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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Tuesday, 13 Jan 2009 | 4:24 PM ET

Today's Hairy Ride

Posted By: Bob Pisani

It was hairy for a while.

After four days of declines in financials, we looked to be making it five down days in a row, but financials turned around in the middle of the day.

Remember, they have a tendency to sell off going into earnings season in the past year, and with good reason.

While stocks traded in a narrow range all day, there was a brief rally late in the day, partly on word that Senate Majority Leader Reid believes he has the necessary votes to approve the additional $350 billion of the TARP plan.

While financials have underperformed since the beginning of the year, energy stocks have outperformed (though most are still down); energy stocks were again market leaders today.

One weak spot: auto parts suppliers. Standard and Poors is continuing to lower its credit ratings on auto-parts suppliers, today lowering ratings on TRW, Lear , Dana and Tenneco .

They had already lowered ratings on other suppliers like American Axle on Monday.



    • VIDEO: Detroit Auto Show Stoppers


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 Jan 2009 | 3:09 PM ET

Tuesday's Midday Bounce

Posted By: Bob Pisani

Stocks have rallied off their lows late in the day, partly on word that Senate Majority Leader Reid believes he has the necessary votes to approve the additional $350 billion of the TARP plan.

Financials: Once again, the Street can't figure out the numbers.

It's happening again: At the start of every quarter last year, traders in financial stocks got agita as they could not figure out if they had adequately accounted for losses; in every case, they continued to underestimate, financials dropped, then rebounded after earnings came out.

They're dropping again, but the list of worries is even longer now:

1) Credit losses (credit cards, commercial real estate)

2) Capital ratios under pressure

3) Lack of earnings visibility

4) Bank failure concerns

5) More dividend cuts looming

There are a few positives:

1) Deposits growing

2) Aggressive accounting charges may help on the upside if things turn around.

Pretty short list of positives, eh?

Another one drops guidance. CSX became the latest large company to abandon guidance. The good news is that it's not necessarily a bad thing to abandon guidance when no one--even the company--has any visibility. Providing guidance in this environment only serves to weaken credibility when the company misses or brings down numbers.

The bad news is that this leaves analysts and reporters with even less clue as to what to expect, and may well increase volatility rather than decrease it.

True, they're not the first. Our parent, General Electric, stopped providing guidance in December. McDonalds famously abandoned guidance in 2003, as did Coca-Cola in 2004, and Dell has also abandoned guidance.

I will keep an eye on this. Not willing to call it a trend yet.



Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 Jan 2009 | 11:58 AM ET

This Is Where Financials Test The Lows

Posted By: Bob Pisani

The Bank Index is sitting right at its November closing low, and many big names — Bank of America , M&T Bank , US Bancorp and others--are already at multiyear lows.

There are two issues:

--Have stocks adequately discounted fourth quarter losses? For example, Bank of America (16 year low today) may still have huge losses buried in the old CountryWide, and even at Merrill, while JP Morgan will report its first quarter with Washington Mutual (they are expecting it to contribute a small loss) and another quarter with Bear Stearns, which should be slightly accretive. But we don't know.

--Concerns that additional capital raising may be necessary.

What's up with GE?

Separately, our parent company, General Electric, broke below $15 for the first time since November (the intraday low is $12.58 on November 20th).

What's up?

GE will report earnings on January 23rd. They last gave fourth quarter guidance of $0.36-$0.42 back on December 16-17.

1) Concern that the outlook has weakened since then

2) GE suffering along with other financials

3) Barclays out with a note overnight, speculating that a large part of the fourth quarter profit (perhaps as much as $0.20) may be due to a tax gain. They also made a comment on credit: "We think Moodys could take their outlook from stable to negative & be in line with S&P. However we think GE's ability to have raised ~$28B of the targeted $45 billion in funding for 2009 is a positive."

    • Citigroup's Stock Recovers; Smith Barney Deal Nears



Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 13 Jan 2009 | 9:10 AM ET

Citi And Earnings 'Sinking' Stocks

Posted By: Bob Pisani
Financials are weaker: Citigroup down another 7 percent this morning after dropping 17 percent yesterday. Our Charlie Gasparino reporting that the Citi-Morgan Stanley brokerage deal is likely to be announced after the close today. European banks like Lloyds, Credit Suisse and UBS are also down 5 to 8 percent. »Read more
  Monday, 12 Jan 2009 | 4:35 PM ET

Alcoa's Miss And JP Morgan's Move

Posted By: Bob Pisani

Alcoa has reported earnings slightly below expectations.

