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Market Insider with Patti Domm Trader Talk with Bob Pisani

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  Friday, 28 Nov 2008 | 9:35 AM ET

Electronic Firms Show Downturn In Consumer Spending

Posted By: Bob Pisani

Bob Pisani has the day off. This post is from CNBC producer Robert Hum:

Coming off the heels of the Dow’s best 4-day winning streak since 1932, stock futures point to a slightly lower open today as European markets are off about 1% today. With only a half-day of trading today, volume in U.S. equity markets is expected to be light following the Thanksgiving holiday.

All eyes will be on the retailers today, as stores hope that consumers will line up for Black Friday bargains despite the current economic gloom. The weaker economic conditions continue to bring down corporate Q4 and full-year forecasts.

Panasonic drastically slashed its full-year profit outlook, which was hurt by the economic crisis and a stronger yen. The company expects 2008 profits to come in at 30 billion yen, compared to 310 billion yen it had expected earlier. This is the second time in two months that the company has lowered its full-year guidance. Last month it had projected it would earn 560 billion yen on the year. Electronic companies like Panasonic and Sony have been hit hard by slowing consumer demand for electronics. Additionally, since a high percentage of their goods are exported out of Japan, the strengthening of the yen over the past few months has put pressure on their bottom line, as profits are repatriated from dollars to yen. In the past 3 months alone, the yen has strengthened 15% vs. the U.S. dollar.

STMicroelectronics lowered its Q4 revenue guidance to $2.2 billion-$2.35 billion, below expectations of $2.6 billion. Just last week, the company’s CEO reaffirmed the company’s revenue outlook, but today’s revised guidance now reflects growing weakness in December demand from the wireless, automotive and technology industries.

In other news:

Chesapeake Energy is down 15% pre-open following the company’s announcement that it may raise capital via a $2 billion stock offering.

Investor Carl Icahn boosted his Yahoo! stake by 6.8 million shares to 75.6 million shares. His additional shares, which were purchased at an average price of $9.88, bring his Yahoo! stake up to nearly 5.5%.

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  Wednesday, 26 Nov 2008 | 4:10 PM ET

We've Had The Rally, What About That Bottom? Please...

Posted By: Bob Pisani

Traders were slobbering all day about an imminent asset allocation program (out of cash, into stocks), part of the collective wish for that most elusive of 2008 creatures...a Bear Market Rally. And we did indeed end on the highs for the day.

Traders are insisting we are primed for a nice move of, oh, 20 percent or so from the bottom. Never mind the reasons (I detailed a few in my last note ).

Uh, sorry guys, you missed it. The S&P 500 has rallied 20 percent since the bottom on Friday. The last time we were up four days in a row...was April.

Is that it? I'm not sure. Is this the bottom? Please. What we know for sure is that bottoms have been confidently declared this year in January, March, July, September, October, and now November. See a pattern?

Better to be skeptical, particularly since companies like Tiffany passed on the opportunity to even provide preliminary earnings guidance for 2009.

On lower mortgage rates. Good news! But we need more. We have:

1) lower mortgage rates (they need to go lower)

2) lower home prices (need to go lower too)

Now several analysts note we need:

1) consumer confidence improvement

2) help with down payment

Can you smell another government program?

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  Wednesday, 26 Nov 2008 | 3:08 PM ET

Getting Primed For Bear Market Rally

Posted By: Bob Pisani

Asset allocation into stocks: that's what traders want for Thanksgiving...and a few days after.

The Dow is up 7 percent this week, 16 percent from Friday's lows, and up today on some of the worst economic news we have seen in this dismal year...and you can just smell it: the market is getting primed for a Bear Market Rally.

Boy, are traders ready for this one. Everyone--even the bears--think a rally of up to 20 percent is likely before the end of the year.

Everyone thinks, we deserve a rally. We are ridiculously oversold. Hell, there's good fundamental reasons we should rally: gas is half the price it was a few months ago....mortgage rates are coming down....the government is backstopping everything.

Problem is, almost no one believes this is the bottom. Because 2009 is a black hole. That's why bears are laughing at this Bear Market Rally talk.

