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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Tuesday, 23 Sep 2008 | 5:28 PM ET

Rescue Bill Drama, Global Slowdown Drag on Market

Posted By: Bob Pisani

Update: The House is moving quickly. They already have a Discussion Bill in circulation regarding the Treasury’s proposal. Click to see it here .

Looks like they are not signing off on the $700 billion request.


The Dow moved in a 300 point range (which is normal for the past couple of weeks) today to end near the lows, but the volume has been much lighter than last week.

Weakness in the mid-morning -- on concerns that the Treasury bill under consideration in Congress would be watered down and burdened with punitive measures -- gave way to a modest rally as the hearing ended (!), then in the last half-hour we again moved down toward the lows of the day.

Aside from the concerns over the Treasury bill, there was a very straight "global slowdown trade" that was on for the day, as large industrial and construction stocks (Fluor , Ingersoll Rand , Danaher , Deere ) were down 4 to 6 percent, while commodity stocks like US Steel , Alcoa , Newmont Mining and Freeport-McMoRan area also down 3 to 5 percent.

Late Update: Word that two well-known investors were dipping their toes into the sea of financial assets are helping move futures up 17 points after the close:

1) Warren Buffett is investing $5 b in Goldman Sachs has moved Goldman up about 8 percent after the close.

Buffett is getting preferred stock at a 10 percent yield. While this might sound like an amazing deal, bear in mind that the Goldman Preferred B shares, for example, are trading at an 8.9 percent yield (par is 6.20 percent!). The shares are also callable at a 10 percent premium. So it is a good deal for him, but not unbelievable.

2) J. Christopher Flowers, the founder of private-equity firm J.C. Flowers & Company, was approved by regulators to buy a small Missouri bank, the First National Bank of Cainesville, according to Bloomberg.

The bank only has assets of $14 million, but there is considerable speculation that he may use this as a platform to buy other banks.

These are two data points in a large sea, but in after-hours discussion traders are encouraged that two investors are finally ponying up for financial assets. CDOs, anyone?

Questions? Comments? tradertalk@cnbc.com

»Read more
  Tuesday, 23 Sep 2008 | 3:36 PM ET

Markets To Have Lift At Close?

Posted By: Bob Pisani

There's a theory--and that's all it is--that the market may have a modest lift toward the close.

The theory is that this is the three-day delivery date for shorts. Stocks have three days to "clear" or deliver the goods. Remember the SEC banned short selling in financials Thursday night, so this is the last chance to cover those short positions, and this may create a modest rise in the market toward the close.

As everyone knows, the mother of all short coverings occurred on Friday, so how much this will contribute to the close is not clear. But it's in the air.

New from CNBC.com:

- The Dow 30 at a Glance


Questions? Comments? tradertalk@cnbc.com

»Read more
  Tuesday, 23 Sep 2008 | 1:44 PM ET

The Problems For Stocks

Posted By: Bob Pisani

Stocks are at their lows for the day. There are two problems:

1) the devil is now in the details, as traders are concerned that the Treasury bill will be either dramatically watered down (Senator Schumer asked Sec. Paulson if he would be satisfied with substantially less than $700 billion, and then let the next administration deal with it--Paulson wisely said "No"), or so burdened with punitive measures that banks will be reluctant to participate;

2) stock traders are playing a straight "global slowdown trade" this afternoon as there is notable weakness in commodity stocks and industrials.

Any down close is somewhat discouraging.

Consider: after closing flat last week, the S&P 500 is already down 5.3 percent this week.

Last week's 2-year closing low on the S&P 500 was 1156. We are only 45 points from that.

Bulls need to start putting up a better fight here.

  • Five Stocks for Self Defense
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    New from CNBC.com:

    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Tuesday, 23 Sep 2008 | 11:28 AM ET

    The Senate Hearing--Bernanke's Persuasive Points (And More)

    Posted By: Bob Pisani

    Fed Chairman Ben Bernanke made several cogent points in his testimony.

    1) the fire sale prices that financial institutions are being forced to use by mark-to-market requirements are significantly less than the hold-to-maturity price. Due to the uncertainty over pricing, private capital is unwilling to come in and buy.

    2) Despite the damage, suspending mark-to-market rules would hurt investor confidence because investors would have to trust the internal estimates of banks.

