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  Monday, 5 Jan 2009 | 11:12 AM ET

Markets Liking Bigger Stimulus Tax Cuts

Posted By: Bob Pisani

Markets are off their lows on discussion about the fiscal stimulus bill. The stimulus bill will be heavier on tax cuts than expected.

Traders are happy that the package is tilting more toward tax cuts, which the Street believes will bring the biggest bang for the buck (there is also support for infrastructure). The talk is of:

--individual tax credits
--writeoffs for company losses
--tax credits for hiring new people

The numbers are all over the place, but $400-$500 billion of an expected $850 billion program is likely. Poor economic numbers near-term are already anticipated by the market, but what about deeper 2009 cuts to estimates?

Those deeper cuts are not factored in, and we are seeing that today. Today's weak points in the Dow--JP Morgan,Verizon and AT&T--are due to downgrades from Bernstein (for AT&T and Verizon) and--for JP Morgan--lowered numbers for 2009 and 2010 from Mike Mayo at Deutsche Bank.

In the meantime, the economic news flow will be awful, particularly the December sales figures. Consider:

1) Vehicle sales for December (out today) will be awful: Goldman Sachs expects GM's to be down 42 percent, Ford down 31 pecent, Chrysler down 45 percent.

2) Retail comp store sales for December will be out Thursday; bookseller Borders reported this morning that sales during the holiday season fell 11.7 percent.

    • Obama Targets Tax Cuts of More than $300 Billion
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  Monday, 5 Jan 2009 | 10:05 AM ET

Watching Santa Rally's Last Day

Posted By: Bob Pisani

We begin the "real" New Year with stocks at a 6-week high, and the S&P 500 24 percent above its November 20 low. Now let's see if we can change leadership: health care and consumer stocks have generally outperformed in the past few weeks, though recently industrial stocks have improved. A shift toward less defensive names would be a welcome development.

Stock traders believe the best use of the stimulus money would be tax cuts, so traders have cheered reports that the stimulus bill will be heavier on tax cuts than was expected. The dollar is rallying.

Elsewhere:

1) This is the last day of the Santa Claus rally (last five trading days of the old year, first two of the new), and so far it is a big success. The S&P 500 has rallied 8 percent in that period, well above the 1.4 percent average rally. So far, it is the best Santa Claus rally since 1974, when the S&P rallied 7.4 percent.

2) Walgreen December same store sales up 4.9 percent, an impressive number. However, the big gains appear to have come from pharmacy same-store sales, which were up 8.5 percent. This is still impressive, given the general weakness that has been showing up in pharmacy sales nationwide.

Separately, Rite Aid said same store sales were down 0.2 percent in December.

3) In an interview with FT, Pfizer's CEO said he would be "open to opportunities" to acquire a larger rival, though the real goal was to grow revenues. deal could drive a new round of consolidation in the industry.

4) Apple up 3 percent pre-open as CEO Steve Jobs has said he is suffering from a hormone imbalance that is robbing him of proteins. This is squelching the cancer rumors.

5) AT&T and Verizon downgraded at Bernstein. They sharply cut our expectations for both companies, and project slower wireless growth, negative enterprise growth, and significantly worse Wireline TelCo performance over the coming year.

6) Goldman Sachs raised Barnes & Noble to Neutral from sell based on valuation, and speculation Borders was in big trouble. Are book sales improving? No, however Amazon had a good season, and the Kindle is popular.

Separately, Borders reported that sales during the holiday season fell 11.7 percent.

7) December vehicle sales are out today, but the expected awful numbers have been eclipsed by the GMAC bailout and the closing of loans to GM and Chrysler. Goldman expects GM's to be down 42 percent, Ford down 31 pecent, Chrysler down 45 percent.

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Questions? Comments? tradertalk@cnbc.com

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  Friday, 2 Jan 2009 | 5:01 PM ET

Best First Day Of Year Stock Trading Since 2003

Posted By: Bob Pisani

This post is from CNBC producer Robert Hum.

Stocks rallied strongly with their best first trading day of a new year since 2003. Despite a disappointing ISM Manufacturing number earlier this morning, the advance was broad-based (better than 5 to 1 advancing to declining stocks at the NYSE), though on light volume.

With gains in 5 of the past 6 days, the Dow has now climbed over 7% since its close on December 23 and closed over the 9,000 mark for the first time since November 5th.

