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Market Insider with Patti Domm Trader Talk with Bob Pisani

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  Wednesday, 8 Oct 2008 | 4:54 PM ET

Paulson To Blame For Late Sell-Off? Read This First

Posted By: Bob Pisani

We were doing so well, what happened in the last 20 minutes? Before everyone blames Mr. Paulson, examine the facts.

Late in the day Treasury Secretary Paulson did disappoint traders by saying it would take several weeks before Treasury would buy assets, but he also mentioned the powers to inject capital into financial institutions that the Treasury now has.

These are subtle reminders that the Treasury has powers it has not used yet.

The markets did not drop while he was talking. They began drifting lower after he was finished.

What sold off? Two groups stand out: financials (the ban on shorting financials ends tonight), and consumer staples like Kraft, Coke, Kellogg, Colgate, and Heinz.

Why consumer staples? They have been battered, despite being defensive names, because traders are selling what they can due to margin calls and redemptions.

There was a midday rally as Mr. Trichet made what appeared to traders as dovish comments, in favor of global coordination.

Retailers were down slightly as some big names--Nordstrom , Kohls,JC Penney , and Target, lowered earnings estimates. But they weren't down much--the Street has long since taken the stocks down in anticipation of lower earnings for both the third and fourth quarter.

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  Wednesday, 8 Oct 2008 | 2:46 PM ET

Why Stock Traders Are Fixed On Bond Market

Posted By: Bob Pisani

What an interesting trading day. Four observations:

1) Markets rallied midday on comments from Mr. Trichetin Europe-he said they would "take appropriate decisions at any time." Traders interpret this to mean that Mr. Trichet is now clearly in the rate cut camp, and to providing "unlimited" liquidity. This is a big turnaround: Trichet turns dovish.

2) Stock traders are fixed on the bond market, as traders want to believe that today's huge selloff in bonds means that the flight to quality trade is ending.

This would be a big psychological boost, because stock traders want to believe this is a sign the credit markets might be in the process of unfreezing.

3) We are so oversold, and there has been so much money lost, that a small but significant minority of professional traders are now LONG the market--they are standing in the bleachers cheering like crazy, because for them it is ALL IN time.

There is a larger group--half of all traders--sitting on the sidelines waiting for some sign of a tradeable bottom. They do not have it yet, but that minority that is long is trying desperately to get the uncommitted group in.

4) The most important development is the coordinated global action. First U.S. federal agencies began coordinating activities, then other countries began active intervention, now there is GLOBAL COORDINATION. Consider that we have had, in less than a week:

--a UK bailout,

--Fed buying commercial paper,

--a Spanish TARP,

--coordinated rate cuts,

--deposit guarantees in Europe,

--a banking sector support plan in Russia.

Merrill Lynch's economist, Alex Patelis, summed it up best: "Unless we are assuming that global policy makers are incompetent, they will sooner or later get it right."

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  Wednesday, 8 Oct 2008 | 10:49 AM ET

Retail Numbers--A Closer Look

Posted By: Bob Pisani

Due to the Yom Kippur holiday tomorrow, a number of retailers are reporting September same store sales a day early.

In general, discounters (ex-Target) outperformed, so Wal-Mart,Costco,BJs, and Fred'sall did fairly well.

The high end stores like Nordstromand Saks posted same store sales well below expectations (down 9.6 and 10.9 percent, respectively).

A number of stores guided below expectations: Nordstrom, Kohls, JC Penney, and Target.

The stocks are trading down, but only slightly. That's because the Street has widely assumed that analysts have been behind the curve cutting retail estimates; the Street has been cutting stock prices in anticipation of this.

Teen and specialty retailers will report tomorrow.

    • Retailers Post Weak Sales Despite Deep Discounts
  • Toy Makers Attempt to Up The 'Wow' Factor
  • Financial Crisis Adds to Sales Woes
  • US Shoppers Cut Spending
  • Wal-Mart Cuts Toy Prices
  • Top Toys on Holiday Wish List
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      Wednesday, 8 Oct 2008 | 9:09 AM ET

    Traders: Rate Cut Should Have Been Later In Day

    Posted By: Bob Pisani

    After closing at 1029, S&P Futures traded as low as 962 until the early morning, then rallied to as high as 1043 when the coordinated rate cut of half a point was announced, then moved all the way back down.

