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Market Insider with Patti Domm Trader Talk with Bob Pisani


  Thursday, 19 Jun 2008 | 9:35 AM ET

Market Hears More Earnings Warnings

Posted By: Bob Pisani

We are smack in the middle of earnings warnings season, and it has not been a pleasant experience. Yesterday, after several companies warned, we saw an expansion of new lows at the NYSE. Most large financials, most pharmaceuticals, airlines, and most autos are at or near multiyear lows.

Today, a number of companies are warning once again.

1) In HMOs, Coventry Health dramatically lowered its guidance--by 46 percent for the second quarter, and by 17 percent for the full year. The problem? It's called the Medical Loss Ratio. Simply put, the difference between the price they are charging and the actual cost of the services are not matching up in the way they had been estimating. This isn't just Coventry's problem; the majority of the big HMOs are also lowering their number due to the same problem.

Coventry is down over 20 percent pre-open. Other managed-care companies like Wellcare (down 7 percent) and UnitedHealth (down 10 percent) are weaker, however, this morning Aetna--which works in a similar space--affirmed its full year and quarterly guidance. Aetna still down 4 percent.

2) Burlington Northern became the latest transport company to warn--but this time it wasn't just on higher fuel costs, it was on the severe Midwest flooding, where many of their key tracks are under water. Union Pacific lowered their guidance on Tuesday.

3) Higher raw material costs, like soybean oil and wheat, have hurt Smucker's . Their earnings were below expectations. And while they have been raising prices, they claim the price increases were not sufficient to maintain profit margins.

4) Chemical giant Huntsman , which learned yesterday that Apollo Management was looking to back out of its $6.5 b takeover offer, said it would fight the effort to quit the deal. Huntsman down almost 40 percent pre-open.

5) Surprise! An LBO! Apria Healthcare , one of the largest home health care firms, is being bought by Blackstone for $1.6 b, that is $21 a share in cash. The deal would be done through a combination of equity from Blackstone and debt financing. Apria closed yesterday at $15.82, so we are talking about a fairly healthy premium of more than 25 percent.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 18 Jun 2008 | 4:36 PM ET

Financials Force Dow To Close At Three Month Low

Posted By: Bob Pisani

The Dow closed at a 3-month low, due to the continuing weakness in financials. New lows expanded at the NYSE to nearly the highest levels in 3 months.

Weighing on markets:

--downbeat commentary from CarMax , FedEx

--capital raising from Fifth Third
--oil remaining in the $130-$140 trading range

CarMax missed earnings and suspended guidance for the year. They noted:

--a 3.6% decline in used selling prices because they cannot sell the gas guzzlers customers are bringing in;
--credit availability is tightening;
--sales and traffic weakened since Memorial Day.

Auto stocks like CarMax, AutoNation , GM and Goodyear Tire hit new lows.

Rather than finding a bottom, selling has accelerated in the regional banks; Fifth Third fell apart in the last hour and ended down 23 percent as they cut their dividend and announced they were raising capital.

Other regional banks hit new lows as well.

All of this is happening in what appears to be slow motion, because neither volume nor fear levels seem to be increasing. The CBOE Volatility Index (VIX), a measure of the cost of buying protection on the S&P 500, has been only slightly elevated in June. This jibes with what sells-side desks are telling me: they are DEAD because they cannot convince clients to either buy or sell stocks.

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  Wednesday, 18 Jun 2008 | 3:06 PM ET

Street Just A Miserable Bear

Posted By: Bob Pisani

Man, what's up with Wall Street? I haven't heard the Street sound so miserably bearish since right after 9/11:

1) Traders are dreading earnings warning season, with the fear being that the downbeat commentary today from CarMax, FedEx, and the capital raising/dividend cutting from Fifth Third(with a belief that many other regional banks will do the same thing) is only the beginning;

2) Only 36 percent of financial advisor surveyed by Investors' Intelligence were bullish this week, the lowest since March 14th (the Bear Stearns rescue); normally 45 to 50 percent are bullish;

3) Sell side desks are DEAD as they are unable to convince clients to either buy or sell stocks;

4) The lynchpin of the bull argument--that the second half of the year will see gradual improvement in the U.S. economy, with housing recovering in early 2009--is now being openly questioned.

So what is left? Higher rates. Many are now pinning their hopes on the dollar...and this is why traders have cheered concerted efforts by Fed officials plus U.S. officials to prop up the dollar. Traders hope a concerted rally in the dollar will see oil trade below $110, stocks will rally, gold will come down, and a lot of these long commodity/short financial trades will reverse.

This is nothing new; many traders tried to short commodities a few weeks ago by going long the dollar. It didn't work, but it's a sign of how desperate things are that traders are grasping at these kinds of straws.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 18 Jun 2008 | 11:35 AM ET

Auto Industry Feeling Economic Squeeze

Posted By: Bob Pisani

Auto stocks are notably weaker here, with new lows for GM , CarMax , and AutoNation ; Ford is down 7 percent but not at a new low. CarMax missed earnings , and suspended guidance for the year.


--3.6% decline in used selling prices

--credit availability tightening

--sales and traffic weakening since Memorial Day

This is similar to what Deutsche Bank was saying: they are lowering their U.S. auto sales forecast. In addition to weaker consumer demand, DB also noted there was now a mismatch between what consumers want to buy (smaller, more fuel-efficient cars) and what dealers have in inventory (SUVs and other gas guzzlers).

