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Market Insider with Patti Domm Trader Talk with Bob Pisani

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  Thursday, 13 Nov 2008 | 9:31 AM ET

Wal-Mart, Intel And Their Bleak Forecasts

Posted By: Bob Pisani

This post is from CNBC producer Robert Hum:

S&P futures are flat, but they have gyrated in a 20-point range this morning. Up about 10 points early in the session, futures moved nearly 20 points lower, before bouncing off those lows following Wal-Mart’s earnings beat.

However, futures have once again have given up some of those gains, as they try to find direction this morning. Both the Dow Industrials & S&P 500 are within striking distance of their multi-year closing lows set on October 27. The Nasdaq Composite closed at a new low yesterday.

Wal-Mart’s Q3 earnings of $0.77 per share slightly exceeded the analysts’ estimate of $0.76, as sales grew 7.5% from a year ago. However, the company cut its full-year guidance due to the strengthening dollar. The dollar—as reflected by the U.S. Dollar Index—has risen 22% since its July low, hurting the repatriation of overseas profits for U.S firms with large multinational operations. The company estimates that dollar appreciation will hurt its Q4 EPS by $0.06. Preliminary Q4 guidance of $1.03-$1.07 falls below the analysts’ estimate of $1.11.

Fellow Dow component Intel also issued a bleak forecast, sending its shares down 5% pre-open. The company dramatically slashed its Q4 revenue guidance to a range of $8.7 billion-$9.3 billion from previous guidance of $10.1 billion-$10.9 billion amid “significantly weaker than expected demand.” This new guidance falls far below the analysts’ estimate of $10.4 billion. Additionally, the company expects its gross margin to be around 55%, down from its prior expectation of 59%. The company’s stock may open near a 12-year low.

    • Intel's "Dramatic" Warning—Was It Really A Surprise?

Similarly, National Semiconductor cut its sales outlook for its current quarter on declining orders. For Q2, the company expects revenues of $420 million-$425 million, down from its prior guidance of $470 million-$480 million. Analysts are expecting Q2 revenues of $461 million. The company also announced it will cut 5% of its workforce.

In other news:

Weekly jobless claims rose higher than expected to 516,000; its highest level since 2001. Three-Month U.S. Dollar Libor rose for the first time today in over a month. The rate rose to 2.14875% from 2.1325% yesterday, but still significantly off its 2.81875% high on October 10.

MBA mortgage applications rose 11.9% last week as mortgage rates fell. The 30-year fixed rate fell too 6.24% from 6.47% last week.

    • New Jobless Claims Pass 500,000 to 7-Year High

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

Intel

Wal-Mart

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Questions? Comments? tradertalk@cnbc.com

»Read more
  Wednesday, 12 Nov 2008 | 4:07 PM ET

New Lows? We've Found Them

Posted By: Bob Pisani

Well, the "we will test the lows" question has been answered. We are again near a 90 percent downside day, where 90 percent of the volume was on the downside. New lows on the NYSE expended to the highest level in several weeks, though far below the spikes we saw in October.

The NASDAQ broke the old closing low of 1505.90. We did not break the old closing low of 848.92 on the S&P set on October 27th, but we are very close. Let's not quibble.

Financials again led the market lower. The consensus is that banks will continue to need more capital, and many feel that a new round of dividend cutting is coming. One-third of the financials in the S&P 500 (28 out of 84 companies) have already cut their dividend this year, eliminating $30.8 billion in dividends.

Yesterday an Italian bank, Intesa, dropped 17 percent after reporting poor earnings and they they would not be paying a dividend for the rest of the year.

The lesson there is that many still own bank stocks for their dividend.

Many financials hit new lows, including Citigroup ,American Express , Goldman Sachs , and Bank of America .

There was considerable debate about the G-20 meeting this weekend. Curiously several large European countries have no bank recapitalization program (France, Spain, Italy, and Ireland); many feel they will enact programs soon.

The other source of weakness was commodity stocks, with new lows in AK Steel, US Steel, International Paper, and others.

Retailers new lows: Abercrombie , Tiffany ,Limited ,Liz Claiborne ,Nordstrom ,Macy's .

Finally, even good news can't seem to help our parent company, General Electric. GE Capital announced they now had access to the FDIC's temporary liquidity guarantee program. Under the program, the U.S. Government will guarantee all GE Capital debt issued from the date they became eligible for the program until June 30, 2009. But GE still ended down about 8 percent.

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- The Dow 30 at a Glance


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  Wednesday, 12 Nov 2008 | 2:04 PM ET

Paulson's Effect On Markets

Posted By: Bob Pisani

The market has moved lower at Citigroup has broken below $10. Traders obviously felt it was safe to short the market ahead of Mr. Paulson's speech; the most important question now is whether they feel equally confident to short ahead of the G-20 meeting this weekend.

