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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Tuesday, 16 Dec 2008 | 4:06 PM ET

What The Fed Is Trying To Do

Posted By: Bob Pisani

The reflation trade is back. That is the Fed's message. And it has major implications for stocks.

With interest rates near zero, and the Fed making plenty of money available, it should be stimulating the economy, but it isnt. That's because those who matter--the banks and consumer--choose to hoard the money instead of lending or spending.

What to do? The classic way out is to reflate the economy. When there is moderate inflation, there is less inclination to stay in cash. That is what the Fed is trying to do.

The Fed has said they will do anything they need to do. Traders are taking this as open acknowledgement they will be printing money. So traders are buying commodity stocks on the reflation trade: gold, coal, metals, steel.

Insurance stocks like MetLife and Prudential were strong as well --as insurance companies own a ton of paper and physical real estate, which will be helped by the Fed's actions.

No more guidance! Start of a trend? Our parent company, General Electric, has reaffirmed its 2008 guidance, but perhaps more importantly they have announced they will no longer be providing quarterly guidance.

The GOOD NEWS is that it will free the company from the shackles of estimating earnings and revenue when it has become increasingly difficult to do so, and may make managers less obsessed with meeting quarterly targets.

The BAD NEWS is that analysts (and the media) will have a tougher time keeping a "scorecard" of a company's performance. After all, if a team doesn't play the game, how can we know exactly if they are winning or losing? Those in favor of eliminating guidance argue that GE will certainly continue to provide some kind of update on trends impacting their businesses.

This topic will be hotly debated on CNBC and in the financial media in the future, since it is likely GE's stance will make it easier for other companies to abandon guidance as well.

True, GE isn't the first: McDonald's famously abandoned guidance in 2003, as did Coca-Cola in 2004, and Dell has also abandoned guidance. But given the economic news, this may be the start of a trend.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 16 Dec 2008 | 3:14 PM ET

The Fed's Historic Home Run

Posted By: Bob Pisani

In the boring world of Fed statements, this one was an eye-opener, indeed potentially historic.

It was different in tone AND content from other Fed statements. How different? Traders on the floor looked a bit confused as they tried to parse through a lot of headlines that sounded very different from previous statements.

From a traders perspective, the Fed hit all the right notes. Stock traders wanted the Fed to come out swinging on several issues:

1) How long will rates stay low? "Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

2) What will the Fed do to help the economy and combat deflation besides cutting rates? "The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability...The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."

3) Will the Fed continue to buy mortgage-backed securities? The Fed "stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant."

With this statement, the Fed is essentially saying, "Are you a simpleton? If you are not sure about what we are doing, here let us spell it out for you. We will do everything."

"Are you a doubter? If you are, stop doubting. We are on board."

CNBC's Names in the News:

General Electric

Goldman Sachs


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 16 Dec 2008 | 9:13 AM ET

Goldman Sachs: A Sigh Of Relief On Street

Posted By: Bob Pisani

The CPI number, which posted a decline of 1.7 percent on the headline numberand core at 0 percent, both below expectations, was not great but bear in mind much of this is due to the decline in commodities. This decline has likely run its course, so we may see much more moderation in the decline in CPI and PPI. Also bear in mind the dollar has been weaker recently, which will put more upward pressure on commodities.


1) You could hear a sigh of relief on the Street as Goldman reported a loss of $2.12 billion, or a loss of $4.97 per share.

This is pretty terrible, but it was about in line with expectations: many analysts had already expected a loss of close to $5.00 (consensus was a loss of $3.73), so anything in the ballpark was good news.

As expected, Goldman reported significantly losses in Principal Investments (including $961 million from losses in commercial real estate), and a $631 million loss due to the decline in value of their investment in International and Commercial Bank of China. There was also a loss of $3.41 billion in Fixed Income due to losses on leveraged loans and residential mortgages.

Goldman trading up about 3 percent pre-open.

2) The Fed will cut rates today, the question is whether it will make a difference. ECB Pres Trichet late yesterday said "Do we have a feeling there is a limit to the decrease in rates? At this stage certainly yes."

