Dow's 4th Worst Drop In History
DOW'S 4TH WORST POINT DROP IN HISTORY
The Dow tumbled on Monday as economic reports showing further evidence of the worsening global economic climate were backed up by comments from Federal Reserve Chairman Ben Bernanke.
In a speech in Austin, Texas, Bernanke said the U.S. economy remained under considerable strain and noted that policy-makers must be ready to take action.
Meanwhile, the National Bureau of Economic Research, the arbiter of U.S. recessions, declared that the United States entered recession in December 2007, ending 73 months of economic expansion.
Also, with the holiday shopping season in full swing, Black Friday sales were described as better than expected. However, investors fretted that retailers were sacrificing margins to make those sales and the S&P retail index declined 7.2 percent, with shares of Macy's and Sears both sliding lower.
Although consumers made repeat trips to stores and spent more on bargains this weekend, analysts said the rush is unlikely to bolster lackluster sales.
Meanwhile emerging markets took a hit after reports showed that factory output hit record lows in China, Russia, and South Africa.
Strategy Session with the Fast Money Traders
What happened in China was most telling to me, says Karen Finerman. It means the slowdown is getting worse.
It started there and then spread around the globe, adds Tim Seymour. Manufacturing around the world was terrible.
The trade of the day was selling the retailers when the Black Friday numbers were described as better than expected, says Jeff Macke,. The only thing that sold were door-busters!
Turn that frown upside down, counters Guy Adami. The move down on Monday was a text book correction. Nothing more.
Daily moves in the market right now are the unlike any time ever in history with the market making sharp gains or posting sharp losses on almost a daily basis, explains Dylan Ratigan.
Moves like this a few months ago would have been huge, adds Finerman. Now we shrug.
And there’s a real data flow this week that investors are watching, adds Seymour.
The data is going to “blow’, bristles a disgruntled Macke.
NEXT CREDIT CRUNCH: CREDIT CARDS
The financial services sector took a tumble on Monday after Oppenheimer’s Meredith Whitney revealed in a Financial Times op-ed that credit cards could be the next leg down in the financial crisis. She said the U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending.
Bank of America , Citigroup and JPMorgan Chase represent over half of the estimated U.S. card outstandings as of September 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.
“Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view."
Most of the solutions to the situation involve government intervention, and all of them require more dilutive capital to existing lenders, she said.
"Accordingly, we continue to be cautious on our outlook on US banks."
I’m short Capital One for this very reason, explains Karen Finerman. And I think there’s more bad news to come. However, I wouldn’t short JP Morgan because they could trade up on other things.
On a positive note Bank of America raised $9 billion through a new treasury program.
Citigroup did the same thing, adds Jeff Macke. But it doesn’t make me bullish. And I don’t understand why we keep stuffing money in consumers’ hands when too much credit was the problem to begin with.
If you’re looking for a trade Mastercard could take a hit, adds Guy Adami.
American Express could take it on the chin too, adds Tim Seymour.
Or, if you want to short commercial real estate, look at the ProShares UltraShort Real Estate.
RETAILERS PLUNGE AS HOLIDAY SEASON BEGINS
Key retail stocks fell on Monday as investors feared that deep discounts offered by U.S. stores during the year's first holiday shopping weekend could sap profits and would not save a bleak season.
Department store operators were badly hurt, with shares of Macy's, Saks and JC Penney down substantially.
I’d look at Liz Claiborne , says Guy Adami. For a trade get long with a tight stop.
GLOBAL RECESSION FEARS BUILDING
Oil plunged more than 9 percent to $49 a barrel on Monday after OPEC deferred a decision on new supply cuts at a meeting over the weekend.
Meanwhile, precious metals prices fell across the board on Monday, with gold and silver hitting 10-day lows, as a sharply lower stock market and a higher dollar triggered a sell-off in all precious metals and other commodities.
If there was ever a day for gold to go higher it was today, muses Guy Adami.
BATTLE THE BEAR: BREAST IMPLANTS?
Johnson & Johnson will buy breast implant maker Mentor Corp for $1.07 billion as the diversified healthcare giant pushes into the market for cosmetic medical procedures.
The acquisition underscores the interest in the market for plastic surgery and other aesthetic procedures even at a time when the rocky global economy may limit consumers' ability to pursue such options.
JNJ paid a 90% premium for this company, says Guy Adami. Chances are they overpaid but it’s interesting going forward.
STORY OF THE DAY: RECESSION DECLARATION
The U.S. economy slipped into recession in December 2007, the nation's business cycle arbiter declared on Monday, and the downturn could be the worst since World War Two.
The National Bureau of Economic Research said its business cycle dating committee members met by conference call on Friday and concluded that the economic expansion that started in November 2001 had ended. The previous period of economic expansion, which ended in 2001, lasted 10 years.
The current recession, which many economists expect to persist through the middle of next year, is already the third-longest since the Great Depression, behind only the 16-month slumps of the mid-1970s and early 1980s.
"I think that we've got a ways to go, that this is going to be probably a deep and long recession," Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC television. "It could be the worst post-War recession. We don't know yet."
The NBER does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries. Instead, it looks for a decline in economic activity, spread across the economy and lasting more than a few months.
What’s The Trade?
The trade is to back away, says Jeff Macke. Don’t try to game this kind of market timing.
For me it’s about the rate of decline, adds Karen Finerman. Right now we’re accelerating lower.
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Trader disclosure: On Dec. 1st, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Macke Owns (WMT), (MSFT), (UUP), (DIS); Macke Is Short (YHOO), (TM); Finerman's Firm Owns (MSFT); Finerman's Firm Is Short (IYR), (IJR), (MDY),(SPY), (IWM), (COF), (BBT), (USO), (VNO), (EQR); Finerman's Firm Owns (DSX) And Is Short (GNK); Seymour Owns (AAPL), (AA), (BAC), (F), (MER); Seygem Asset Management Is Short (EEM); Seygem Asset Management Owns (EEV)
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