DOW & S&P AT 11-YEAR LOWS
The Dow and S&Pslumped to 11-year lows on Monday as investors lost faith that the U.S. government will be able to stabilize the financial system.
Both indexes posted their lowest closes since the spring of 1997 as reports the government may convert its stake in Citigroup into a big common stock holding fell short of what many see as necessary to fix big banks.
Then after hours JP Morgan , the second largest U.S. bank, slashed its common stock dividend 87 percent, a surprise move by a lender considered among the strongest in the U.S. financial sector.
The decision to cut the quarterly dividend to 5 cents per share from 38 cents will save $5 billion a year. They say the move will allow them to repay the TARP money more quickly.
Strategy Session with the Fast Money Traders
I think the dividend cut makes sense, muses Karen Finerman. There are better things to do with that money than pay dividends with it.
I see no reason to play the financials, says Pete Najarian. I’ve stayed away from most names in the space except Morgan Stanley. In the interest of full disclosure I added to my position in that name on Monday but I also bought puts.
I got lighter on Monday, says Tim Seymour. It’s hard to manage a portfolio in this environment.
WHAT’S WRONG WITH GE?
Dow component General Electric , whose businesses include a big financing arm, also weighed on the Dow after Deutsche Bank cut its price target on GE by almost a third and said the company's dividend may be vulnerable in the second half of 2009.
In the last few years they’ve been very aggressive in the spectrum of lending, says Karen Finerman. Because of that, the stock could be properly valued, here.
The March 7 puts were trading robustly, adds Pete Najarian. That suggests investors are looking for a little more downside.
I don’t understand why GE doesn’t cut their dividend, muses Tim Seymour.
BREAKING NEWS: THAIN BONUS QUESTIONS
CNBC’s Charlie Gasparino reports that former Merrill Lynch CEO John Thain has been compelled by the courts to provide more information about bonuses paid out on the eve of the bank's merger with Bank of America last year.
> Click here to read more!
WHAT’S WORKING: PHARMA
Pete Najarian is keeping an eye on the pharma sector. He likes all the M&A activity.
For example, Medtronic said on Monday it is buying two privately held heart valve companies, including CoreValve Inc, a major player in the relatively new market for less-invasive valve replacement.
Medtronic, the world's largest stand-alone medical device maker, said it has agreed to buy Irvine, California-based CoreValve for an initial payment of $700 million plus future milestone payments
The metals names plunged on Monday as investors grow more nervous about slow demand and rising supply. Meanwhile UBS downgraded steelmaker ArcelorMittal saying it’s increasing production too quickly.
I’d take profits, counsels Tim Seymour.
In steel take a look at US Steel , counsels Pete Najarian. The volume of puts trading in this stock suggests to me that investors are looking for the lows.
Meanwhile, gold fell as much as 2 percent on Monday to a low of $975.00 an ounce as investors cashed in gains after the previous session's rally.
It seems to me gold will continue to struggle around $1000, muses Tim Seymour.
I think gold could be making a double top, adds Guy Adami. I think investors should take profits and get back in if gold closes around $1010.
I think you can jump into the GLD ETF and buy puts 3-months out for protection, counsels Pete Najarian.
BIGGEST BANKRUPTCY LOAN EVER?
Outside advisers to the Treasury are lining up contingency financing options for General Motors and Chrysler LLC as part of a review of restructuring options for the auto makers, a Treasury official said on Monday.
"Everything is on the table right now," one person involved in the matter says. Investors took that to mean bankruptcy, although the Obama administration says they don’t want to see any more lay-offs.
I don’t think bankruptcy is such a bad thing, says Karen Finerman.
I think the only automaker worth looking at is Ford , says Guy Adami. At some point people will buy cars again.
If I was playing the space it would be with Toyota, counters Tim Seymour.
TOPPING THE TAPE: AIRLINES
Shares of airlines appear to be flying high after Bank Of America upgraded United , Delta and SkyWest reasoning that current share prices don’t take into account the big decline in fuel prices.
It’s nonsense, says Pete Najarian.
TECH SLIDE CONTINUES
Investors were bearish on tech Monday. Shares of Apple dragged down the tech heavy Nasdaq. In another blow to techs, Morgan Stanley downgraded its PC sales forecasts for 2009 and 2010, citing lower prices and weaker-than-expected demand for PCs given the rising sales of netbooks, which are cheaper, no-frills notebook computers.
I wouldn’t load up for a rebound, counsels Pete Najarian. There’s a lot of risk. And if you do load up make sure you buy some puts for protection.
Dell broke $8 on Monday which is the decade low, says Karen Finerman, but I still didn’t buy it.
I’d keep an eye on AT&T, counsels Tim Seymour, for their build-out plans -- and maybe Cisco too.
I bought Cisco last year based on AT&T’s build-out and it didn’t work, counters Pete Najarian.
IS CITIGROUP NATIONALIZATION
Citigroup is in talks to give the U.S. government a larger stake, a person familiar with the matter said, which could provide the government with a far greater say in the affairs of the ailing banking giant.
If the government took a large common equity stake, even if it lacked voting control, the move could be the equivalent of a nationalization. Citigroup shares fell below $2 on Friday as investors feared that soaring losses would result in nationalization, wiping out shareholder equity.
Taxpayers could end up owning as much as 40 percent of New York-based Citigroup's common stock, though executives at the third-largest U.S. bank by assets hope to limit the stake to about 25 percent, The Wall Street Journal said on Monday, citing people familiar with the situation.
Rather than do this, “I wish the government would just take the level 2 and 3 assets,” muses Jon Najarian. “And I wish they’d relax mark-to-market accounting,” he says.
Superior money managers such as Bill Gross have said they’d step in and take care of those assets.
Najarian thinks that’s the way to go.
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Trader disclosure: On Feb. 23rd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Najarian Owns (GE) Puts; Najarian Owns (GDX) & (GDX) Short Calls; Najarian Owns (HPQ) Calls; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (X) Put Spread; Najarian Owns (WFC) & (WFC) Calls; Seymour Owns (AA), (BAC), (EEM), (FXI); Seymour Is Short (NUE); Seymour's Firm Owns (PCU); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (WFC) Preferred; Finerman's Firm Owns (MSFT), (RIG); Finerman's Firm Is Short (IYR), (IJR), (MDX), (SPY), (BBT), (VNO)
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