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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Tuesday, 30 Dec 2008 | 9:23 AM ET

GMAC Back in Business, Thanks to Govt.

Posted By: Bob Pisani

General Motors up 10 percent pre-open as GMAC clears a major hurdle: They say they have raised enough capital to satisfy the Fed's condition to become a bank-holding company.

Recall that GMAC was supposed to raise $30 billion by converting 75 percent of its issued debt into preferred-stock holdings. We do not have details of how this was done.

But the Federal government is buying $5 billion of preferred equity with an 8 percent dividend yield. The Treasury will will also lend $1 billion to GM so they can participate in a rights offering to support GMAC's reorganization as a bank holding company.

This appears to be a new program operating within the Troubled Assets Relief Program (TARP) — so we now have a program specifically designed to invest in auto companies.

This is all in addition to the recent $17.4 billion in loans that was approved to help GM and Chrysler.

So GMAC is now operating as a federally chartered bank. They can have their debt temporarily guaranteed by the FDIC, and get access to the Fed's discount window for short-term loans.

GMAC immediately announced it was resuming auto financing for a broader spectrum of customers. The pulling of credit is a major reason sales at GM have plummetted recently.

GM owns 49 percent of GMAC, Cerberus owns the rest, but this will now be reduced due to the Fed's investment.


1) Can the Dow Chemical deal with Rohm and Haas get done? The Financial Times say they can still tap a $13 billion bridge loan to pay for the takeover, and that they would likely try to renegotiate the price as well.

2) Comp store sales declined 1.8 percent in the week ending December 27, according to the ICSC, which noted that the 2008 recession, widespread heavy discounting and adverse pre-holiday weather all coalesced to produce the weakest holiday season since at least 1970.

ICSC expects December comparable-store sales will decline by at least 1 percent, with broad swaths of the industry experiencing double-digit declines.

3) The Nikkei has closed out its year down 42.1 percent, its worst performance in history (it began in 1949). The S&P 500 has declined 41 percent this year as well.

CNBC's Names in the News:

Ford Motor

Toyota Motors


Questions? Comments? tradertalk@cnbc.com

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  Monday, 29 Dec 2008 | 5:25 PM ET

Traders Still See Volatility Ahead

Posted By: Bob Pisani

Volume has been light and stocks have traded in a narrow range since last Tuesday. Despite the low volatility, the Volatility Index has been little changed in the past two weeks, indicating that traders still anticipate elevated levels of volatility in the coming months.

Given the renewed geopolitical issues, oil was surprisingly flat for a good part of the day, though it did rally late in the day. Energy stocks were the market leaders.

Real estate investment trusts (REITs), which have rallied since the November lows, were down 5 to 10 percent today on concerns about debt refinancing. Office REIT SL Green down 4 percent as they cut their dividend almost in half to preserve capital they will need to pay down debt. Mall owner Macerich was also weak on a WSJ article that was cautious on the recent rally in mall REITs.

Retail-oriented stocks like Gamestop , Liz Claiborne , JC Penney , and Jones Apparel were weak as there was little sign of a last-minute holiday rush.

Traders have been mentally out of 2008 for the past couple weeks, trying to figure out January. There have been several arguments made for a January rally:

1) cash accumulating on sidelines (but this is disputed by many, who note that all we have seen is institutional money market funds with higher cash levels)

2) low valuations for stocks

3) stimulative fiscal and monetary policy

The stimulus package that is coming is the real X-factor for stocks. The question is what kind of stimulus is coming. In order of their biggest influence on stocks, traders say the stimulus package should:

1) cut income taxes (far and away the number one choice--traders note that's what helped the economy in 2002)

2) Fed buying more mortgage backed securities

3) lower mortgage rates/downpayment assistance

The two biggest concerns:

1) additional fund redemptions on Madoff aftermath

2) consumer won't spend, despite stimulus packages; simply pockets gas and/or mortgage savings

Questions? Comments? tradertalk@cnbc.com

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  Monday, 29 Dec 2008 | 9:24 AM ET

Santa Rally Holding...So Far

Posted By: Bob Pisani

While no one is expecting much from this week's trading, geopolitics has again reared its ugly head with the Israel/Hamas conflict. Commodities are rallying, with 6 percent moves in energy commodities, and platinum and palladium up 3 percent and 5 percent, respectively.