    3) Auction methods need to be devised on what the hold-to-maturity price would be for assets bought by the Treasury. If Treasury bids at close to hold-to-maturity prices, there are several benefits:

    a) liquidity would come back;

    b) uncertainty would be greatly reduced, which would allow banks to attract new capital;

    c) taxpayers will hold assets at close to maturity values.

    Finally, Bernanke pleaded with Congress not to impose punitive measures on financial companies, because that would reduce participation in the program.

    UPDATE: Fed Chairman Bernanke is continuing to make cogent points in his Q & A.

    He has sought to draw a line distinguishing between this crisis and other banking and financial crises here and abroad.

    His position is that the situation we find ourselves in is "unique and new."

    In past crises (such as the savings and loan crisis), the government took over assets from failed institutions.

    That is different from what is happening today. Bernanke is stressing that firms are not necessarily failing, they are deleverageing and are unwilling to make credit available.

    To address that, the methods used to deal with failed institutions are not appropriate.

    He is trying to warn the Congress away from taking over institutions (and by extension taking stakes in companies), and is encouraging them to help them provide liquidity. They do this by buying the mortgage assets.

    UPDATE 2: SEC Chairman Christopher Cox, when asked what would happen after the short selling ban on financials expires, said that the SEC would "segue into sturdy protections against naked short selling."

    It's been widely noted on trading desks this morning that two companies have asked to come off the SEC ban on short sales: Diamond Hill Investments and JMP Group , an investment banking firm. JMP specifically said that the restriction is "unncessary" and that short selling "is an essential tool that provides liquidity to the market." JMP is up fractionally.

      • Watch Senate Hearing LIVE
    • Details of the Democratic Proposal
    • What the Treasury Plan Will CostProtect Your Portfolio: Money GuideVideo Roundup: Paulson's Tumultuous Year

    New from CNBC.com:

    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Tuesday, 23 Sep 2008 | 10:19 AM ET

    Shelby "Scuttles" Bipartisan Feel For Treasury Plan

    Posted By: Bob Pisani

    Stocks have come off their highs as Senator Richard Shelby, the ranking Republican, basically scuttled the bipartisan atmosphere around the Treasury proposal. "Before I sign off (on the plan), I would want to know we've exhausted all reasonable alternatives," he said.

    And he was the ranking REPUBLICAN.

    It's clear now that the bill will have clauses restricting executive compensation, partial ownership of some of the companies where there is significant purchasing of securities, and some kind of mortgage mitigation.

    But traders still believe a bill will be passed, this week or next.

      • Poll: Who Stands to Gain the Most With the Bailout?

    New from CNBC.com:

    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

    »Read more
      Tuesday, 23 Sep 2008 | 9:13 AM ET

    Earning Power Reduced But So Is Risk--That's Good For Now

    Posted By: Bob Pisani

    Futures are down slightly, but that has little meaning these days. Many traders feel that yesterday's drop was due to:

    1) distortions in price discovery created by the changing short sale rules;

    2) the realization that many banks are still undercapitalized.

    Still, long-term there are benefits to the wrenching process we are going through. More level-headed traders have noted that earnings power is reduced, but so is risk, and for the moment that is what is important.

    Banks and commodity stocks are down pre-open.

    Commodity stocks: Rio Tinto down 10 percent, BHP Billiton down 4 percent, most gold stocks down 3 to 5 percent.

    Financials: UBS, Credit Suisse, Lloyds and Wachovia down 5 to 8 percent.


    1) Oppenheimer bank analyst Meredith Whitney cutting estimates (again!) for Citi, Bank of America, JP Morgan, Wachovia, Wells Fargo. "We believe any government bailout plan has little hope of improving core fundamentals over the near and medium term." Her revised estimates are 50% below consensus for 2008 and 90% below consensus for 2009.

    2) GE down a bit pre-open as Merrill Lynch analyst John Inch lowered estimates for 2009 and cut his rating to Neutral. 2009 estimates were lowered $0.20, to $2.22, 2010 estimate declines to $2.48 from $2.65 forecast. Fourth quarter 2008 estimate lowered by 2 cents to 68 cents. He believes GE Commercial Finance and GE Money will each see earnings declines of 15 percent in earnings next year, more than the 10 percent decline he had previously forecast.