Bears agree on the rally, but not on the follow-up. Here's what they say:

1) there will be a rally

2) you will get sucked in

3) you will get crushed

4) in 2009, you will work in a taco stand.

I was out last night with one of my best hedge fund sources. He says to me, "Are all your sources as clueless as mine have become?"

Uh, on 2009, the answer is mostly yes, they are clueless. My friend is in the camp--which is currently in vogue--that 2010 earnings will be LOWER than 2009 earnings. Most of these guys are at $60 earnings for the S&P 500 next year, and 2010 could come in at $50 to $60.

This camp believes there is no hurry to buy stocks, because the market will again move down early next year, and may not bottom until October 2009.

Meantime, note the absurd percentage moves in big names since Friday's bottom: Citi up 135 percent...GM up 183 percent...Home Depot up 34 percent...JP Morgan up 54 percent...Alcoa up 42 percent....GE (our parent) up 26 percent.

You can go your whole career and not see percentage moves like that in a year, let alone half a week.

    • How Will Bernanke Fit Into Obama's Economic Plans?
    • Volcker to Head New Panel To Jump-Start US Economy

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  Wednesday, 26 Nov 2008 | 12:07 PM ET

Chrysler Spreading Word of Its Turnaround Plan?

Posted By: Bob Pisani

Midday, the Dow has moved over 200 points from its high to its how, despite:

1) Horrendous economic news (durable goods, new home sales coming in at the lowest levels since 1991),

2) Poor earnings commentary from Deere and Tiffany (Tiffany flat-out declined to provide 2009 earnings estimates).

There are a couple offsetting factors:

a) Home builders are putting in a second strong day...why, if new home sales were so poor? Because though sales were poor, construction has been dropping even more, so the inventory of unsold homes is down dramatically...if fact it is at the lowest levels since June 2004.

b) Two big financials have successfully floated large bond offerings. Morgan Stanley has followed Goldman Sachs by pricing $5.25 billion in 2- and 3-year bonds, as has JP Morgan , which also priced $5.5 billion in bonds. Both offerings are backed with the explicit guarantee of the U.S. government under the Temporary Liquidity Guarantee program.

c) Autos and auto parts makers are trading up on word from Chrysler that they are readying detailed proposals for a "viable" turnaround plan to be presented to Congress next week.

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  Wednesday, 26 Nov 2008 | 9:39 AM ET

Earnings For 2009 Nearly Impossible To Figure

Posted By: Bob Pisani

Futures bounced off the lows on a simply awful durable goods number (down 6.2 percent, estimates were for declines of 2.5 percent).

Mortgage rates are indeed dropping in response to the new Treasury plan to buy mortgage backed securities; many report indicate 30 year fixed rate mortgages dropped about 40 basis points in the last 24 hours, below 6 percent.

On Monday, BHP Billiton called off the Rio Tinto deal. Today, it looks like another big deal--the $42 billion takeover of BCE (the Bell Canada parent) by a consortium led by Providence Equity Partners and Ontario Teachers' Pension Plan, may not happen because KPMG apparently will not deliver a solvency opinion, which is required to close the merger. In other words, the whole deal has too much leveraged debt.

Finally, the bottoms-up analysts are starting to cut fourth quarter 2008 and 2009 numbers. Today Oppenheimer cut estimates on industrials, and JP Morgan cut estimates on railroad and trucking stocks.

    • Durable Goods Orders Shrink Dramatically

Duh. The glacial speed the analysts have been moving has been nothing short of scandalous. Top-down strategists (guys who do estimates of earnings based on macroeconomic factors) have 2009 estimates for the S&P 500 as low as $60, but the bottoms-up analysts (the guys who just cover individual companies or industries), still collectively have earnings estimates for the S&P around $80. $80 vs. $60: somebody is terribly wrong. Guess who. Fortunately, the stock market is not waiting for their opinions.

