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Traders Just Plain Confused

Want graphic evidence of how confused traders are? Stock futures rallied for a couple minutes on the Wells Fargo/Wachovia deal,then quickly dropped. Futures dropped again as non-farm payrolls came out below expectations, then rallied back a few minutes later.

As poor as the jobs report was, traders were fearing worse. Plus, bulls are arguing that the Wells/Wachovia deal is a positive; add it to likely House passage and you have the makings of a modestly positive opening.

But there are so many cross-currents it is difficult to discern any pattern other than confusion.

1) Wells Fargo, in a surprise move, announced it was buying Wachoviafor about $15.1 billion. Wells trading up about 6 percent; Wachovia up about 75 percent.

What happened to the Citigroup deal? Most traders assumed that Citi/Wachovia, under the supervision of the FDIC, was a done deal.

Not to Wachovia's CEO, Robert Steel, and not to big Wachovia shareholders. They get to keep the company relatively intact under this new deal (Citi would have acquired only the banking operations--the brokerage and asset management would have been left behind), and the government is not involved.

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Wachovia shareholders will get 0.1991 shares of Wells Fargo stock for each common share of Wachovia. That's about $7 per share for Wachovia, which closed yesterday below $4.

An attractive deal for Wells, since it extends its banking operations into the East coast. Wachovia's impaired assets will be recorded at fair value. Wells will issue up to $20 b in new securities.

So is this good or bad news? Most traders think it's mixed: it shows that the private sector can work things out to a certain extent. Unfortunately, credit markets have not improved and until that occurs most traders believe we will stay down.

This also increases the drama around the passage of the House bill, as some will argue that this deal lessens the need for government intervention.

2) Financials: most are rallying. Sovereignup 15 percent, Regions Financialup 12 percent, Credit Suisse,Deutsche Bankand ING up 5-7 percent.

We had been expecting Citi to announce details of its $10 b common stock offering late Wednesday, but nothing happened. Citi down 15 percent pre-open.

JP Morganclosed at a 52-week high yesterday! Citiand Bank of America have both been stronger as well recently.

Is this strange? Bulls have argued there will only be a few really strong banks left, and the above will be the leaders. Still, it seems clear that risk has increased in recent weeks. There's reports of slower growth in the U.S. and overseas, weak capital markets, and more losses in the credit markets.

3) AIG has begun the process of selling off non-core assets. They will keep the U.S. property and casualty and foreign general insurance business, and it appears most of the rest of the company is for sale.

AIG Chairman and CEO Edward M. Liddy will be on our air at 10:30 am ET.

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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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