Bulls note this is part of the continuing process of increasing international cooperation. Bears insist nothing substantive will come out of the meeting, and even if broad principles are agreed upon it will not affect the downward trend of the markets.

If the standard pattern of the last few weeks hold, we are due for a modest rally. But the conviction is not high. Mr. Paulson's speech did advance our understanding of the TARP plan and made it clear what his priorities would be for the remaining two months of the Bush administration:

1) keep building capital;

2) help consumers get access to credit by finding a way to back up the asset-backed securities market, and

3) support mortgage modification.

Unfortunately, it raised many questions, including:

1) what will happen to the rest of the TARP money, since he made it clear before embarking on a second capital purchase program, the first one would need to be evaluated, and

2) how to have a facility to back up the asset-backed credit market when this market is regulated by the states.

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New from CNBC.com:

- The Dow 30 at a Glance

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  Wednesday, 12 Nov 2008 | 10:40 AM ET

Regulators To Banks: Do What We Say Or Else

Posted By: Bob Pisani

Regulators tell banks: do what we say, or else. If there is any doubt that the federal government has taken over (nationalized, socialized) the nation's banking system, consider these headlines from a joint statement this morning from the FDIC, the Fed, and the Treasury.

The regulators:

1) urge banks to make "economically viable & appropriate" loans

2) warn banks not to tighten lending standards too much

3) urge banks to strengthen capital positions

4) warn banks they will take action if dividend policy is inappropriate

5) press banks to modify mortgages

"Urge," "warn," and "press." They are not asking, they are telling, and it's clear they will exercise their power if the banks do not obey.

    • Regulators Pushing Banks To Step Up Their Lending

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- The Dow 30 at a Glance

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  Wednesday, 12 Nov 2008 | 9:09 AM ET

How Will Rest Of TARP Be Used?

Posted By: Bob Pisani

The joke on the Street this morning is that Starbucks wants to be part of the TARP—that Peolosi and company thinks everyone needs a $5 latte in this economy.

We should find out what the rest of the TARP will be used for this morning, when Treasury Secretary Paulson speaks. Assumption is he will finally give a clearer outline of what the remainder of the money will be used for.

GM is up 10 percent this morning because everyone believes that they will get some kind of aid, but from the looks of things the insurance industry may beat them to the punch. Genworth has gone from $25 in May to $1.24 yesterday. It's up almost 10 percent this morning for the same reason.

The Bank of England indicated that because inflation may drop below 2 percent in 2009, they could cut rates again; the pound is weaker.

Elsewhere:

1) Best Buy down 12 percent pre-open, lowering fiscal 2009 guidance, to $2.30-$2.90 from $3.25-$3.40. This is not only lower, it is a much wider range to reflect the uncertainty. Comp store sales declined 7.6 percent in October. Comp store sales for the four months remaining in fiscal 2009 (November-February) are expected to decline 5 to 15 percent. Again, this is a very wide range.

The commentary reads like an excerpt from the Book of Revelations: "Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we've ever seen," CEO Brad Anderson said. They are working to adjust inventory levels (read: they're not buying as many TVs, camcorders, etc.)

2) Macys trading up 5 percent pre-open, surprised everyone by beating on earnings for the third quarter ending in October; however if sales trends continue into the fourth quarter earnings will be at the low end of guidance. That is not as bad as some feared.

3) Commodity stocks again weak today.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 11 Nov 2008 | 4:35 PM ET

Market's Dilemma And What Obama Should Do

Posted By: Bob Pisani

Houston, we have a problem. Stocks cannot rally on good news. This is not a good sign for those who are over the global economic crisis and want to get on with their lives.

The Dow rallied over 250 points around the two o'clock hour, then sold right into it. It rallied back a bit in the last 15 minutes. This, despite several pieces of good news in the last two days:

--Fannie Mae & Citi announce mortgage forbearance.

--China stimulus package.

--Libor keeps dropping.

Finally, with the government backstopping everything, one would think the risk is a little less than it was a month ago. Yet here we are, testing the October lows!

What's up? Yes, there are a lot of redemptions, but don't kid yourself. If anyone smelled an imminent, sustainable rally, there would be a lot of money around. Fast.

They don't. That's the problem. The smart money things thinks stocks will not rally significantly until the end of next year. They are in no hurry, because they don’t believe this is the final lows. Therefore they can sell every rally for a while.

Where is money going? A lot of traders seem to be looking to buy high-grade bank loans. Think about it: some are yielding 15 percent, trading at 60 cents on the dollar. Do the math! Twenty-five percent returns! Problem is, no one can buy them because they have to pay cash and the securities are not liquid.

