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Trader Talk with Bob Pisani

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  Wednesday, 12 Mar 2008 | 9:05 AM ET

To Early to Tell the Sell?

Posted By: Bob Pisani

So the only thing that matters here is whether we have broken the back of the "sell the rally" trade that has been so successful for the past two months. It's too early to tell.

How bearish has the Street been? Institutional Investor, which has conducted a weekly Bull/Bear survey of financial newsletter writers for decades, today noted that the percentage of writers Bullish fell 10 percent to 31.1 percent and Bears rose almost 7 points to 43.3 percent. It's the first time since 2002 that Bears exceeded Bulls.

Did the Fed move just in time? Home loan demand is dropping, and mortgage rates have hit their highest levels since October, according to the Mortgage Bankers Association.

Freddie Mac's analyst meeting has started. Their CEO has said that the U.S. housing market is the worst in about a century. Their CFO said "there is no dilutive capital raise planned."

A day after Wellpoint cut its guidance and initiated a bloodbath among HMOs, Humana has done the same for the full year. They are now talking about full year guidance of $4.00-$4.25, compared to previous guidance of $5.35-$5.55. The culprit: higher claims volumes. Humana down 21 percent pre-open (after dropping 24 percent yesterday!), United Healthcare down 9 percent, Aetna down 7 percent. Humana, unlike Wellpoint, is primarily a Medicare provider.

Caterpillar's CEO said everything was going to be great for the next several years. He talked about significant new infrastructure projects all over the world. Unfortunately, he forgot to raise guidance, so Cat is only up 3 percent.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 11 Mar 2008 | 4:29 PM ET

Has Market Broken 'Sell Any Rally' Cycle?

Posted By: Bob Pisani

A roller coaster day for the markets. It started strong as the Federal Reserve took a measure to pump money into the mortgage market -- and does it need it -- mortgage rates have been going up while the Fed has been cutting interest rates.

But traders resorted to selling financial stocks midday -- a strategy which has worked for two months -- and the markets briefly dipped before recovering and closing near the highs. For the Dow, it was the biggest percentage gain in five years . The question now is, have we broken the cycle of selling any rally?

Those who believe that the Fed will have to get even more aggressive than today's actions were passing around the note Richard Bove of Punk Ziegel issued to his clients this morning. He advocates that the government stop offering to borrow mortgage backed securities as collateral and start outright buying them. Here are excerpts from his note:

"The solution to this dilemma, I think, will be direct buying of all types of securities by the Federal Reserve itself. The Fed has the authority to purchase whatever it chooses. It is in the markets every day buying or selling Treasuries."

"The time has come to sell Treasuries and buy asset backed securities. This would not impact the money supply but it would redirect the funding in the markets to the areas where the stress is greatest. It would allow holders of this debt to sell it and re-establish the credibility of their balance sheets. Losses on this debt would be minimal when viewed against all outstanding debt."

"For example, it is now estimated by most that the losses on mortgage debt may approach $600 billion. Total debt in the United States economy is $48.8 trillion. Thus losses are estimated to be $0.6/$48.8. This is not overwhelming by any measure."

There're calls for even more radical action. There are others calling for some kind of deal with the FHA, where the FHA might buy mortgages with a discounted earnings rate (say, 1 percent), then sell them to Ginnie Mae, which would take a loss and sell them at a market rate (say 6 percent) to Fannie Mae, and Ginnie Mae books the loss. Sound outlandish? It has been done before.



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  Tuesday, 11 Mar 2008 | 1:31 PM ET

Bear Stearns: What Went Wrong

Posted By: Bob Pisani

What's up with Bear Stearns? Dick Bove at Punk Ziegel has just put out a note to his clients, and while he did not address the specific rumors floating around, he did tell me that the main problem is that "the business model is broken."

According to Bove:

1) Bear Stearns was vertically integrated in the mortgage business -- they did origination, securitization, structured products, and sale of products to funds they operate.

2) They made their big money on structured products, and sales of those products. When the volume fell apart for those products, they no longer made big money.

3) This harmed their balance sheet because they didn't get out soon enough, driving up the cost of funding. That is hurting their prime brokerage business, because that is based on low cost of funding.