Earnings from continuing operations were $1.16, however the company announced restructuring, impairment and other special charges of $0.88, which was widely expected. Because these costs are non-recurring, analyst are typically excluding them from earnings estimates.

That would leave Alcoa had a loss of $0.28, which is slightly below consensus estimates of a loss of $0.10.

No 2009 guidance.

Separately, JP Morgan is moving up its earnings report to this Thursday the 15th, from Wednesday the 21st.

    • Wal-Mart CEO: No Quick Rebound for US Economy
    • Citi's Move to Shed Broker Fails to Stem Cash Worries



CNBC's Names in the News:

Company/ticker No. 1

Company/ticker No. 2


Questions? Comments? tradertalk@cnbc.com

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  Monday, 12 Jan 2009 | 3:23 PM ET

Earnings Worries Weigh On The Markets

Posted By: Bob Pisani

Two specific sectors are showing weakness today (financials and materials) but for the same reason: earnings concerns.

1) Commodity stocks are having a tough time moving up because the underlying commodities are barely off their bottoms. Most commodity stocks have very close relationships to the underlying price of the principal commodities they manufacture.

Look at these commodities since June:

  • Oil down 71 percent
  • Copper down 65 percent
  • Coal down 62 percent
  • Milk down 50 percent
  • Aluminum down 50 percent

The good news is that commodities have shown some signs of stabilizing since December; the bad news is that they are showing very little inclination to rise significantly from their bottoms. Sideways movement will do nothing for commodity stock prices.

Many analysts are concluding that it might be difficult to make significant moves in commodity prices for months, inflation hawks notwithstanding, which is putting pressure on earnings estimates. Alcoa , for example, drastically lowered its estimate for aluminum prices a week ago; that's what was behind Deutsche Bank's downgrade of Alcoa on Friday.

2) Financials are weakening. The Bank Index is down about 15 percent since topping out last Tuesday, down 4 days in a row. Big names like US Bancorp , M&T Bank , Comerica , and Fifth Third are now set to close below their November lows.

What's up? Estimates for earnings continue to come down for 2009. Remember, many analysts have financials and discretionary stocks leading an earnings turnaround in the second half of the year.

But there's a growing realization that these companies will be earnings constrained for much longer, and estimates will be coming down for the back half of the year soon.

The midday letter from Lawrence Summers, indicating that the federal government would seek to eliminate dividends and would seek to restrict mergers, has also not helped

As always, the Street is leading the analysts.

Citi is emblematic of the problem. Call it a joint venture, call it whatever you want: the Street has been unhappy about the Smith Barney-Morgan Stanley talk since the minute CNBC broke the story late on Friday.

At the time, Citi was trading at about $6.95, it closed Friday at $6.75 and is now at $5.72. That is an 18 percent drop in the stock in two trading days!

What's the problem? It's not hard to figure out: it's believed, since Morgan Stanley would reportedly have an option to purchase the entire "joint venture," that Citi is selling one of its most valuable assets under duress because they are desperate to raise more capital.

This indicates that: 1) there will be more losses and more need to shore up capital at Citi and elsewhere, and 2) the government is likely pushing Citi to shore up capital early by selling something of value.

    • Citi's Move to Shed Broker Fails to Stem Cash Worries



Questions? Comments? tradertalk@cnbc.com

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  Monday, 12 Jan 2009 | 12:15 PM ET

Wall Street's Sound Of Silence—What's Up?

Posted By: Bob Pisani

There has been an eerie silence on trading desks for a month now; what's up?

In mid-December, you could chalk it up to exhaustion and the holidays; but as we now head into the middle of January and light volume and tight trading ranges continue, there are fewer excuses.

1) Hedge funds and retail brokers both tell me their desks are dead because everyone is waiting to see what will happen.

2) Most accounts are heavily in Treasuries or cash.

3) All agree that what is needed is: a) more trust and confidence, and b) investors to get sick of holding low-yielding Treasuries.

One encouraging sign: most traders note that there has been a pickup in interest in higher-yielding corporate bonds, as well as municipals, in the past week. This is the first encouraging sign that might signal investors are coming out of their foxholes.

The two issues competing for the attention of traders are the details of the stimulus package, and earnings guidance for 2009. Early signs for guidance are not encouraging: guidance continues to come down in key areas like energy, materials, and retail.

    • Alcoa Downgraded As it Prepares to Report Earnings



Questions? Comments? tradertalk@cnbc.com

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  Monday, 12 Jan 2009 | 9:28 AM ET

New Year Trends

Posted By: Bob Pisani

After starting off the year with a bang, the trend has been to the downside and is again this morning.

