DOW FALLS FOR 4TH DAY
The Dow fell for the fourth day in a row as concerns about massive losses at Citigroup knocked its shares 17 percent lower, dragging down bank stocks, and on fears of a dismal fourth-quarter earnings season.
Financial stocks were among the worst performers on the Dow, as Bank of America tumbled as did JPMorgan .
After hours, Alcoa kicked off the earnings season after the bell with a loss. Ahead of the results, shares closed down nearly 7 percent after Deutsche Bank recommended investors sell the stock.
Fourth-quarter S&P 500 earnings are expected to decline 15.1 percent from a year earlier, marking the sixth straight quarterly fall, according to Thomson Reuters estimates.
Strategy Session with the Fast Money Traders
Citigroup’s business model still stinks, scoffs Jeff Macke. I’d run in the other direction from financials.
The interesting thing to note is that we’re seeing take unders, not take overs, muses Pete Najarian. Morgan Stanley is almost stealing Smith Barney. Good for Morgan and bad for Citi.
On a related note, if you’re trying to find a cue as to when to get back into stocks, says Guy Adami, keep an eye on crude . When you see crude around $34.50 and then close up on the day – I’d buy the S&P.
I see a nice support on the S&P around 900 – 920, adds Jeff Macke.
And as for volatility, the Vix is moving higher again, reminds Najarian. That means fear has returned to the market.
I’ve got my eye on the bond markets, says Karen Finerman. Some companies are getting deals done and others are not. To me that’s a huge reason to get short. There’s a lot of refinancing that must get done over the next 18 months.
Citigroup may explore further asset sales after divesting its Smith Barney retail brokerage unit to Morgan Stanley, but the banking giant is likely to have a tough time finding buyers.
Chief Executive Vikram Pandit is trying to shed hundreds of billions of dollars of assets and reduce risk after Citigroup suffered $20.3 billion of losses in the year ended September 30. The bank is expected to post another loss for the 2008 fourth quarter when it reports results this month.
Citigroup has considered selling its Banamex Mexican banking unit and Primerica Financial Services, people close to the matter have said. The Wall Street Journal reported on Monday that CitiFinancial, international retail-brokerage operations and the private-label credit-card businesses may also be put on the block. The bank declined to comment.
Is it fair to say ”if they’ve got to get rid of Smith Barney they’re screwed?” asks Dylan Ratigan.
Karen Finerman replies with one word, “yes.”
The fact they have to jettison this profitable arm isn’t good, adds Jon Najarian. There’s very strong put activity in this stock, he adds.
AFTER HOURS ACTION: ALCOA
After hours Alcoa kicked off earnings season by posting its first loss in 6 years amid a historic decline in metal prices.
The net loss was $1.19 billion, or $1.49 per share, compared with earnings of $632 million, or 75 cents per share in the same quarter of 2007, the Pittsburgh-based company said.
This shouldn't be that much of a surprise, muses Pete Najarian.
AFTER HOURS ACTION: CSX
U.S. railroad CSX Corp on Monday reported a lower preliminary fourth-quarter net profit, citing a write-down related to its investment in The Greenbrier resort in West Virginia
CSX has been trading around its 52-week low, says Guy Adami. If it holds -- it’s much more interesting to me than rival Burlington Northern .
I also like CSX at current levels, adds Pete Najarian.
OBAMA: TAP THE TARP
On Monday, Barack Obama asked George W. Bush to seek access to the remaining half of the financial bailout and Bush, who leaves office in eight days, agreed to do so, the White House said.
The request for the release of the funds was made now because Obama wants to "hit the ground running on day one," an Obama official said.
To get access to the remaining $350 billion, the president must tell lawmakers he intends to tap the funds and Congress would have 15 days to consider the disbursement.
Larry Summers, Obama's incoming director of the White House National Economic Council, said in a letter to congressional leaders how the money will be used and also outlined some new objectives from the Obama administration.
Larry Summer’s Letter to Congress
1. Limit Executive Compensation
2. Limit Acquisitions
3. Limit Dividends/Stock Buybacks
4. Full Accounting of First $350B
5. Replace with Private Capital ASAP
The one that’s huge is number 5, muses Karen Finerman. But I’d just stay away from financials because you don’t know where the money is going to come in the capital structure.
I’d beware when you start to hear the government issue vague statements like this, says Jeff Macke. The hardest trade is getting back involved with financials because it will look like the sky is going to fall for a while.
THE CURE? CONSOLIDATION
Pharma took center stage Monday in the M&A world, with even more deals being announced. Abbott Labs said it’s in talks to acquire Advanced Medical Optics for about $2.8 billion. Also, medical device maker Medtronic is expected to acquire privately held Ablation Frontiers for $225 million. And Roche says the financing is on track for its proposed Genentech takeover.
Pharma continues to be a bight spot, says Pete Najarian. Cash is king and these firms have cash. Also, Warren Buffett put money in this sector and that’s impressive.
In the space I’d look at Celgene, adds Guy Adami.
If you want to spread out your risk, you can do it with SPDR S&P Biotech ETF or the iShares Nasdaq Biotechnology , counsels Karen Finerman.
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Trader disclosure: On Jan. 12th, 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 (TM), (WMT), (MGM), (MCD), (SDS); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Najarian Owns (MS); Najarian Owns (EEM) Long Call Spread; Najarian Owns (ERTS) Long Call Spread; Najarian Owns (DNA) Calls; Najarian Owns (XME) Calls; Najarian Owns (NVLS) Calls; Najarian Own (NVDA) Calls; Najarian Owns (MS) Short Calls; Najarian Owns (VZ) Put Spread; Finerman's Firm Owns (MSFT), (DNA); Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO), (ANF), (DSX), (BBT), (COF), (EGR)
Jon Najarian Owns (C) Preferred Stock
CNBC.com with wires