4) It's difficult to be a full-line investment bank if you can't offer big customers loans because the balance sheet won't support it.

5) ...then you have to fire people, losing opportunities.

6) Bove told me the most likely outcome here was a sale of the company.



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  Tuesday, 11 Mar 2008 | 10:16 AM ET

Will Oversold Short Term = Less Fed Easing?

Posted By: Bob Pisani

Kate Townshend at MKM Partners and other technicians have pointed out that we are significantly oversold short term, so it's no surprise there is a rather significant bounce early on.

Expect a lot of short covering today; financials rallying big time .

The question is, does this break the prevailing trend, which is: buy declines, sell into rallies. This trade has worked for two months now, and you can be sure traders will make a run at bringing the market down again, if not today than certainly in the next day or so.

If this works, does it mean less Fed easing, stronger dollar , lower commodities , less pressure on inflation? That's what the bulls are praying for. The odds of a 75 bps Fed cut next week is down to 64 percent from 92 percent, priced in prior to the Fed's move.



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  Tuesday, 11 Mar 2008 | 9:02 AM ET

Pisani: Feeding on the Fed

Posted By: Bob Pisani

Futures moved up nearly 20 points as the Fed announced expansion of it securities lending program, all designed to improve liquidity.

The Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (it was previously overnight) and will now take other forms of collateral, including non-agency (i.e. non-Fannie Mae or non-Freddie Mac mortgages) AAA private label residential mortgage backed securities (this means jumbo loans--those over $417,000).

This action is being coordinated with other national banks. The agreements with the foreign banks is a way of providing these foreign banks with more dollars. The Fed is trying to buy more time to ease the pressure on liquidity; most traders are applauding the move.

Every time the Fed has done something, we have had a rally. Their move on Friday definitely blunted the effect of the poor jobs report.

This has improved the metrics, which have been poor. European bourses moved up, and the dollar has rallied.

Freddie Mac and Fannie Mae both rallied now up about 17 percent each.

Financials have also rallied; Lehman and Citi also up about 8 percent.

Elsewhere, HMOs are getting hammered as WellPoint cut its full year forecast to $5.76 to $6.01, from $6.41 a share. This as a result of misjudged 2007 cost trends and disappointing enrollment trends.

Wellpoint down 21 percent, Humana down 16 percent, United Healthcare down 11 percent, Aetna down 10 percent.

Aetna reaffirmed its 2008 guidance of $4.00 (analyst estimate is $4.04). Goldman Sachs cut the entire HMO group, saying that pressure to keep prices down combined with upward pressure on medical costs were threatening the industry with an "outright downturn."

Texas Instruments down 2 percent on a somewhat downbeat mid-quarter update.

GE CEO Jeff Immelt said that NBC Universal was not for sale. GE is our parent company.


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  Monday, 10 Mar 2008 | 3:43 PM ET

Credit, NOT Spitzer Is Street's Problem Today

Posted By: Bob Pisani

While theNew York Times story on Eliot Spitzer is generating enormous email traffic on Wall Street, it is not the cause of the market's problems today. Stocks are again near the lows for the day, again on the same worries about credit, but here the problems are a bit more specific: they revolve around worries on margin calls and counterparty risks.

It's public information that big firms like Thornburg and Carlyle have had margin calls recently, and have been forced to sell assets. These forced sales generate new prices for paper, which in turn generate additional margin calls. This "vicious cycle" is one of the main problems facing the market, and the brokers are right in the middle of it.

There is an additional problem: counterparty risk. If I as a firm go out and buy protection in the form of a credit default swap, who is the counterparty and are they strong enough in the event I need them? This was never an issue until recently, but now buyers are regularly asking who the counterparty is. In many cases, it is brokerage firms, and queasiness about that is putting additional pressure on them.



Questions? Comments? tradertalk@cnbc.com

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  Monday, 10 Mar 2008 | 9:35 AM ET

Financials Top Market Concerns

Posted By: Bob Pisani

U.S. futures up slightly, just off highs of morning, European markets flat, Asian markets down 2-3 percent. Malaysia's KLSE Composite down 9.5 percent; Malaysia stock market temporarily halted during session; political unrest after major upsets by opposition party during weekend elections.