Precious metals stocks like Yamana Gold and oil service stocks like Transocean are trading up about 4 percent.

Also on the horizon is India and Pakistan, where Pakistan cancelled army leaves and has shifted troops from its western border with Afghanistan to its eastern border with India.


1) Rohm and Haas down 21 percent pre-open, Dow Chemical down 9 percent, as Kuwait canceled a joint venture with Dow Chemical; Dow was planning to use $9 billion in cash from that deal to buy Rohm and Haas. The Street seems to be betting that this will increase the pressure on Dow to renegotiate its $78 a share cash offer for Rohm and Haas. ROH had been down all last week, closing at $63 and change. It's pre-deal price was $45. Rohm and Haas said completion of the Kuwait deal was not a condition of closing the merger.

What would happen if the deal fell apart? Not clear, but Oppenheimer this morning said Rohm and Haas could trade down to the mid-$20 range.

2) Office REIT SL Green down 4 percent as they cut their dividend almost in half to preserve capital they will need to pay down debt.

3) Dallas Mavericks owner Mark Cuban reported a 9.4 percent stake in Carmike Cinemas. He said the deal was done for investment purposes.

4) Did they make it or not? Still no word from GMAC! They have not said whether they cleared a key financial hurdle to become a bank holding company. They have received approval to become a bank holding company, but the approval was contingent on the auto and home loan provider completing a complicated debt-for-equity exchange by Friday night.

5) The Santa Claus rally, which traditionally occurs in the last five trading days of the year and into the first two days of the new year, is off to a good start: up over 1 percent so far. It didn't work last year, when the S&P dropped 2.5 percent in the same period.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 24 Dec 2008 | 11:58 AM ET

Madoff: The Affect On Private Investors/ Market Sentiment

Posted By: Bob Pisani

The direct effects are limited, but indirect effects could be large. In speaking with hedge fund investors and advisors over the past week, Madoff's investors appear to be overwhelmingly high net worth individuals in Europe and the U.S.

The destruction of wealth from those high net worth individuals will have a devastating effect on private banks, and certain crowds in London, Paris, Geneva, Manhattan and Palm Beach.

But institutional investors, and most hedge fund investors of modest means (a million to say, $5 million or so) appear to have much less exposure.

It seems that most pensions, endowments, and foundations (with the exception of certain Jewish charities), have very little invested with Madoff. One hedge fund advisor I spoke with told me that of 75 institutional funds he spoke with, only 6 had exposure with Madoff, with average exposure of those who had money with him a little over 2 percent.

It's the indirect effects that worry the hedge fund industry. Every single hedge fund investor I have spoken to in the past week feels that there will be additional redemption requests in the first quarter as a result of small investors losing confidence in hedge funds.

But should those people be in hedge funds to begin with? Those people who have, say a few million in hedge funds, arguably should not be in hedge funds because it is very difficult for them to invest without getting ripped off.

Indeed, the very idea that individuals get a better return with hedge funds is probably flat-out wrong. In the past ten years, compare the MSCI Global Index, the Hedge Fund Research Index, and government bonds.

The best returning investment appears to have been government bonds.

Self-administered funds are in big trouble. There's no doubt self-administered funds will have a tougher time getting money. Indeed, one of the biggest problems with Madoff was the apparent lack of independence in the back office--in accounting, administration, and record keeping. No one will invest in firms that are self-administered in the future. The good news is that probably less than 15 percent of U.S.-based funds were self-administered.

The hedge fund industry will be shrinking. How much is uncertain, but it seems likely that there is already a 40 percent shrinkage in assets under management. Here's why: hedge funds as a group are down about 17 percent this year, just assuming another 20 percent in redemptions and you're already at a 40 percent drop.

Assuming $2 trillion under management, and you could easily go down to $1.2 trillion if you haven't already. Yes, putting up gates will slow down redemptions, but no one believes it will stop it.

After redemptions in the first quarter of 2009, it's likely we could go under a trillion in assets under management.

Is this bad news? It means less invested in markets, but it may mean a lot less volatility as well. Having less money in hedge funds is good long term because it means less competition for investment ideas.

    • Fund Chief With Madoff Ties Commits Suicide

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 24 Dec 2008 | 9:12 AM ET

The S&P 500 Standards Are Slipping

Posted By: Bob Pisani

Futures moved to the highs of the day as November durable good and personal spending was not quite as bad as expected.


