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Terranova: ‘Bank Trade Is Over’ After Fed Move

Thursday, 26 Jan 2012 | 7:43 PM ET

The Federal Reserve decision to keep interest rates at historic lows through late 2014 signifies a game-changing situation for certain sectors, traders said Thursday.

“When you look at the week-to-date performance, you look at the nine major sector ETFs and look at the XLF, well, there’s your laggard for the week,” trader Joe Terranova said on “Fast Money.”

Trading the Casualties of Fed's Low Rates
The Fast Money traders weigh in on Transocean, after the company was indemnified for most for oil spill claims. Also, what are some stocks to be wary of as interest rates stay low through 2014? The Fast Money traders, have the trade on insurance companies and banks.

“I think the trade in the banks is over,” he added. “I think you now look for the next catalyst. Maybe the stress tests will be the catalyst, but I think you have to wait.”

Trader Karen Finerman saw potential upside despite the recent pull-back.

“I think there’s so much noise in a Bank of America, for instance,” she said. “If they can clean up some of the liabilities, forgetting the flatness of about the yield curve, that’s a much bigger impetus for the stock to move than anything else.”

Tim Seymour of EmergingMarkets.com thought the Fed’s move could be a bad sign for Europe.

ETFC: Margin Squeeze on Low Rates
Rich Repetto, Sandler O'Neill, discusses ETrade's downgrade to "hold" & lowering expectations by 24% in 2012, and the outlook for e-brokers.

“I would argue that, again, a weaker dollar — which is fantastic for us here, which is what the Fed truly wants, will never tell you — is putting more upward pressure on the euro, which is overvalued,” he said. “Go right to the export economies, go to Germany, go to Siemens — and you see a place where, directly, exporters out an expensive European Union suffer.”

Continued low interest rates could mean bad news for such sectors as insurance companies, banks, clearing houses and brokerages. But Rich Repetto of Sandler O’Neill thought one name in the e-broker space would be squeezed harder.

Repetto downgraded ETrade to a “hold” rating and lowered its 2012 EPS outlook 24 percent — to 56 cents from 74 cents. The expectations were due to the decline in interest rates and management’s declining loan yields.

Options Action: MetLife
An options strategy on insurance provider, MetLife, with Mike Khouw, Cantor Fitzgerald.

E Trade, he said, was less profitable than such peers as Ameritrade and Schwab.

In the options trade, Mike Khouw of Cantor Fitzgerald offered one way to play MetLife.

“The stock was trading at about $34.20 and you could sell the March 35 calls against it for $1.45. That yields just above 4 percent over the course of the next 50 days, up to 6½ total return if the stock were to rally through that strike,” he said. “This is one of those situations when everybody’s trying to chase that yield, you might have to look to preferreds and look to things like buy rights to try to increase that yield.”




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Trader disclosure: On Jan. 26, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova is long XOM; Terranova is long TRLG; Terranova is long CNX; Terranova is long SBUX; Terranova is long SNDK; Terranova is long CSCO; Terranova is long VRTS; Terranova is long LQD; Terranova is long MUB; Terranova is long EMC; Terranova is long AXP; Terranova is long F; Terranova is long JOY; Terranova is long MCD; Terranova is long OXY; Terranova is long MCD; Terranova is long OXY; Terranova is long IBM; Terranova is long SU; Terranova is long MA; Seymour is long F; Seymour is long AAPL; Seymour is long BAC; Seymour is long CIB; Najarian is long AKS; Najarian is long BAC; Najarian is long PNC; Najarian is long WFC; Najarian is long GDX; Najarian is long NFLX; Najarian is long MSFTl Najarian is long IBM; Finerman is long (JPM); Finerman is long (BAC); Finerman is long (PLCM); Finerman is long (IBM)

For Ron Insana
No Dislcosures

For Mike Khouw
No Disclosures, all holdings in separately managed accounts

For Karen Finerman
Finerman’s fund is long (AAPL)

Finerman’s fund is long (JPM)

Finerman’s fund is long (PLCM)

Finerman’s fund is short (SPY)

Finerman’s fund is short (MDY)

For Marc Riddick
No Disclosures

For Carter Worth
No Disclosures

For David Barger
No disclosures

For Richard Repetto
Sandler O'Neill expects to receive or intends to seek compensation from E*TRADE Financial Corporation for investment banking services in the next three months. As of the date of this report, Sandler O'Neill currently acts as a market maker in the securities of E*TRADE Financial Corporation. E*TRADE Financial Corporation is a client of and receives non-investment banking securities-related services from Sandler O'Neill (based on information as of the end of the month immediately preceding the date of this report). An affiliate of Sandler O'Neill has received compensation from E*TRADE Financial Corporation for providing products or services other than investment banking services in the 12-month period ending as of the last calendar quarter.

CNBC.com with wires.

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