McDonald's keeps knocking the cover off the ball. February same-store sales were strong in the U.S. up 8.3 percent, but Europe stronger, up 15.4 percent. Asia/Pacific, Middle East, Africa up 10.9 percent.

Financials very much in the news this morning. Countrywidedown 7 percent on reports that the FBI has begun a criminal inquiry for suspected securities fraud .

MBIA said they were seeking a withdrawal from Fitch's rating system, that the value of Fitch's ratings were "limited at this time" and only adds extra volatility to its stock. They see a $200m in mark-to-markets losses from CDO business.

Annaly Capital up 6.4 percent, they raised their quarterly dividend to $0.48 from $0.34. The company said, "Our leverage has been running at the lower end of our range, which enables us to manage portfolio financing operations with our diverse and strong roster of counterparties, including handling the haircut adjustments that are typical for volatile periods like this. Moreover, the vast majority of our assets are Agency pass-through MBS, the most liquid and financeable securities in the Agency space."

Blackstone reported earnings of $0.08, estimates were for $0.19, down 3 percent. Dividend (8.2 percent) appears safe . They are holding a conference call at 11 AM this morning.

Morgan Stanley cut estimates of several large-cap banks due to weaker market and credit condition, and said they saw a higher probability of "more cuts coming." Cut estimates for Bank of America by 21 percent, Wachovia and Citi by 20 percent.

Questions? Comments? tradertalk@cnbc.com

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  Friday, 7 Mar 2008 | 11:44 AM ET

Why The Stock "Nose Dive" Did An About Face

Posted By: Bob Pisani

What happened to our nosedive? After a down open, stocks continue to hold up well in what could only be described as a fairly flat market--about even number of stocks advancing to declining, modest volume, financials and techs modestly to the upside. Only a few metals companies like Freeport McMoran and Alcoa are down a couple percent.

So what happened? Fast money traders came in and aggressively bought financials at the open, then took profits a half hour later. Some financials shorts covered as well. Good for them. Now we need real money to sustain the move off the lows, and that's where we will likely have a problem. The general trend has been to buy dips, sell rallies, and believe it or not we did have a rally today.

But now we are in "sell on the rally" phase, and stocks are a bit weaker already. The concern is that we are now easily set up to drift lower for the rest of the day, as the fast money has already made money and may just sit on the sidelines.


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  Friday, 7 Mar 2008 | 9:18 AM ET

S&P Futures Down 14 on Payrolls Report

Posted By: Bob Pisani

S&P futures down 14 on the nonfarm payroll report, which showed a loss of 63,000 jobs in February and downward revisions in December and January. That's two straight months of job losses (the first two-month drop in jobs since May and June 2003).

The Fed is raising the size of the March TAF auctions to $50 billion from $30 billion. Remember, these are short term loans (28 days) and their purpose is to provide additional liquidity to the system.

Ambac priced $1.25 billion of common shares at $6.75 per share (below yesterday's close of $7.42), and $250 million in mandatory convertibles, making good on their plan to raise $1.5 billion in capital. It is heavily dilutive, nearly tripling the common shares outstanding.

National Semiconductor up 6 percent as earnings met expectations. National Semi also said sales in the current quarter (Q4) would range from $440 million to $460 million (estimates are about $462 million).

Short-selling positions hit a record at the NYSE during the two week period ending Feb. 29.



Questions? Comments? tradertalk@cnbc.com

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  Thursday, 6 Mar 2008 | 1:05 PM ET

New Ways to Play Gold

Posted By: Bob Pisani

Gold's at a new high, what to do? How about shorting gold with a new Exchange-Traded product?

Talk about timing--a few days ago Deutsche Bank launched three new Exchange-Traded Notes (ETNs) linked to a gold index they maintain.

Wanna go long gold? How about doubling your bet? The DB Gold Double Long ETN gives you two times the monthly performance of the gold index plus a monthly T-bill index return, which is one of the factors that distinguishes an ETF from an ETN.

If this whole gold rally sounds suspect to you, weak dollar or not, how about shorting the whole thing? The DB Gold Short ETN offers the inverse of the old index plus a T-bill index return.

And if you're really convinced the rise in gold is a sham try the DB Gold Double Short ETN .



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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