1) Financials lower in Europe, following a five-day downtrend in the U.S.

2) Commodities: with the dismal home sales figures yesterday, it's little wonder that copper prices have hit four-year lows. Oil and aluminum remains in the same 4-year low territory.

3) With mortgage rates hovering around 5 percent, applications to refinance mortgages rose 62 percent, the highest level since July 2003 (although the MBA does not weed out multiple applications). Applications to purchase homes, however, rose only 10.6 percent, so lower rates are still only having a small effect on purchases.

4) More sign of the times: three retailers have gone under in the U.K. in the past 24 hours: Zavvi (which was formed just 15 months ago from the Virgin Megastore division), men's wear retailer The Officers Club, and tea and coffee retailer Whittard of Chelsea.

5) The S&P 500: standards are slipping. With all those financial mergers, it's time for those companies who merged to come out of the S&P 500, and new companies to come in. On December 31:

1) Utility SCANA Corp. will replace Merrill Lynch ;

2) Glass container maker Owens-Illinois Inc. will replace Wachovia ;

3) Thermal imaging and electronics firm FLIR Systems Inc. will replace National City Corp. .

Notice two things: 1) none of the replacements are financial firms, and 2) all three of the firms going in have market caps below $4 billion. That used to mean they were small caps and ineligible for inclusion.

Not any more. Due to the market decline, there are now 115 issues below $3 billion in the S&P 500. The old dividing line for inclusion in the S&P 500 was $5 billion. That was reduced to $4 billion in September, then knocked down to $3 billion about a week ago, which was the only way these firms got in.

    • Jobless Claims Surge By 30,000 to 26-Week High

- The Dow 30 at a Glance


CNBC's Names in the News:


General Motors


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 23 Dec 2008 | 4:21 PM ET

Uptrend From November Lows Now Broken

Posted By: Bob Pisani

I know we're all fed up with this year, but there are five more trading days left, and we have been drifting lower. In fact, the Dow has been down five days in a row.

Pay attention! The uptrend from the November lows has been broken.

November new and existing home sales were weaker than expected. One bright spot: the number of new homes for sale fell to the lowest levels since January 2004. If we get even a small uptick in sales, it will go a long toward reducing the inventory.

Retailers were weak on concerns that poor weather would further hurt sales—and companies like Jones Apparel were down 20 percent on debt concerns and exposure to department stores. The Int'l Council of Shopping Centers cut its Dec retail sales comp estimate to down 1% "or possibly more" from flat to up 1% last week.

However, they did note that "a third of consumers reported buying more holiday gifts in the form of merchandise rather than gift cards this year due to the hefty pre-Christmas discounts."

Sign of the times: Starbucks says they will not be guaranteeing matching employee contributions in 2009. They join Motorola and Kodak and FedEx (all suspending 401(k) contributions). This means less investments in the markets, since many do those investments specifically because they view the match as "free money."

    • American Express Gets $3.39 Billion in Bailout Money

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 23 Dec 2008 | 9:14 AM ET

REITs Continue To Be Battered

Posted By: Bob Pisani

Stocks in Shanghai were down 4.5 percent overnight as investors seemed disappointed about the rate cuts announced yesterday by the People's Bank of China (they cut their benchmark lending rate by 27 basis points to 5.31 percent and also cut its reserve requirement).


1) Industrial REIT ProLogis up 12 percent, said it was selling its China operations and a 20 percent interest in its Japan property funds to GIC real estate for $1.3 billion. They will use the proceeds to reduce debt. Like many REITs, ProLogis has been looking to reduced leverage, including buying back debt. REITS have been battered as they have had a hard time refunding debt coming due.

2) Swiss bank UBS up about 8 percent as they confirmed they received a $1.8 billion loan from a consortium of Swiss mortgage institutions.

3) Nortel up 7 percent as they have reportedly received three offers worth nearly $1 billion for their Metro Ethernet unit. The company has been considering selling several divisions.

4) The VIX (Volatility Index) closed yesterday at the lowest levels since late September. However, traders tell me that VIX futures for January and February remain high, indicating traders are anticipating that volatility could return in the coming months.

5) We will get new and existing home sales for November this morning; unfortunately the inventory-to-sales ratio for October new homes remained stubbornly high, at about 11 months supply.