    Simply put, the S&P futures moved 8 percent in 4 hours. The hope is that burgeoning coffers, and a rare coordinated rate cut will finally get banks lending again.

    While most traders welcomed the cut, there were many who complained about the TIMING. This camp has been waiting--and waiting--for a huge down open on big volume. Never mind that the S&P 500 has dropped 100 points in the past three days--this apparently was not alarming enough for this crowd.

    Today, they thought, was the day it would have happened. If the Fed ONLY WOULD HAVE WAITED UNTIL NOON--after the market opened down big--we could have had a Clean Uncontested Reversal.

    The Fed, to this crowd, has thwarted this, so now we have Yet Another Muddled Short-Term Bottom. They are still waiting for the Big Washout.

    Elsewhere:

    1) Earnings disappointments. In the past 36 hours, we have had three companies report earnings (two of them early releases); all three have been below expectations. We started with Bank of America Monday night.

    a) Alcoadown 6 percent, reported earnings that disappointed at $0.37 well below the expectations of $0.54. As expected, the company noted that aluminum prices had fallen, while costs remained high, the classic margin squeeze.

    They are stopping all non-critical capital projects and suspending their share repurchase program.

    The only good news is that the market had long since anticipated this type of report.

    b) MetLifedown 9 percent pre-open, reported operating earnings below expectations, withdrew guidance for the rest of the year, and announced a 75 m share secondary.

    2) Retailers:

    a) Wal-Mart September sales were basically in line with expectations (up 2.4 percent); they reiterated their third quarter guidance.

    b) JC Penney down 6 percent, said same store sales were down 12.4 percent, below expectations; earnings for the quarter reduced to $0.50-$0.60 from $0.70-$0.75.

    c) Target down 5 percent, said same store sales in September were below expectations, and that third quarter earnings may be slightly below consensus estimates. They specifically noted higher write-off rates in their credit card segment.

    d) Sakssame store sales were down 10.9 percent, below expectations of a drop of 4.2 percent

    2) Bank of Americadid price its secondary, $10 b at $22.

    3) Mitsubishi confirmed their investment in Morgan Stanley would occur on October 14th, the last day of the mandatory five day waiting period after the Fed approved the deal on Monday.

    4) oil traded as low as $86, the low for the year.

    • Retailers Post Weak Sales Despite Deep Discounts

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      Tuesday, 7 Oct 2008 | 4:08 PM ET

    Question Asked: Why Own Stocks Right Now? (Update)

    Posted By: Bob Pisani

    Stocks fell apart going into the close. For those watching technicals, we took out yesterday's lows.

    So what's the issue?

    Isn't the Fed doing everything they can to expand liquidity? Yes.

    Didn't Bernanke all but say a rate cut was coming? Yes.

    Isn't the Fed setting up a facility to buy commercial paper? Yes.

    So what is the problem?

    This is the problem: why, even with all this, do I want to own stocks?

    "Bob, what will make someone not sell into my bid?," one trader asked. "If I buy right now, all I know is that there is way too much for sale, and I will be nervous every minute I own it...there is only short-term trading in stocks, there is no real investment being done."

    What about Warren Buffett and all that good signs stuff. "Warren Buffett is getting a different deal than you and are getting."

    • Bernanke: Rate Cut Possible to Cure 'Historic' Slump

    The Fed has done everything they can, but we are in very big deflationary spiral. Lowering rates should help reflate. Fed buying commercial paper should help reflate.

    But traders are afraid there will be more dying banks.

    Look at the European banks again today: Royal Bank of Scotland down 39 percent, Barclays down 23 percent, Lloyds down 22 percent.