The dilemma for stocks was addressed last night by Nouriel Roubini, the Professor of Economics at the Stern School of Business, and now well-known for his dire predictions about the consequences of excess debt (much of which has come true).

He spoke at a very well-attended BTIG gathering last night, for nearly an hour. I asked Professor Roubini whether the Obama team had contacted him and asked for his advice, and what he felt needed to be done. He said the Obama team had not contacted him, though he had spoken with several members of the team over time, but there were three important steps that were needed:

1) fix the financial system;

2) enact additional stimulus programs, initially $300 to $400 billion, largely in infrastructure programs; and

3) reduce the debt burdens on households.

Importantly, that is exactly what Fannie Mae and Freddie Mac did today: announced plans to reduce the debt burden on households.

He noted that the stock market was in confusion because of the inability to make a concrete prediction about where 2009 earnings would settle out, and indeed the inability to determine what P/E ratio should be appropriate in this environment.

He noted that estimates for 2009 earnings in the S&P 500 had gone from roughly $95 to as low as $60. Price/earnings ratios have been equally confused, with some believing a 10 multiple appropriate, others 12 or higher.

What this means is that estimates on the S&P 500 can come in as low as 600 (!) to 800 or a bit higher. The S&P is currently about 900.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 11 Nov 2008 | 3:38 PM ET

Fannie Mae Gives A Boost (Somewhat) To Stocks

Posted By: Bob Pisani

Stocks rallied (though they are now off their highs), largely on the Fannie Mae announcement on mortgage forbearance. Though it was leaked a few hours ago, it was only known that an announcement would be made today shortly before the 2 PM conference.

The plan would help borrowers who are 90 days or more behind on their mortgage. Payments may not exceed 38% of monthly income. More details will be announced shortly.

What details? We will likely see rate reductions as well as principal forbearance. While this is costly, the thinking is that long-term this will be less costly than allowing homes to go into foreclosure.

Federal Housing Finance Agency Director James Lockhart said the private industry should adopt the same industry standards to modify mortgage loans, but several have already announced mortgage forbearance plans: Citi, JP Morgan, Bank of America .

Interestingly, FDIC head Sheila Bair immediately called it "a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages, particularly those held in private securitization trusts."

She has become quite outspoken recently and is obviously making sure she stays on the offensive.

Surprisingly, they would still allow loans where the principal, interest, taxes and insurance could be as high as 38 percent of gross income. That is still high: traditionally, 30 percent of gross income was the most lenders would allow to go to the monthly housing bill.

This is a sign of how far out of whack mortgage loans became in the last few years.

Finally, a few traders also noted that Blackstone's CEO Stephen Schwartzman also made positive comments at the same time. Speaking at a Merrill Lynch conference, he noted that THEIR private equity portfolio performing pretty well, and that he would be a buyer of distressed real estate.

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New from CNBC.com:

- The Dow 30 at a Glance

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CNBC's Names in the News:

General Motors

Google

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Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 11 Nov 2008 | 9:24 AM ET

AmEx: Why They Became A Bank Holding Company

Posted By: Bob Pisani

Futures are down as Asia and then Europe opened down. Get ready to hear a lot more economic stimulus plans from many governments. The dollar is up, commodities are down roughly 2 percent, and the bond market is closed.

Elsewhere:

1) Sign of the times: American Express' application to become a bank holding company was approved by the Federal Reserve.

What does this mean? Several analysts noted that it means AmExis assuming that the funding difficulties everyone is experiencing will be longer and more protracted than many expected.

By becoming a bank holding company, they are trying to broaden their funding sources, and will gain greater access to capital under the current and any future government-sponsored programs. And they do need capital. In the next six months, AmEx will need $4 billion in net commercial paper and $7 billiion of long-term debt.

Now they can turn to the real issue: stemming the losses coming from their consumer credit card division.

2) Las Vegas Sandsreported earnings below expectations, more importantly several projects are being delayed to preserve capital, and they are about to announce a $2.1 b capital raise. MGM and Las Vegas Sands down 7 percent pre-open.

3) Here is is the type of news we WANT to be seeing. Citigroup is joining JP Morganby offering mortgage refinancings. Reducing consumer debt burdens is a key part of getting the economy going; expect to see more of this in the very near future.

This will have long-term positive effects for a variety of reasons (reduced foreclosures, increased confidence, reworked mortgage terms could be favorable) and while it may not be moving the needle this morning, as time goes on this news has a greater effect that its being given credit for this morning.