The good news is that the credit market is continuing to improve, with lower Libor and a corporate bond market that is starting to look functional again.


1) Healthcare purchase: Eye care company Advanced Medical Optics is being bought by Abbottfor $2.8 billion ($22 a share) in cash, a nearly 150 percent premium to its Friday closing price of $8.85. Separately, Abbott reaffirmed its 2008 guidance and gave 2009 guidance of $3.65 to $3.70 (analyst estimate $3.66)

2) Restaurant chain Landrys has announced that it will not be going private, and will instead pursue alternative financing for $400 million in senior notes. The refinancing should close prior to the end of February 2009. The company had been slated to be taken private by its founder, Tilman J. Fertitta. The buyout offer was $13.50 a share, the stock closed Friday at $12.35, now trading at $7.99 pre-open, down 35 percent. The company says the deal fell apart when the SEC required the company to disclose certain information from a commitment letter issued by the lead lenders, which the lenders refused to allow to be disclosed.

3) Alcoa down 5 percent pre-open, as are other aluminum stocks like Aluminum Corp. of China. Alcoa starts off the earnings parade after the close. The problem is simple: aluminum prices have been cut in half, going from roughly $1.50 a pound to $0.72 a pound in 6 months. Their earnings are closely correlated to this number. If it stays down here, Alcoa will again be forced to cut production.

After the close on Friday, Deutsche Bank downgraded Alcoa to sell, reducing 2009 earnings estimates to a loss of $0.15, from a gain of $1.50.

4) Most large commodity stocks are also trading down 2 to 4 percent. Chinese officials have said it would be difficult for China to reach its minimum 8% GDP target rate in 2009.

5) Bottom fishing: T Rowe Price is starting up a Strategic Income fund which will go after everything everyone else is running from: junk bonds, mortgage-backed securities and emerging market debt, according to the WSJ.

    • Citi Could See $3 Billion From Smith Barney Deal



Questions? Comments? tradertalk@cnbc.com

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  Monday, 12 Jan 2009 | 8:28 AM ET

Wall Street's Casting Call

Posted By: Bob Pisani

So how bad are things on Wall Street?

Outside the NYSE this morning, a group of fresh-faced New Yorkers were eagerly handing out leaflets to the morning crowd of brokers.

Here's an excerpt:

"Casting Notice: Seeking NYC's Rich, Powerful and Elite for a New Television Series.

We're look for people who would be interested in participating in a new television series (for a major cable network.)

  • Do you have businesses or ventures that you are looking to promote?
  • Are you so busy you often don't have time to work through personal issues with a business partner, friend of family member?
  • Do you constantly have unresolved issues on your mind?

If you answered YES to any (or all) of the above questions, this this is the show for you!

Please email a recent photograph, contact information, a brief description of yourself what your "issue" is to: MillionaireCasting@gmail.com."

Good luck to all.



Questions? Comments? tradertalk@cnbc.com

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  Friday, 9 Jan 2009 | 4:10 PM ET

The Next Big Worry

Posted By: Bob Pisani

The Dow is down about 4.8 percent this week, the worst showing since November.

The jobs report was bad, but not the worst case scenario that some were expecting. Two stocks declined for every one advancing, but volume was again on the light side.

In fact, volume has been light since before Christmas. The good news is that the decline this week was due to a lack of buyers, not any panicky sellers.

The bad news is that there is still little enthusiasm to buy stocks.

Alcoa kicks off fourth quarter earnings on Monday.

The big worry right now is earnings revisions. Downward earnings revisions are continuing, and are particularly strong in retailers, energy and materials. It is also picking up for the first quarter. Why does this matter? Because stock performance is fairly closely correlated with earnings revisions.

Another problem is analyst downgrades: according to Deutsche Bank, this is the worst on record, both in terms of the breadth of the downgrades (the number of stocks that are or have been downgraded) and the depth (the number of stocks that are rated at "reduce" or "sell").

Why does this matter? Because a notable turn in sentiment--stocks being upgraded--is often used as signs of a durable bottom (stocks often put in an absolute bottom before this).

As for 2009 earnings, it goes like this: there is a second half recovery expected. In particular, there is an expectation that earnings in financials and consumer discretionary stocks will stage a recovery.

This, as you might guess, is a pretty tall order given the economy.

Earnings are expected to DROP for materials and energy stocks, and here there might be a bit of an upside if we get some kind of bottom in the global economy.

Bottom line: stocks may or may not have bottomed, but to get a notable rise off the bottom, we will need more positive earnings sentiment than we are currently getting. Absent that, we will have failed rallies and will, at best, be condemned to moving sideways for a good part of the year.




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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