How tough is it to figure out 2009 earnings? Just about impossible. Look at Deere . CEO Robert Lane said, "the outlook for the year ahead is highly uncertain and its impact on John Deere's operations is difficult to assess." Deere down 10 percent pre-open; earnings were below expectations. 2009 net income guidance of $1.9 billion is below analyst estimates of $2.3 billion. Agricultural equipment sales are expected to grow 5 percent next year, that is below most expectations.

Tiffany down 7 percent, reported earnings above expectations, but North American comp store sales were down 16 percent (even the New York flagship saw sales down 5 percent year-over-year). November sales "softened" even further. 2008 full year guidance of $2.30-$2.50 is below expectations of $2.58, but it was widely anticipated they would lower earnings. No guidance for 2009.

    • Lower US Mortgage Rates Lift Application Demand

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CNBC's Names in the News:

Company/ticker No. 1

Company/ticker No. 2

_______________________________________


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  Tuesday, 25 Nov 2008 | 4:30 PM ET

Home Builders "Stars" Of The Day On Street

Posted By: Bob Pisani

The major indices closed with the first 3-day win streak since September 10-12. While commodity stocks and financials led, and tech stocks lagged, the real star of the day was the home builders, several of which increased 20 percent or more.

That's because the new program announced by the Fed to buy Mortgage-Backed Securities appears to have accomplished its goal: lower mortgage rates.

I spoke to one large mortgage broker in Philadelphia this afternoon, who said they were now quoting 30-year fixed rate mortgages at 5.5 percent, a drop of a half-point from yesterday's 6.0 percent. That is a big drop.

This office told me they had closed 100 loans today (a much larger number than any time recently); much of it was refinancings.

Many consumer stocks like Lowe's , Target , and Whirlpool were up today as Treasury also announced a separate Term Asset-Backed Loan Facility (TALF) that will buy pools of car loans, personal loans, and student loans.

Finally, Goldman Sachs ended up almost 7 percent as its $5 billion bond offering was a big success. Why? Because it had the explicit backing of the U.S. government!

Goldman became the first firm to tap the FDIC's Temporary Liquidity Guarantee Program, which guarantees senior unsecured debt. That has enabled Goldman to offer the bonds at 3.25 percent, well below the yield they would have had to offer had there been no explicit government guarantee. JP Morgan and Morgan Stanley will follow up with similar offers.

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  Tuesday, 25 Nov 2008 | 3:10 PM ET

Traders "Giddy" Over Mortgage Moves

Posted By: Bob Pisani

Never mind that the markets are showing little enthusiasm for continuing the 1,000 point rally in the Dow we saw on Monday and Tuesday.

What's important is that traders are seriously discussing whether Treasury has finally found a program that will make a difference. Some traders seem absolutely giddy about the Treasury's plan to buy $100 billion of Fannie/Freddie debt and $500 billion of mortgage backed securities.

Why the excitement? Because there is already a tangible effect in the mortgage markets. It's likely mortgage rates will drop notably in the next day or so, perhaps as much as 50 basis points (a half point). That would mean mortgage rates would go from, roughly, 6.0 percent to 5.5-5.6 percent. That is a lot.

Remember that housing is the original source of many of our problems. To date, lower home prices have not led to an uptick in home sales. Now, with mortgage rates coming down, the housing affordability equation gets even more favorable. This, along with the attendant publicity lower rates will receive, may begin to get home sales up. Home builders are rallying today.

Separately, there is also hope that the new Term Asset-Backed Loan Facility (TALF) will be a big help to consumers and the companies that service them. This program provides up to $200 b of non-recourse loans to holders of asset backed securities. These are the people that securitize car loans, personal loans, student loans.

This will be a big help to the credit card companies like AmEx and Capital One . It should also help auto loan companies like AmeriCredit and companies that give small business loans like CIT .

There is a risk here: the Treasury is printing dollars big-time, and the credit-worthiness of the U.S. government will certainly be tested in 2009. But that is a risk, obviously, that Treasury has decided to take.