3) Gee, who will sign the paychecks? Best Buy trading up 9 percent after offering a separation package to nearly all corporate employees, and reporting earnings a bit ahead of expectations ($0.35 vs. $0.24 consensus). They are reducing capital expenditures by 50 percent next year.

4) Fertilizer stocks trading up as Merrill Lynch upgraded Potash ,Mosaic , and Agrium though Credit Suisse lowered estimates for Potash, noting weaker demand and prices.

5) Automotive parts supplier Johnson Controls has withdrawn its 2009 guidance; no surprise given the uncertainty in the automotive sector. More surprising is their estimate of 2009 auto sales: 9.3 million units, probably one of the lowest estimates on the Street.

6) Yesterday's volume and price action was about the quietest since Labor Day. In fact, the volatility has been notably lower for the past week and a half. The S&P 500 is down about 40 points since hitting its recent closing high on December 8th, but the decline has not been intense; there has not been particularly strong buying or selling pressure in the past week and a half.

This has been part of a trend: December has seen a smaller range of price swings than November, and November smaller than October.

There is no guarantee this will continue. In particular, there has been concerns that we will see a new round of redemption requests after January 1 in light of the Madoff scandal . But for the moment, market participants (other than those who trade volatility) are happy with the more stable markets.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Friday, 12 Dec 2008 | 4:35 PM ET

Markets Drive Over Auto's Bad News

Posted By: Bob Pisani

"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight." Senator Harry Reid, Thursday night. Gee, Mr. Senator, don't get into the stock commentary business.

The markets today continued to rally in the face of bad news, as it has been doing for the past two weeks.

More accurately, the market was mostly flat, with a few more advancing than declining stocks, but many stocks were just fractionally on either side of positive or negative.

Real estate investment trusts (REITs) had a great day because General Growth Properties announced it successfully refinanced almost $900 millino in debt, though there are still other debt deadlines the company is facing. Up 27 percent.

Financials like KeyCorp , Citi , Bank of America , and US Bancorp were fractionally on either side of positive or negative on light volume.

The weak spot today was energy stocks, where several E&P names like Devon and EOG and oils like Occidental were on the downside 2 to 6 percent, but these stocks have had nice moves up earlier in the week.

Goldman Sachs cut its 2009 outlook for oil prices to $45 a barrel.

Are we at a bottom? Bears insist there will be more redemptions after Jan. 1 that will pressure the market, and the economic news will still come in worse than expected.

Next week, the big news will be Goldman's earnings (see my earlier note ) Tuesday and Morgan Stanley on Wednesday.

For the week: tech was a standout, with the NASDAQ up 1.6%; Dow and S&P down fractionally, Transports the big loser, down 5.8 percent.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Friday, 12 Dec 2008 | 3:49 PM ET

Why You Shouldn't Be Stunned By Madoff

Posted By: Bob Pisani

Stunned by Bernie Madoff? There’s plenty like him in the long history of Wall Street.

This is one in a long string of scams. These scams are an integral part of the history of Wall Street, but are particularly prevalent during periods of great bull markets.

One of the most famous and widely talked about scandals was the case of Richard Whitney, the President of the New York Stock Exchange from 1930-1935, who was widely hailed as a Titan of Wall Street during the Depression but was sent to Sing Sing Prison in 1938 for embezzlement!

Whitney ran a successful bond brokerage firm in the mid-1910s, becoming a Vice President of the NYSE a few years later.

What was not known, as Whitney climbed to the top of the financial elite of New York, was that he was involved with all sorts of speculative investments and was racking up big losses even when he was the NYSE President. He successfully concealed these losses by borrowing heavily to cover the losses, then turned to embezzlement, even going so far as to steal funds from the NYSE Gratuity Fund and the New York Yacht Club (he was the Treasurer!)

He was caught only after he retired from the NYSE, when the comptroller of the NYSE exposed him. He declared bankruptcy, pled guilty, and went to Sing Sing prison for three years, where he was released in 1941. He lived quietly until he died in 1974.

- The Dow 30 at a Glance

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  Friday, 12 Dec 2008 | 11:10 AM ET

Auto Mess Creating Strange Bedfellows

Posted By: Bob Pisani

First, there's the question of how much money is really needed. The bill would have allotted $14 billion in loans, but most think the amount needed to avoid imminent bankruptcy is smaller, probably in the $5-10 billion range. This makes it doable using some combination of government guarantee and, perhaps, private lending.

