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Dow's Dismal Drop: AIG Decimates Financials, Wal-Mart Slows Retail

Thursday, 7 Aug 2008 | 9:18 PM ET

STOCKS FREEFALL AFTER MASSIVE AIG LOSS, POOR WAL-MART OUTLOOK, JOBLESS JUMP

"[The] stock market: a loser across the board. It was a loser early, it stayed a loser and became a bigger loser as the day went on," Dylan summed up Thursday's trading with that one statement, as AIG and Wal-mart lead the Dow's one-day, 225-point dive. A few lone tech stocks were the only winners in an otherwise distressed market. Adding to the bearish environment was the morning's new jobless claim numbers, the highest reported in several months.

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AIG POSTS BIGGEST LOSS IN 39 YEARSAIG was the big driver of the market mayhem, disappointing traders for the third time in a row with its outlook. It was hit with a $25B writedown and shed a remarkable FIFTH of its value today -- its biggest drop in nearly four decades.

Making matters worse, AIG couldn't promise a better outlook in the next quarter. It wasn't alone in bear territory, as financials in general continue to disappoint: Merrill dropped 8% and Lehman posted a 12% loss.

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CITI SETTLES WITH FCC

Andrew Cuomo and the FCC this morning announced Citigroup to be the first financial firm to reach a settlement regarding its sales of "auction rate securities," which were labeled "risk-free" but actually turned out to be "not-so-very" risk-free. Its settlement states Citi will buy back $7.5B of those securities and pay a $100M fine to settle regulatory claims. CNBC's Charles Gasparino claims other Wall Street firms are likely to follow, such as Merril.

Joe, who was "fired up" this morning, had bought oil yesterday, had his yen position in play and was actually looking to pick up AIG -- but by 8:30, he realized "the game was over." He got out of his oil position. Macke also was not expecting such a slaughter today, looking to Wal-mart as a well-loved name, "but it comes out miserable." He "ducked and covered" the rest of the day. Diane, who's been shorting financials, thinks some are still worth shorting, such as the Financial Select Sector SPDR

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WAL-MART WARNING LEADS RETAIL RETREAT

July retail sales disappointed, led by Wal-Mart, which dropped more than analysts expeected, as did Target, Abercrombie & Fitch and American Eagle Outfitters. A&F's July numbers disappointed, but Karen feels the market over-reacted and that the stock will rebound.

Macke raises a flag with Target , saying it's been displaying very "un-Target-like" behavior, with its recent decline also.

There are still some suprises in the market: while retail in general performed poorly, department store chain JC Penney, on the other hand, announced better-than-expected earnings and raised.

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CRUDE RISES, AIRLINES SUFFER

Oil stopped its 3-day losing streak, rebounding 1.3%, leaving it back above $120. Joseph feels it's just short-covering causing the rebound.

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TOPPING THE TAPE: TECH

Tech looked "lovely" compared to financials today, with Intel, Microsoft and Hewlett-Packard all three gainers today. Microsoft's been "excessively beaten up" and Intel is also cheap -- a good buy.

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ON THE PHONE

Guest Jeffery Harte, brokerage analyst with Sandler O'neill called in with his opinion on the state of financials. He feels Citi's settlement won't affect them in the long term on its balance sheet. The threat of additional writedowns will hang over financials however. Munis should be refinanced, he feels. With housing declines, towns and cities collect less. Jeffrey's advice is to watch for the turn as "there's a lot of cash on the sideline." It's just that the risk-reward balance isn't there yet -- and he doesn't see it happening for six months at least.

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HOUSING CRISIS SPREADING WEST NILE?

As if there wasn't enough to worry about, in a bizarre angle to the credit crunch story, it's now being reported that the swimming pools of foreclosed houses in certain areas, like California, have now become breeding ground for mosquitos -- possible carriers of the deadly West Nile virus. Fast Money advice? "Get the DEET."

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On Aug 7, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT) (DIS) (COST) (WMT), Adami Owns (AGU) (BTU) (GS) (C) (INTC) (MSFT) (NUE), Finerman's Firm Owns (ANF) Call Spread, Finerman's Firm And Finerman Own (KALU) (C) Leaps, Finerman Owns (GS), Finerman's Firm Owns (JCP) (MSFT), Finerman's Firm Is Short (IYR) (IJR) (SPY) (MDY) (IWM) (COF) (SPG) (KIM) (XLR), Terranova Owns (INTC) (GOOG) (BNI) (XLF) (IYT) (YHOO) (VLO) (RIMM) (SA) (SU) (KOL) (CME) (FCX), Terranova Is Chief Alternatives Strategist Of Phoenix Investment Partners, Ltd. Terranova Is Co-Portfolio Manager Of The Phoenix Diversifier PHOLIO, Phoenix Investment Partners Owns More Than 1% Of (ABD) (ARE) (BRE) (CNTY) (CLB) (OFC) (DLR) (ESS) (EXR) (FL) (IAT) (IGE) (LNET) (MAC) (OIIM) (PSPT) (DBC) (DBV) (SLB) (SKT) (BLV), Phoenix Diversifier PHOLIO Owns (IGE) (DBC) (DBV), Sandler O'Neill Advised Clients In Deals Involving (BAC) (JPM), Sandler O'Neill Recvd. Inv. Bank. Comp. From (BAC) (C) In Past 12 Mos, Sandler O'Neill Expects To Receive or Seek Inv. Bank. Comp. From (BAC) (JPM) (C) In Next 3 Mos. (BAC) (C) (JPM) (MER), (MS) Are Clients Of Sandler O'Neill. Sandler O'Neill Was A Manager Or Co-Manager Of A Public Offering for (C) In Past 12 Mos. Sandler O'Neill Has Received Non-Inv. Bank. Comp. From (C) (JPM) (MER) (LEH) (BAC), (GS) Is A Non-Inv. Bank. Client Of Sandler O'Neill, Harte has disclosed for (BAC) (C) (GS) (JPM) (LEH) (MER) (MS), Jon Najarian Is Long (COF) Put Spreads, Jon Najarian Is Long (MRVL) Call Spreads, Jon Najarian Has No Position In (VIX)

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AEO
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AFF
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ANF
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HPQ
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INTC
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JCP
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MSFT
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TGT
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WMT
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SPDR FIN SEL
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BB
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CSCO
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