4) REITS. Lots of discussion on the Street yesterday about the fallout from the Circuit City bankruptcy, believed to be the latest of several bankruptcies coming. Impact on the REITs was profound, with many mall REITs down ten percent or more.

  • Credit Spreads
  • Pros Say: Currency Trends in Reverse
  • Credit Crunch Timeline
  • It's not just poor fundamentals killing REITs: they are experiencing higher capital costs as well. Interest rates are higher, the underwriting criteria has become much stricter, and loan-to-value ratios are dropping. It means that a lot of companies are going to de-leverage.

    Speaking of funding difficulties: the Yellowstone Club, an exclusive mountain retreat in Montana which boasts former VP Dan Quayle and Bill Gates among its members, filed for bankruptcy Monday because they could not secure new financing.

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    - The Dow 30 at a Glance


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      Monday, 10 Nov 2008 | 2:53 PM ET

    A "Listless" Market: Here's Why

    Posted By: Bob Pisani

    Despite the positive news of a massive stimulus program from China, which initially buoyed commodity stocks, the market is trading in a listless manner.

    We are now in the midst of what one trader called "The Great Boredom," that period where we know the economy is going to slow dramatically, but it is too early to aggressively buy a rebound.

    Positive news on China stimulus, but market listless. This is "The Great Boredom":

    --know the economy slowing

    --but too early to buy a rebound

    Consider:

    1) GMtraded as low as $3.02, the lowest level since the 1940s, as Deutsche Bank slaps a price target of $0 on it;

    2) Goldman Sachs down another 11 percent today to a 5-year low. The thinking on the Street is that the assets on their books are declining in value, and with IPOs, secondaries, and the like practically nonexistent, it is simply extraordinarily difficult for them to make any money in the near future.

    3) Fannie Mae's numbers were awful (loss of $29 b!); they are losing money so fast that they will have to access the TARP program early next year;

    4) Wall Street professionals continue to get stuffed. Two examples:

    a) Investor Carl Icahn reported an 8.9 percent stake in containerboard maker Temple Inlandon October 17th. Not clear when he accumulated the shares, but the stock has gone from the $15-$20 range in the last few months to $5.26 today;

    b) On September 23rd, Warren Buffett invested $5 billion in Goldman preferreds, along with an additional $5 b in warrants at $115. On September 24th, Goldman issued $5 b in common stocks at $123. The stock is $69 today.

    The one positive: the Fed is directly buying assets from AIG, meaning they are starting to segregate the assets rather than let some other manager deal with it. That's a positive.

  • AIG Gets Revised Bailout Of $150 Billion From US
  • Federal Reserve Statement on AIG
  • Lehman, Bear Stearns Survivors May Get Best Bonuses
  • Goldman Sachs Plans to Stay Public, Seek Deposits
  • Treasury Prices Fall Ahead of $55 Billion Auction
  • _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    _______________________________________
    CNBC's Names in the News:

    Apple

    General Motors

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    Questions? Comments? tradertalk@cnbc.com

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      Monday, 10 Nov 2008 | 9:12 AM ET

    GM Rating Target Price: $0

    Posted By: Bob Pisani

    China up 7 percent on the nearly $600 billion stimulus package, Europe has also opened 3 to 4 percent. That is stimulating commodity stocks like BHP Billiton, Rio Tinto,ArcelorMittal, and ABB, all of who are up about 10 percent.

    Elsewhere:

    1) GMdown 10 percent as Deutsche Bank lowered its rating on GM to a Sell, but more interesting is the price target: $0. That's because, like most analysts, Rod Lache has concluded that a government bailout is not likely to help the shares, that even with a bailout GM's future, if it is not in bankruptcy, is likely to be "bankruptcy-like." That means that secured creditors may be made whole, while unsecured creditors will get a very low recovery. Equity shareholders will likely get nothing.

    2) McDonalds up 3 percent pre-open; comp store sales were again stellar. U.S. comparable store sales were up 5.3 percent, 11.5 percent gains in Asia/Pacific, 9.8 percent in Europe.

    3) Circuit Cityhas filed for bankruptcy under Chapter 11 , which will allow it to hold off creditors and operate as normal while it develops a financial reorganization plan. Stock is $0.10 now, it was $0.25 at the close Friday.

    4) AIG is now getting all sorts of loans, including 1) an additional $40 billion purchase of newly issued preferred shares under the TARP program, 2) a modification of the loan the government initially gave to AIG, and 3) two additional lending facilities that will allow the Fed to lend money to AIG. The first lending facility will be secured with mortgage-backed securities as collateral; the second will buy collateralized debt obligations (CDOs) on which AIG has written credit default swaps (CDS).

    _____________________________
    New from CNBC.com:

    - The Dow 30 at a Glance

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    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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