Here's the range of ideas being discussed on Wall Street this morning:

1) Can the TARP be used for an auto loan? There is about $15 billion left in the TARP. But if GMAC was determined not to have enough regulatory capital required to be considered a bank, under what pretense does GM qualify? How to get around this? The Street thinks some rationale will be created.

2) Private syndicate loans. There's talk that large financial institutions (Citigroup , JP Morgan , Goldman Sachs , and others) might lend emergency funds to the auto companies if the government guarantees the loans. The theory here is that it would be in the interests of the financial firms to form a syndicate.

Bottom line: the hope is that the Treasury will either 1) lend directly to the auto companies, or 2) use a small part of the TARP money (maybe just a few billion) to backstop loans ($5 to $10 billion, perhaps) made by a private syndicate.

P.S. Where's Bernanke? Out on the horizon is Ben Bernanke, who has emergency powers of the Federal Reserve; traders are saying in theory it is possible for him to act as a lender. Presumably, the loans would be collateralized.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Friday, 12 Dec 2008 | 9:19 AM ET

White House "Last Stop" For Automakers?

Posted By: Bob Pisani

While futures are down 30 points as of 9 am ET, this is a big improvement over late last night, when futures were down 45 points.

With the failure to pass an auto loan bill, the Treasury Department is now essentially the "last line of defense" for the auto makers. They can now provide a bridge loan through the TARP, or provide or guarantee a debtor-in-possession facility to fund a pre-packaged Chapter 11 proceeding.

The AutoNation CEO, Milt Jackson, said on our airthat President Bush was likely to rescue the auto industry by agreeing to some kind of bridge loan until the next administration can enact a broader bill.

GM down 26 percent, Ford down 15 percent, Visteon down 7 percent. Lear down 25 percent, as they withdrew 2008 guidance.


1) Although the dollar is slightly weaker, commodities are down, and many commodity stocks are down 5 to 10 percent. Shipping stocks like DryShips (downgraded at Credit Suisse), Excel Maritime , and Diana Shipping are down 7 to 12 percent.

2) Financials are down 4 to 7 percent.

3) Caterpillar down 5 percent, downgraded to Sell at Goldman, citing weaker spending by commodity companies and a slowdown in the credit markets.

4) The other hot topic on the Street is the arrest of money manager Bernard Madoff. Madoff was widely known and respected, and during dinner last night with several well-known figures on the Street it was the main topic of discussion. He had a large investor base and the apparent fraud will hurt investor confidence in the high-end money management business. There are several well-heeled country clubs on Long Island that will be losing a large part of their members.

Update: Futures spiked shortly after 9 AM ET as President Bush said he was willing to consider use of TARP funds for a bridge loan to auto makers.

The cynical take on this on the NYSE floor was that Bush had signalled to the Senate Republicans YESTERDAY that he would use the TARP to provide a bridge loan to the auto makers if the Senate failed to pass the bill.

This signal provided the political coverage for the Republicans to talk tough to the unions.

So the Senate Republican leadership got to take a stand, and would not be blamed for an auto collapse because the President rides to the rescue.

- The Dow 30 at a Glance

CNBC's Names in the News:

Wells Fargo

JP Morgan


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 11 Dec 2008 | 4:17 PM ET

Here Comes The Profit Taking (Update)

Posted By: Bob Pisani

You knew it was going to happen. I've noted that energy and material stocks have notably outperformed the rest of the market for the past several days.

Today, they took profits in these two sectors, with big names like AK Steel (down 7 percent), coal producer Massey (down 6.2 percent) and oil service giant Nabors (down 7 percent) all going from positive to negative right about 2 pm ET.

What happened? The simple answer is that we know that demand for commodities will remain weak until we work through the global recession, and the markets will not allow these groups to get too far ahead of everyone else.

Some would also like to blame the selloff on JP Morgan CEO Jamie Dimon, who noted in a 2 pm ET interview on CNBC that while November was bad, December was looking terrible as well, and that 2009 was looking "tough."