6) Interesting story in FT this morning about how unprepared the mortgage business is for...more business. Lower rates in the past weeks have resulted in a tidal wave of refi applications. Only problem is the industry laid off tens of thousands of loan officers when business fell off a cliff earlier in the year.

    • Economy Shrank 0.5% as Businesses Cut Spending

- The Dow 30 at a Glance

CNBC's Names in the News:




Questions? Comments? tradertalk@cnbc.com

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  Monday, 22 Dec 2008 | 4:23 PM ET

We Have A Trading Range, For Now

Posted By: Bob Pisani

Drifting lower on light volume: is this what the first quarter of 2009 will look like? Stocks moved lower today, with declines accelerating midday, but a rebound in the last half hour limited the losses.

GM was down 21 percent on concern the equity may be worthless.

Many retailers were down 4 to 7 percent as the lousy weather added to the poor sales concerns. Commodity stocks were weaker on concerns about slower global demand; midday Moody's said it was placing Alcoa's debt rating under review for a possible downgrade. Insurance stocks like MetLife saw declines of greater than 10 percent; Friedman Billings cut its rating on Prudential in light of the recent (modest) rally.

Other financials like Goldman , Wells Fargo and KeyCorp were down 6 to 7 percent.

Bottom line: for the moment, we are in a trading range. The S&P 500 has spent 75 percent of its time between 825 and 900 for the past three months.

    • Suspicion Falls on Funds-of-Funds in Wake of Madoff

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Monday, 22 Dec 2008 | 3:12 PM ET

No Real Buyers And Sellers Around

Posted By: Bob Pisani

You see what's happening today? Drifting lower, on no volume, with no one particularly caring? The worry is that this could like a lot like the first part of next year, when days of heavy volume (thanks to post-Madoff redemptions) are punctuated by days where little buying and selling occurs.

Technicians are tempted to dismiss days like today, where you have slow, downside moves, because the volume is practically nonexistent. There are no real buyers or sellers around.

Meantime, we are breaking the modest uptrend that began with the market bottom on November 20th. If you're looking for signs of a real bottom, don't strain yourself: it just isn't there.


1) According to TrimTabs, there has been an 11 percent decline in payroll withholding during the first 2 weeks of December, an unprecedented decline. Why is that important? Because December and January are two of the biggest months for income--it's the month many bonuses are given out, and the months we see strong seasonal hiring. It appears neither of these are materializing.

2) Market bottoms are usually associated with pickups in insider buying and buybacks, but it's not happening yet: Announced buybacks declined 90 percent this month, while insider buying declined in November to the lowest level in years.

3) While volatility as measured by the spot VIX has been declining, VIX futures for forward months remain high, indicating that traders are betting on volatility returning in the coming months.

Meantime, a common occurrence, withdrawing of guidance: Manpower withdrew guidance, citing continuing declines in global termporary-staffing demands Visteon withdrew its 2008 guidance on bigger than expected declines in global vehicle construction.

- The Dow 30 at a Glance

Questions? Comments? tradertalk@cnbc.com

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  Monday, 22 Dec 2008 | 9:21 AM ET

Stock Volatility Gone Or Just Taking A Holiday?

Posted By: Bob Pisani

We have been seeing volatility and volumes decline for the past two weeks. Whether this is due to the Christmas slowdown or to a genuine belief that stock volatility will be moving down in the coming months is hotly debated. More on this later.

Futures came off their lows as the People's Bank of China cut its benchmarklending rate by 27 basis points to 5.31 percent and also cut its reserve requirement.


1) Toyota lowered their fiscal year (which ends in March) operating profit guidance from a 600 billion Yen profit to a 150 billion Yen loss, well below anyone's forecast. This is only the second yearly loss since the company was founded in the 1930s, so it is getting a lot of play on the Street. Lower sales are the main issue: they cut their 2009 shipment guidance to 7.54 million units from 8.24 million.

2) GM trading down about 7 percent as Credit Suisse said what everyone on the Street already knows: that once the final deals are reached with the government it is likely the equity in GM is zero or near-zero.

3) Walgreens down 6 percent asit reported earnings below expectationsand like many retailers said it would reduce its store openings in 2009.

4) Food service company Sysco, noting that "market conditions have become progressively more difficult in recent weeks," said it expects sales to be flat to slightly negative for the quarter compared to the same period last year.

- 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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