      • Paulson, Bernanke to Urge Congress Not to Delay Bailout

    3) Railroad giant Union Pacific raised their guidance for the current quarter on lower fuel costs.

    4) Home builder Lennar reported earnings roughly in line with expectations, but still not sign of a notable turnaround.

    5) Circuit City trading up as the CEO has resigned and gave guidance slightly better than expected.

    »Read more
      Monday, 22 Sep 2008 | 4:48 PM ET

    Wall Street Facing Less Business, Less Pay, Less Reward

    Posted By: Bob Pisani

    The despair of Wall Street, redux. Volatility with no volume. That's what we got today. The Dow swung in a 400 POINT RANGE, but volume was about half what it was at the end of last week.

    Why? Some said too much uncertainty over the Treasury bill, some said with no short sellers adding liquidity, what do you expect? Others said the reflation trade has added another level of confusion.

    The markets may have acted negatively over concern about all the strings Democrats are attaching to the Treasury Department rescue plan, but don't kid yourself: a deal will get done.

    Still, don't underestimate what this bill is doing to the psychology on the Street. Most stock traders would be willing to accept more help for homeowners facing foreclosure as part of the bill.

    What's left? Some Dems want a stake (warrants) in any company that sells assets to the program. That's a problem. We're selling you the assets, below market price probably, and you still want warrants?

    Also an issue: drastically limiting pay for executives. We are probably not just talking about CEOs. We're probably talking about anyone in management. And--as we all know--commercial bank management makes A LOT less than investment bank management.

    Bottom line: less business, less pay, less reward. That's what Wall Street management is facing today.

    Little wonder some guys are thinking of getting out altogether.

      • Bailout Plan Will Be Drag On Fragile US Economy
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    New from CNBC.com:

    - The Dow 30 at a Glance


    Questions? Comments? tradertalk@cnbc.com

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      Monday, 22 Sep 2008 | 2:47 PM ET

    Traders Oppose Equity Stake For Government

    Posted By: Bob Pisani

    Miracle of miracles! Congress appears to be moving quickly on the Treasury bill. Rep. Barney Frank said that Treasury was accepting an equity stake in companies as part of the plan.

    Stock traders are almost universally opposed to this idea, but it may have enough momentum to go through.

    Two topics dominate trader talk today:

    1) the cost of selling assets to Treasury. What's the price? Is all anyone was talking about.

    a) good news: mark-to-market losses have already been taken on many mortgage-backed securities, so the losses and write-offs here may be fairly limited.

    b) bad news: banks hold many whole loans that have also gone bad. These loans have not been mark-to-market (because they are not required to be) and losses here could be substantial if they were sold to the Treasury, or anyone else, compromising earnings for some time to come.

      • Democrats Push for Major Changes In Rescue Plan
      • What Democrats Are Proposing
      • A $1.8 Trillion Bailout: Where the Money's Going

    So will the banks sell? The bet is most will sell their problem assets, because the market may simply force them to do so. If they don't? A repeat of what we saw: rating downgrades, credit default swap disasters, and other issues.

    2) the reflation trade--the move up in commodities--is also getting attention midday.

    »Read more
      Monday, 22 Sep 2008 | 12:00 PM ET

    The Horse-Trading Has Begun

    Posted By: Bob Pisani

    The Dow dropped about 70 points as Sen. Chris Dodd said Democrats wanted shares (warrants) from companies from whom they would be buying assets.

    The Street is asking: if we sell you an asset at a fair market price, why would we give you warrants? Dems will argue, "Wait a minute: if it's such a fair market, why did you need us in the first place? We are facilitating this, and we want something for it."

      • Senate Democrats want pay limits, equity in bailout
      • A $1.8 Trillion Bailout: Where the Money's Going
      • Should Homeowners Be Bailed Out Too? Take Our Poll
    »Read more
      Monday, 22 Sep 2008 | 11:16 AM ET

    Valuing Assets The Government Is Buying

    Posted By: Bob Pisani
    For many assets, pricing is already being done, and this is the value of that rule last year that required mark-to-market accounting. We have recently seen marks on many portfolios of CDOs. »Read more

    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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