Financials were weak all day, but weakened again just before 3 pm ET. US Bancorp provided an update on the fourth quarter this morning, and the bottom line is that there is good likelihood of a jump in bad loans, and that the environment remains "difficult."

Nothing new here from Dimon or US Bancorp, but a reminder that the environment is not improving is always bracing for traders.

The REIT index has rallied 60 percent off its November lows at the close yesterday; today it gave back about half of those gains. Many of the big names were down 20 percent.

What happened? Again, nothing new. REITs face refinancing risks as large mortgages come due, and the market reminded traders not to take rallies too far, too fast.

UPDATE: Futures are a bit weaker on a report that hedge fund manager Bernie Madoff was arrested and charged with criminal securities fraud. Mr. Madoff ran a large hedge fund and was well known on the Street, and was very successful, though he refused to ever discuss how exactly he made his money.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 11 Dec 2008 | 11:30 AM ET

Daschle: Why He's Good Choice for HHS

Posted By: Bob Pisani

The appointment of Tom Daschle as Secretary of Health and Human Services is a big plus for those of us (including myself) who believe that healthcare needs to be a front-burner issue for the Obama administration.

Mr. Daschle has long been involved in health care reform, even going back to the early 1990s when he played a part in Sen. Hillary Clinton's early efforts.

He wrote a book on the subject: "Critical: What We Can Do About The Healthcare Crisis."

In it, he proposed the creation of a Federal Health Board, similar to the Federal Reserve, which would

1) define a minimum health benefit
2) regulate insurance marketing
3) standardize medical records
4) set prices for new procedures

This would only apply to government programs (Medicare, Medicaid, VA) but private insurers could follow.

Mr. Daschle has also indicated he might support:

1) universal coverage through Medicaid
2) direct government negotiation for drug prices

While cries of "Socialist Medicine" will certainly be heard, and this deserves to be considered, the fact that there are 50 million people without healthcare in this country, that many cannot afford it, is simply scandalous and there needs to be proposals put forth to address that issue.

The question of course, is how much the economic crises will push healthcare reform to the back burner. This could be a problem for hospital and HMOs, who might delay spending if they don't know what the new landscape would entail or when reform might be forthcoming.

That is a problem for investors in healthcare companies, so the President-elect needs to give some kind of timetable for this series of reforms, once they decide what they want.

    • New Poll Warns Daschle, Obama: Mandatory Health Insurance Big Loser with Public

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Thursday, 11 Dec 2008 | 9:07 AM ET

Dollar Weighs On Traders

Posted By: Bob Pisani

Futures dipped a few points as jobless claims hit a 26-year high. But the big topic on trading desks is the dollar, which may be weaker on expectations the U.S. will ease interest rates next week, so commodities and some commodity stocks (notably gold) are stronger. Other commodity stocks like iron ore companies are weaker on concerns over slower global demands.

A couple companies in the industrial space confirmed a notable slowdown in the last several weeks:

1) Engine maker Cummins revised its 2008 outlook, expecting sales to increase 9 percent over 2007, compared to previous guidance of a 12 percent increase. Cummins confirmed what many companies have been seeing: a notable drop in sales in the last several weeks. Still, sales are growing, and they noted 2008 wll be the fifth consecutive year of record sales and profits.

2) Stanley Works , which has experienced "rapidly deteriorating business conditions" in its Construction and Industrial segments, is down 10 percent pre-open as they lowered earnings for the quarter. They are laying off 2,000 employees, 10 percent of the current base.

    • Jobless Claims at 26-Year High; Import Prices Fall
    • Auto Bailout Prospects Look Grim in the Senate


1) Lilly up 3 percent pre-open, even though thy provided 2009 guidance of $4.00-$4.25 (slightly below analyst estimates of $4.26, which includes the cost of the acquisition of ImClone) and reiterated 2008 guidance.

2) Boeing down 3 percent as they update the schedule for its 787 Dreamliner program. The first flights are now moved to the second quarter of 2009 and first delivery to the first quarter of 2010, which will have some impact on earnings. The machinist's strike caused some of the delay.

- The Dow 30 at a Glance
CNBC's Names in the News:




Questions? Comments? tradertalk@cnbc.com

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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.


  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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