    Update: Signs of the times. One trader told me he had heard:

    1) there were 50 memberships now open at exclusive golf clubs in Manhasset, Long Island thanks to ex-traders from Merrill, Bear and Goldman no longer there. He didn't name specific clubs, but some of the big ones there are North Shore, Fresh Meadows, North Hills, Deepdale.

    2) A private high school guidance counselor in Harrison, New York said there were 47 transfers from private to public schools recently. Why? Private schools there are $40,000 a year; public schools are free.

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      Tuesday, 7 Oct 2008 | 3:57 PM ET

    Wrestling With The 'P. Diddy Market'

    Posted By: Bob Pisani

    How discouraging was today's midday drop to traders?

    "Why even play?" one trader said to me. "This is what I call the 'P. Diddy market'...You'd save money by doing the Diddy: renting a yacht, and sailing it full of party people, come back in a month or two, and you would have saved money."

    Cynical, huh? But that's the way the Street has become...cynical, and doubtful.

    For the record, traders provided several reasons for today's midday weakness:

    1) longs in financials are lightening up ahead of the end of the ban on shorting financials, which occurs at midnight tomorrow.

    There's been particular weakness in Morgan Stanley and Bank of America.

    We are waiting for details of Bank of America's capital raise, which should happen after the bell. Note that the end of the short selling is complicating things, because risk arbitragers have been prevented from shorting Bank of America, and going long Merrill Lynch.

    MS was weak on concerns that the Mitsubishi capital infusion deal might not close, but our David Faber noted that a MS spokesperson has said they were on track to close the deal by the weekend.

    2) Bernanke's somewhat downbeat comments on the economy, despite the fact that Bernanke clearly opened the door to a rate cut in his speech.

    3) retail investors who have just received their quarterly statements are continuing to dump stocks.

    4) sell the rally continues to be the most effective strategy.

    This reasoning seems rather feeble, especially given the remarkable attempt by the Fed to expand liquidity in the past two days:

    --expanded TAF facility

    --new facility to purchase commercial paper

    --will pay interest on bank reserves

    But the Street wants a rate cut!

    Bottom line: the market is still not showing the ability to absorb bad news.

    _______________________________________


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      Tuesday, 7 Oct 2008 | 11:49 AM ET

    There Are Positives--So Why No Rally?

    Posted By: Bob Pisani

    There are many positives today, and we are only halfway through the trading day.

    The two big ones:

    1) the new fed facility to buy commercial paper is a HUGE move in increasing liquidity in the marketplace. Also important: they are buying 3-month paper, a longer term than most commercial paper, so less rollover pressure.

    2) Efforts are underway to launch a trading platform/clearinghouse for CDS. The Chicago Merc and Citadel announced one, there are probably more in the works. One central one would be best, but any clearinghouse will improve transparency.

    So...if all this is good news, where's the rally?

    It's not happening because confidence has been shattered, and this low-volume, low-volatility day may be the best we can expect under the circumstances.

  • Markets Thirst for More Cuts
  • Pros Say: Everybody Cut Rates!
  • Special Report: Risk & You
  • Credit Spreads, Libor Data
  • Why? Because talking to traders on the Street these days is like engaging in a group therapy session:

    "Well, Bob, I feel a little better today...but I don't know...

    "Sell into the rallies is the only thing that's worked for me...I just don't know...

    "There's more shoes to drop with Europe and commercial real estate in the U.S. and other stuff I haven't even thought about..."

    "Retail investors keeps withdrawing money...."

    "...the big funds don't seem to have enough firepower...

    "I'm just really tired and I'm really out of ideas..."

    Gads! Buck up, people! Change the meds! The Fed is going to do everything...including selling the White House furniture...to keep the economy going. Coordination between federal agencies is improving all the time.

    And Europe? Expect more bailouts...and a few new agencies...and rate cuts.

    Bottom line: we are groping our way through this crisis.

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    CNBC's Names in the News:

    Ford

    GM

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      Tuesday, 7 Oct 2008 | 9:09 AM ET

    Why Traders Want Rate Cuts

    Posted By: Bob Pisani

    The Reserve Bank of Australia cut interest rates 100 bps; their market is up a little more than 1 percent.