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  Tuesday, 25 Nov 2008 | 9:09 AM ET

Fed Moves Should Extend Rally

Posted By: Bob Pisani

Mr. Paulson will be the key today, as he is expected to open the TARP to car, credit card and student loans, and heaven knows what else. More importantly, a separate facility will buy mortgage-backed securities. Bottom line is money will come out of Treasuries and into riskier assets.

Futures rallied because the hope is that the buying of mortgage-backed securities will unclog the MBS market and result in lower interest rates. There's some evidence that might happen, as the coupons on 30-year MBS are indeed down about 30 basis points this morning.

What about the stock market? The general feeling last night was that there was no need to be a hero after a 1,000 point rally in the Dow. However, the buying of mortgage-backed securities may be an additional impetus for the rally to continue.

    • Fed Unveils Plan to Support Mortgages, Consumer Credit

Elsewhere:

1) What am I missing here? Goldman is upping its plan bond offering to $5 billion. Goldman became the first firm to tap the FDIC's Temporary Liquidity Guarantee Program, which guarantees senior unsecured debt. It will be offered at 220 basis points over comparable 3-year Treasuries, which would put the yield at roughly 3.6 percent.

But wait a minute: many of the Goldman (non-government backed) preferreds are trading at nearly 9 percent yields. Apparently, government backing is worth an awful lot in this environment.

JP Morgan just announced they will also be tapping the new program as well. Goldman up 7 percent pre-open. Other financials also up about 6 percent: JP Morgan, Citi, UBS.

2) Another bid bites the dust. BHP Billiton gave up its $66 billion all-stock bid for Rio Tinto , a project on which untold man-hours and oceans of analysis had been expended in the nine months since a bid was made. BHP cited the continued deterioration of near-term economic conditions. BHP said they did not want to take on the greater debt levels of the combined group, and did not want to expend the time to divest assets, which would have surely been required. BHP up 16 percent, Riodown 33 percent.

3) Still no sign of improvement in housing. DR Horton , the largest homebuilder in the U.S., reported that for the fourth quarter ended September 30, the cancellation rate was 47 percent (as bad as it has been all year).

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_______________________________________
CNBC's Names in the News:

BHP

DR Horton

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  Monday, 24 Nov 2008 | 4:25 PM ET

Volatility Still Rule Of Thumb For Markets

Posted By: Bob Pisani

We were reminded again that we are not guaranteed gains. Yes, there was a broad rally, financials leading. It was the first two-day rally this month. Commodities rallied as well, as did commodity stocks.

But the Dow, which was up as much as 552 points with 15 minutes to go, dropped 150 points in the last few minutes. Still up, but a reminder of the volatility. Is Citi the template for big banks? AIG had to be renegotiated, the TARP is being used for purposes that were not advertised.

The question today is, with the new Citigroup bailout, has the Fed finally found a template for dealing with losses at the big banks? Can it afford the template?

The government plan for Citi has six components:

1) Wall off assets;

2) Make the institution absorb the initial losses;

3) Then let the government absorb the bulk of the losses (in this case, the government backstops 90 percent of the $306 billion);

4) Make the institution sell senior preferred shares at some percentage of the size of the troubled assets;

5) Cap the common dividend at a nominal amount ($0.01 per quarter);

6) Give government input into executive compensation.

The hope of the bulls is that this is the successful template, and that we have seen the last of the big bank failures (Wachovia, Washington Mutual, Bear Stearns, Lehman Brothers, AIG and IndyMac) this year.

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  Monday, 24 Nov 2008 | 1:12 PM ET

Markets To Obama: Where's The Tax Cut?

Posted By: Bob Pisani

Some traders disappointed in Obama speech, but don't kid yourself. While Obama said a net tax cut is "part and parcel of what is needed for stimulus," he also said he was weighing whether to let the Bush tax cuts expire.

The markets may have been a bit disappointed with this; they want the President-elect to unequivocally state there will be a tax cut.

But don't kid yourself; selling into rallies, particularly selling into news events, has been a successful strategy this year, almost regardless of what is said.

The S&P 500 rallied about 11 percent from its close Thursday to its high today, which came just as the President-elect approached the podium.

In other words, they were selling the news even before he got to the Q and A.

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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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