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Trader Talk with Bob Pisani

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  Thursday, 3 Apr 2008 | 3:29 PM ET

Analyst On Home Building Stocks: "Take Profits At These Levels"

Posted By: Bob Pisani

So we have yet another plan to help save homeowners in trouble, the latest in a long string of proposals. Are they enough to solve the housing market's problems? Is this a game changer? There's plenty of skeptics who think the answer is an outright no.

Ivy Zellman, who has been a homebuilding analyst for all 18 years I have been at CNBC, put out a note to her clients this morning saying the Senate proposals were "More Talk Than Substance." While her concerns are primarily with the homebuilding industry, her point is that there are still significant headwinds ahead for the industry before it burns through old land and begins creating economic value.

The biggest problem right now, she and others point out, is that homeowners don't have available funds for downpayments (which have increased), underwriting standards have become much more stringent, and buyers are understandably hesitant to purchase a home that may fall in value.

The plan under discussion does not address this central problem, so it will be difficult to have an impact on demand short-term. What will matter? Lower interest rates, for a start, which will help the reset problem, but that is not something that can be legislated.

These problems will continue to put pressure on pricing (even more than we have seen). The good news is that banks are now all over the builders, so they have begun selling at significant discounts. Centex , for example, was selling some assets at 16 cents on the dollar. This is painful, but part of the bottoming process. And there are buyers sniffing around: Blackstone this week raised a record $10.9 billion to invest in property in the U.S.

There's also a question of whether the plan would really accomplish much. It seems like a lot of action, but it may not amount to much. The plan would:

--Give local governments $4 billion in grants to buy and refurbish foreclosed properties (concern: not clear how much of a difference this will make. Estimates are that this will allow them to buy 20,000 homes, assuming a $200,000 average price, but Moodys.com estimates that 870,000 homes were lost to foreclosure in 2007, another 1.3 million will be lost in 2008;

--Give a $7,000 tax credit for people buying new homes or properties in foreclosure (concern: doubtful if this is large enough to make a significant impact on demand);

--Permanently increase the FHA loan limit to a maximum of $550,000 in high cost areas, but would also increase the down payment requirement from buyers seeking FHA mortgages to 3.5 percent from 3.0 percent (concern: there were discussions involving reducing the down payment, and while raising the downpayment requirement may be prudent as a policy move, the lack of cash for downpayment is a major problem, and this only exacerbates that. There is also significant debate among traders that the FHA is now becoming the new subprime product, but backed by the U.S. government, leaving significant exposure to taxpayers. Oddly, the much-discussed idea to have the FHA guarantee about $400 b of refinanced loans is not included in the plan).

One things' for sure: all this talk of incentives for home owners in foreclosure has at least put a floor under the home building stocks, which are among the better performers in recent weeks (up about 25 percent vs. a 6 percent gain for the S&P 500 in the last three weeks).

What it hasn't done is improve any of the fundamentals, at least not yet. Zellman's conclusion: "Given the recent strength in the group, we would recommend investors take profits at these levels."


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 1:07 PM ET

Senate Hearings Effect On Markets: Not Much

Posted By: Bob Pisani

Modest rally here, but not on the Senate hearings.

Merrill moving up on reports in a Japanese newspaper that CEO John Thain has said he would not need to raise more capital. This has lifted financial stocks like JP Morgan and Citi, which has in turn raised the Dow.

So, if you are wondering what effect the hearings are having on the markets, the answer is, not much.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 10:13 AM ET

ISM Pushes Stocks

Posted By: Bob Pisani

Stocks popped at 10 am ET as the ISM services index came in above expectations (but still showing signs of contraction).

The dollar has been on a see-saw all day, rallying overnight on concerns over more writedowns of European banks, than dropping on the poor initial jobless claims report, than rallying somewhat on the ISM services report.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 3 Apr 2008 | 9:07 AM ET

Jobless Numbers Not To Markets Liking

Posted By: Bob Pisani

407,000 initial jobless claims is the highest since the 425,000 reading of Sept 16, 2005. Disappointing. Futures dropped 8 points, bonds rallied.

Continuing concerns over writedowns of European banks caused a brief rally in the dollar, but the poor jobless claims has taken much of the gains out.

Elsewhere:

1) Is the decline in Chinese stocks ending? Hong Kong's Hang Seng index has finally broken a downtrend that began back in November. The Shanghai index, which has been in a freefall since January (down 40 percent or so), which is just off its lows, had one of its best days in a while, up about 3 percent.

2) With all this talk of reform in Washington, where is the proposed FHA expansion that everyone was talking about a few weeks ago, which Barney Frank referenced? It seems to have disappeared. There was significant stimulus in the plan.

Earnings:

1) Micron reported earnings a bit below expectations . Average selling prices were down for both NAND (flash memory chips--down 30 percent) and DRAM (down 15 percent). Despite that, Goldman upgraded the stock, saying DRAM fundamentals would improve later in the year. Up 5 percent.

2) Ruby Tuesdayreported earnings a bit above expectations, and like most restaurants talked about the lower spending by consumers and the emphasis on controlling costs. They tightened full year estimates to $0.40-$0.50 from $0.40-$0.60.

3) Constellation Brands beat, and guided for fiscal 2009 of $1.68-$1.76 (analyst estimate $1.67).

National City said on Tuesday that they were exploring strategic alternatives, essentially acknowledging that they are for sale. But what is it worth? Even a modest premium would be good news for the beleaguered banking business. Today, Morgan Stanley said they thought it was worth $12 as an acquisition candidate. That's about 25 percent above the $9.22 price it closed at. They upgrade the stock, as does Bear Stearns.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 2 Apr 2008 | 9:12 AM ET

Back Tomorrow With Posts

Posted By: Bob Pisani

I'm not on the market floor today and won't be blogging. I will be back tomorrow so I'll see you then.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 1 Apr 2008 | 4:10 PM ET

Q2: Good Market Start But We Need Less Selling In Rallies

Posted By: Bob Pisani

The second quarter has begun, a big rally on big volume held to the close.

Let's review where we are, and where we might be going. At the close of the first quarter, the typical trader position was long commodities and bonds, short stocks. This trade has been on for so long that traders are beginning to wonder, when does "The Great Unwind" begin?

Today's rally:

--Started as short covering in financials in Europe
--Continued with a rally in the dollar
--Saw bonds & commodities weaken
--Saw new money enter for the start of the quarter

Is this it? It looks like the potential start of "The Great Unwind," but there have been so many dashed hopes that there is a great deal of skepticism yet.

What we need now: continuing unwinding. We need to see:

--Dollar rally modestly and stabilize
--Commodities drop more.
--More air out of bonds
--S&P 500 should move above its most recent high of 1381 at the end of February
--S&P Financials should move decisively above the recent highs of 359 (trading today around 356), which will break the pattern of lower lows and lower highs that began in October.
--Volume picks up on up days, drops on down days
--Selling into rallies stops

Those who desperately want to believe that "The Great Unwind" is about to begin point to gold: 14 percent off its highs. Bottom line: this is a good start, but we need to stop selling into rallies. Nothing else will convince.


Questions? Comments? tradertalk@cnbc.com

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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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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.

 

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    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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