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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Wednesday, 31 Dec 2008 | 12:21 PM ET

Santa Rally Can't Undo S&P's '1931' Slide

Posted By: Bob Pisani

Bob Pisani is out today. CNBC Producer Robert Hum wrote this blog.

Who said there’s no Santa Claus? The markets appear to be showing a bit of a Santa rally so far this year. Since the close on Dec. 23, the S&P 500 has rallied 3.5%. According to the Stock Trader’s Almanac, since 1950, the S&P has averaged a 1.5% gain during the last 5 days of December and first 2 days of January. However, despite this year’s Santa Claus rally, the S&P is still down 39%, its worst decline since 1931.

The markets have opened slightly higher on their final day of trading this year. Industrials, techs and retailers lead the way, while some of the big financials are showing some early weakness.

Weekly jobless claims fell 94,000 — much more than expected, but many attribute the steep drop to seasonal factors. Despite the decline in claims, its current level of 492,000 is 45% higher than it was at the same time last year. Continuing claims also rose to 4.51 million, its highest level since 1982.

In other news:

The Wall Street Journal reports that the Netherlands-based chemical maker LyondellBasell is weighing bankruptcy options.

Last year, Basell acquired Lyondell Chemical for $12.7 billion, a 20% premium, creating a large debt burden for the new company. Furthermore, as with many other chemical companies in the past year, LyondellBasell was plagued by high raw material costs as commodity prices peaked earlier this summer, and is now faced with slumping demand in sales during the current economic downturn.

Trading up 20%, Puget Energy is the NYSE’s biggest gainer today. The Washington State electricity provider received approval from state regulators to be sold to an investor group led by Australian bank Macquarie. The deal, which was announced back in October, has a price tag of $7.4 billion or $30 per share.

Yesterday after the close, the Fed confirmed that it would begin purchasing mortgage-backed securities backed by Freddie Mac , Fannie Mae , and Ginnie Mae beginning early next month. As it announced last month, the Fed intends to buy $500 billion dollars in mortgage-backed securities by the middle of 2009 to help lower mortgage rates and increase lending.

CNBC's Names in the News:


General Motors




Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 30 Dec 2008 | 6:00 PM ET

Market Gave Us Good News Today

Posted By: Bob Pisani

Another light volume, low volatility day, closing near the highs. Good news, considering that the consumer confidence and home price news was dismal.

Goldman Sachs had a particularly good day, up almost 6 percent, though on light volume.

GMAC was the big story of the day: as a result of a successful debt for equity swap and an infusion from the Treasury Department, the probability of insolvency has been greatly diminished.

The is big for GM : GMAC is involved in financing about 35 percent of all GM cars sold.

GMAC immediately announced it was resuming auto financing for a broader spectrum of customers, and GM immediately said they were offering new financing programs, which includes 0% financing for five years.

The GMAC publicly traded 7.25 percent note rose 21 percent, and now yields 16.5 percent. That's high, but it's half the yield of just a few days ago.

2008: No one got out alive. You know it's a bad year when the best performer among major country indices is Mexico, which was down 24 percent.

But that's the way it was. While the U.S. was down about 40 percent on the year, other countries with heavier exposure to commodities (like Russia, down 73 percent) were hurt much more. Emerging market countries like China (down 65 percent) also saw notable drops.

Here's the grim statistics for 2008. All stats are percentage declines.

North & Latin American Indices
Argentina -49
Brazil -41
U.S. -40
Canada -35
Mexico -24

European Indices
Russia -73
Netherlands -53
France -43
Germany 40
U.K. -32

Asian Indices
China -65
Hong Kong -49
Australia -44
Japan -42
South Korea -41

Best-Performing Dow Components (only 2 positive on year!)
Wal-Mart +15
McDonald's +4
Johnson & Johnson -12
Home Depot -16
ExxonMobil -16

Worst-Performing Dow Components
General Motors -85
Citigroup -77
Alcoa -71
Bank of America -69
American Express -66


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 30 Dec 2008 | 3:32 PM ET

GMAC: 1st Small Victory in Overall Lending Story

Posted By: Bob Pisani

Has GMAC turned the corner? This is a big day for GMAC and a big day for the automotive industry. Consider:

1) GMAC has successfully completed a complicated debt for equity swap. The company has increased its capital, and lowered its debt, thus greatly reducing the risk of insolvency.

2) The government has given them $5 billion under the TARP program, and an additional $1 billion to GM so they can participate in a rights offering to support GMAC's reorganization as a bank holding company.

3) GMAC will soon be 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.

As a result:

1) GMAC immediately announced it was resuming auto financing for a broader spectrum of customers.

2) GM immediately said they were offering new financing programs, which includes 0% financing for five years.

Nobody's expecting miracles, and we already know December's car sales will be dismal. Goldman expects GM's to be down 42 percent, Ford down 31 pecent, Chrysler down 45 percent.

But the market will be looking past this toward the new low-cost loans the company will be offering. Mark Laneve, GM's VP of sales, was just on our air saying the program would have a positive effect on sales.

This is another piece in the giant puzzle of how to jumpstart lending.


What's up with oil? Demand is trumping supply. Those of you wondering why oil keeps sinking despite new geopolitical tensions in the Mideast should bear in mind that not much oil goes through Gaza.

Most energy traders I have spoken with remain bearish on energy fundamentals: for the moment, crude oil has no reason to go up. They note that demand continues to drop, so events on the supply side (OPEC cuts, Middle East problems) have little effect on prices.

Questions? Comments? tradertalk@cnbc.com

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  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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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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