As the Dow snapped 4 straight weeks of declines this week, traders hope that the optimism can continue into 2009’s first full week of trading next week. There may be headwinds though, as another gloomy jobs report along with a poor round of retail and auto sales numbers are likely in store for the markets.

Also keep an eye out if the pre-holiday volatility returns to the marketplace. With traders returning to the desk following the holiday weeks, volume should once again pick up, and investors should get a better sense of the market sentiment in the new year.

For the week: Dow up 6.1%, S&P up 6.8%, Nasdaq up 6.7%.

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Questions? Comments? tradertalk@cnbc.com

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  Friday, 2 Jan 2009 | 1:25 PM ET

Markets On Rebound For 2009?

Posted By: Bob Pisani

This post is from CNBC producer Robert Hum.

Markets around the world are starting off 2009 in a celebratory mood after a dismal 2008. Energy and material stocks lead U.S. markets higher in early morning trading. This despite weaker energy and commodity prices amid the dollar’s gains today. Retailers are rallying for the third day in a row, ahead of likely more gloomy retail sales numbers next week.

European shares are up 2% despite some bleak economic reports out of the U.K. today. A survey performed by the country’s largest mortgage lender showed home prices plunged 16% in the fourth quarter from a year ago. That was the sharpest decline in at least 25 years.

Additionally, the Bank of England reported that new home mortgage approvals fell to 27,000 in November, its lowest level since at least 1999. With signs that the country’s recession is worsening, expectations grow higher that the Bank of England will announce another large interest rate cut of 75 basis points or more next week.

Elsewhere:

Sam Zell’s Equity Group Investments raised its stake in Starwood Hotels to 8.1% from 7.7%. According to a SEC filing, it also signed a confidentiality agreement to facilitate information sharing between the hotel chain and the investment group in exchange for “limitations on its ability to effect a change in control of the company.”

GMAC will issue 5 million preferred shares, which pay an 8% interest rate, to the federal government in exchange for the $5 billion capital infusion it received. GM shares lead the Dow today with its 10% gain.

The Semiconductor Industry Association (SIA) reported that global semiconductor sales dropped nearly 10% year-over-year in November. Sales in the Americas plunged 20% and European sales fell 14% during that period.

Done deals: Bank of America completed its merger with Merrill Lynch. The acquisition moves BofA ahead of JPMorgan Chase and Citigroup to become the biggest bank in the U.S. with $2.7 billion in assets. Additionally, Wells Fargo closed its deal to acquire Wachovia, and PNC Financial completed its purchase of National City.

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Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 31 Dec 2008 | 6:07 PM ET

How the S&P 500 Sectors Ended '08

Posted By: Bob Pisani

This post was written by CNBC producer Robert Hum.

An end-of-year rally today (albeit on fairly light volume once again) pushed the S&P 500 into positive territory to end the month. December’s 0.8% gain snaps three straight monthly declines for the index, but it was just the fourth month this year in which it posted a monthly gain. In the final hour, the Dow too flirted with finishing the month with a gain. However, it ended off its highs of the day, and posted its fourth straight monthly loss, with a decline of 0.6% in December.

With gains over 4% during the past 5 days, the Dow and S&P’s strong finish to the year still can’t overshadow their horrendous 2008. Down 33.8% on the year, the Dow had its worst showing since 1931 and the S&P, which was down 38.5%, had its poorest performance since 1937.

Here’s how the 10 S&P 500 sectors ended the year:

Financials -56.95%
Materials -47.05%
Tech -43.68%
Industrials -41.52%
Energy -35.93%
Cons. Discretionary -34.72%
Telecom -33.61%
Utilities -31.55%
Healthcare -24.48%
Cons. Staples -17.66%

Out with the Old, In with the New:

Three financials depart the S&P 500 following today’s trading, and as expected, volume in these companies spiked at the close with the index’s rebalancing. Merrill Lynch, Wachovia, and National City will be replaced by SCANA , Owens-Illinois , and FLIR Systems — all three of which have market caps under $5 billion. The three departing financials are each being acquired in pending deals that should close in early in the New Year.

Happy New Year to all!

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Questions? Comments? tradertalk@cnbc.com

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  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.

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CNBC's Names in the News:

GMAC

General Motors

Dell

AIG

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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

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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.

Also:

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.

Elsewhere:

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.

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CNBC's Names in the News:

Ford Motor

Toyota Motors

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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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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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