    That's just the beginning: it's widely believed that the Bank of England will cut rates on Thursday, and the ECB almost certainly will soon. The markets sold off this morning when no rate cut announcement was forthcoming from the Fed.

    Despite a belief that lowering rates may not do much, most traders disagree. Cutting rates is an attempt at reflation, and at this point that has become a major concern. Paying interest on reserves--which the Fed is now doing--is also a form of lowering rates.

    Traders are also looking for more help to get the commercial paper market on a firmer footing (talk on our air about a Special Purpose Vehicle set up by the government to possibly purchase commercial paper) and, down the road, the establishment of some kind of exchange for credit default swaps.

    Elsewhere:

    1) Bank of Americadown 8 percent as they pre-announced earnings well below expectations, and cut the dividend in half, and announced they were raising $10 billion in new capital. This is the first time since 1978 that B of A has not increased their dividend.

    2) AMD up 25 percent as they are planning to spin off their manufacturing operations to a joint venture (to be called Foundry Company) with entities associated with the government of Abu Dhabi. AMD will own 44.4 percent of the venture's common, stock, while Abu Dhabi's Advanced Technology Investment Company will own the remaining 55.6 percent.

    3) Alcoa is facing its earnings report after the close today in a no-win situation.

    Recall that the company was under pressure for months because aluminum manufacturers are extremely energy intensive, and the stock was under pressure as energy prices began topping out.

    Now, analysts have been reducing their forecasts for global aluminum prices as the global slowdown trade takes hold. Example: UBSjust reduced estimates for aluminum prices for 2008 (by 36 percent), 2009 (by 70 percent!), and 2010 (by 74 percent!).

    Alcoa is at a 10-year low.

    4) Corning reaffirmed earnings but lowered the full year of LCD growth view.

    UPDATE: How difficult is it to play this market? Try this: In the space of less than nine hours overnight and into this morning, S&P futures prior to the open went from (roughly) 1050 to 1070, then back to 1050 as Europe opened down, then back up to 1070 (on hopes of a rate cut announcement), then back down to 1050 (when no rate cut came), then back up to 1070 (after the Fed announced a facility to buy commercial paper).

  • Pros Say: Everybody Cut Rates!
  • Credit Spreads, Libor Data
  • Special Report: Risk & You
  • RBA Statement on Rates
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      Monday, 6 Oct 2008 | 4:50 PM ET

    Difficult Day With "Puzzling" Rally

    Posted By: Bob Pisani

    After the close, Bank of America released its earnings early:

    1) third quarter EPS was $0.15, well below the expectations of $0.62.

    2) dividend was cut by 50 percent.

    3) credit quality continued to deteriorate.

    3) most importantly, they announced a $10 billion capital raise in the form of common stock. Down about 6 percent after the close.

    Overall, it was another difficult day, made all the more puzzling by a last hour rally that more than cut the losses in half.

    Throughout the majority of the day, there was a lack of bids which has become typical of the market in the last month: traders believed that most participants were forced sellers, so buyers saw little reason to participate.

    Volume trended toward the heavy side only toward the close of the day.

    Do technicals matter? There were traditional signs of capitulation today:

    --about half the securities at the NYSE hit new lows--levels almost never seen

    --VIX hits historic highs

    --"defensive" stocks sold off with the rest of the market. In fact the breadth of the decline was remarkable: 9 of the 10 S&P sectors were down 3 to 5 percent.

    The market did turn around as they indicators hit extremes, but few traders believed in a permanent bottom, some because the volume was not there, some because their confidence in their own metrics have been badly shaken.

      • BofA in $8.6 Billion Settlement over Countrywide
    • How to Trade Third-Quarter Earnings
    • Credit Card Issuers Crack Down on Consumers
    • Cramer: Stay Away from BRIC Plays
    • 3 Ways to Benefit From the Downturn

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      Monday, 6 Oct 2008 | 12:04 PM ET

    Why Traders Won't "Touch" This Market

    Posted By: Bob Pisani
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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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