual funds (it's still a pretty poor fight: ETFs have $568 billion under management, the mutual fund industry has about $11.7 trillion under management, according to Index Universe.)

We've been telling you that an actively managed ETF is just around the corner. We've been telling you that for...uh, months on end. What's taking so long? Regulatory issues. Don't ask for details, it's too depressing.

Well, it's finally happening, I think. Bear Stearns announced that their Current Yield Fund (YYY) will begin trading shortly. Really.

The YYY is a basket of short-term fixed income instruments:treasuries, municipals, corporate bonds. Fixed income professionals make the choice about what the "mix" will be. It's essentially an active money market fund, in a way, because they will be investing in short-term instruments.

What about the expense ratio? It's reportedly 0.35 percent, which is a little more than half what most retail money market funds will charge.

Bear Stearns says the product will begin trading March 18th on the AmEx, so it's coming. Really. There are other actively managed funds coming. From PowerShares. They told me. They’re coming. Really.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 13 Mar 2008 | 12:31 PM ET

Stocks Pare Losses On S&P Report And Frank Housing Plan

Posted By: Bob Pisani

Stocks have pared some losses on a couple of potentially positive developments. First, Standard and Poor's has issued a report saying the "end of writedowns is now in sight " for big institutions. "The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write downs of subprime ABS [asset-backed securities]," said Standard & Poor's credit analyst Scott Bugie, lead author of the report.

Perhaps more important is S&P's observation that institutions may be valuing these securities too low: "in our opinion the magnitude of some write-downs is greater than any reasonable estimate of ultimate losses," said Standard & Poor's credit analyst Tanya Azarchs.

Second, details of a housing rescue plan by House Financial Services Committee Chairman Barney Frank are coming out. Rep. Frank is proposing a new mortgage rescue program. The details:

--The program would permit the FHA to provide [up to $300 billion] in new guarantees that would help to refinance at-risk borrowers into viable mortgages;

--In exchange for the acceptance of a substantial write down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay;

--The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower;

--This could potentially refinance between 1 and 2 million loans (and help these families stay in their homes), protect neighborhoods and help stabilize the housing market.

Why lenders would agree to these drastic haircuts—which would essentially decimate their books—is not clear, but the market is looking for anything to end the mortgage crises.

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 13 Mar 2008 | 9:06 AM ET

Carlyle Capital's Problem: Mortgage Backed Securities Dropping

Posted By: Bob Pisani

Futures down 17 points, as Carlyle Capital's mortgage unit is on the verge of bankruptcy ; their lenders are forcing the sale of assets to meet margin calls. They are in default of margin calls of over $400 million and are highly leveraged.

The problem is that the value of mortgage-backed securities continues to drop; Carlyle went out of the way to say that one of the problems that prevented negotiation of a workout agreement was that the pricing service the lenders hired to determine the value of the securities kept devaluing the securities, resulting in still more margin calls.

Forcing the sale of an illiquid asset (especially when a firm is so highly leveraged) does not seem very rational, however in the bankers' minds (I am told) they have a fiduciary obligation to seize whatever they can.

The problem here is that this creates the vicious spiral that everyone is afraid of. The lenders may now try to sell assets which are illiquid at the moment, driving down prices even more.

Predictably, the dollar has hit new lows (falling below 100 yen for the first time in 12 years), oil is over $110, and gold is right up against $1,000, and the odds of a 75 bp rate cut by the Fed has now risen to 92 percent. Gold stocks are up.

Retail sales were below expectations. Does this mean you're tired of looking at yourself, Mr. Zimmer? Men's Wearhouse beat their earnings expectations, but their guidance for the current quarter of $0.20-$0.24 is way below expectations of $0.44. "It certainly feels like a recession," says CEO George Zimmer.

They're planning to spend more on marketing to young guys: "You're going to see some hot, young-looking guys in our TV commercials," he said. They had previously used Mr. Zimmer, famous for saying, "You're going to like they way you look."

Men's Wearhouse down 10 percent pre-open.

Countrywide said their mortgage funding totaled $26 billion in February, up 17 percent from January.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 12 Mar 2008 | 10:05 AM ET

Fed Move Lifts Banks, Builders; Will Rally Last?

Posted By: Bob Pisani

So Federal Reserve comes to the rescue, and the usual suspects -- financials and homebuilders -- stage an impressive rally, dragging the rest of the market up with them.

As we all know, none of these rallies have produced much of anything for months: we are still essentially at the February lows, and what we need now is several days where the market rises to the higher end of that February trading range (above 12,500 on the Dow and about 1,375 on the S&P 500).

That would at least have technicians talking about the possibility of a sustainable bottom.

This is not a bad start -- a modest open to the upside, but we need to close higher.

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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