Bottom line: not only is demand down, but prices for used cars are down as well, so auto dealers are squeezed.

Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 18 Jun 2008 | 9:22 AM ET

FedEx Hit By High Oil Prices, Weak Economy

Posted By: Bob Pisani

Futures are weaker due to poor commentary from a number of key players.

FedEx is the main story this morning, and it is not a pretty picture. Earnings of $1.45 was a bit shy of consensus of $1.47 , but that wasn't the big problem. Guidance for the current quarter is well below expectations: $0.80-$1.00 vs. $1.27, as is the full year guidance of $4.75-$5.25 vs. $5.92 consensus.

"Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line," CEO Frederick Smith said.

International continues to grow: 6 percent growth in International Priority, but that was offset by continuing declines in U.S. domestic express shipments.

FedEx down about 5 percent pre-open.


1) Morgan Stanley beat expectations ($0.95 vs. $0.92 expectations), but not by nearly as much as Goldman Sachs. There were declines in fixed income (85 percent below the levels for the same period last year), including a curious $120 million negative adjustment to marks previously taken in a trader's book that did not comply with Firm policies. Traders also noting that they had a sizeable gain ($1.43 b) from sale of two assets, ex-those one-time gains they had little in the way of earnings. Down 5 percent pre-open.

2) Fifth Third , one of the nation's largest regional banks, based in Cincinnati, is raising capital by issuing $1 B in convertible preferred shares. They are also reducing their quarterly dividend reduced to $0.15, down from prior $0.44. Kudos to BMO Capital Markets, who issued a report last Friday correctly predicting they would cut their dividend at least 50 percent and likely initiate a capital raise. Down 16 percent pre-open.

3) MF Global is down 15 percent pre-open, after warning that first quart revenues would come in below estimates; they will also be selling $150 m in preferred stock.

It wasn't all bad news:

--trucking giant YRC Worldwide affirmed its guidance for the quarter despite higher fuel costs; up 6 percent pre-open.

--General Mills raised its guidance, though they did not say why. Up 1 percent pre-open

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 17 Jun 2008 | 4:09 PM ET

Financials Continue Sell-Off Into Even Modest Rally

Posted By: Bob Pisani

Another frustrating day for the broad market, as we ended right near the lows for the day. Energy stocks did what they did for most of this quarter: go up. Financials also did what they have done for 80 percent of this quarter: sell into even the most modest of two-day rallies, despite a stellar report from Goldman Sachs.

Speaking of Goldman: a report that banks would have to raise an additional $65 billion to cover losses did not help the financials.

Many regional banks like SunTrust (down 8.6 percent), Nat City(down 6.5 percent, Fifth Third (down 6 percent) were especially weak.

How long can this trade (long energy & materials, sell rallies in financials) work? Bulls think it can go on for some time; bears believe we are in a blow-off on energy and materials and it is only working right now because it is the end of the quarter, but will soon stop.

As for tech, there is considerable anxiety there as well, particularly since techs have outperformed the broader market in the past month; earnings are very back-end loaded (meaning much of the earnings are expected to be in the second half of the year), so as we enter earnings pre-announcement season the anxiety is rising.

In the short term, the markets will be influenced by the quadruple witching expiration this Friday (the quarterly expiration of stock and index futures and options), as well as by FedEx's earnings report tomorrow.

The issue with FedEx, of course, is jet fuel prices and to what extent the weak economy is reducing demand for freight services. The company last provided guidance on May 9, 2008, an eternity ago.

Finally, solar stocks weakened late in the day, I am hearing that the Senate has blocked tax breaks for wind and solar energy.

Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 17 Jun 2008 | 9:24 AM ET

Goldman, Best Buy Beat And Where Tax Rebates Have Gone

Posted By: Bob Pisani

Goldman Sachs, as is their custom, beat by a wide margin, $4.58 vs. expectations of $3.42. While numbers were lower for many units compared to the second quarter of last year, there was a clear improvement from the last quarter. For example, Investment Banking was 2 percent lower than the second quarter of 2007, but 44 percent higher than the first quarter of 2008.

Trading and Principal Investments were 16 percent lower than the second quarter of 2007, but 9 percent higher than the first quarter of 2008. Asset Management and Security Services bucked the trend: 18 percent higher than the second quarter of 2007, and 5 percent higher than first quarter of 2008.

Goldman closed yesterday at $182.09, traded about $184 prior to its earnings release, and is now trading at $185.68.

Good report from Best Buy . They beat earnings expectations , and affirmed full year earnings of $3.25-$3.40 (expectations of $3.26). They had a very healthy comparable store gain of 3.7 percent, due to an increase in the average selling price because the mix had changed toward higher ticket items like flat-panel TVs, video gaming consoles, notebook computers, and GPs devices. Up 1 percent.

Potentially important report on Alzheimers. Wyeth and Elan trading up about 5 percent as a study of an experimental Alzheimer's drug they are testing show it is effective with some patients.

Interesting commentary from the International Council of Shopping Centers. They put out regularly weekly data, of course, but they noted a special consumer tracking survey taken a few days ago. According to the survey, 19% of households reported spending most of the tax rebate already.

The ICSC also reported the latest results from their monthly consumer gasoline price impact survey which showed that discretionary spending on such items as clothing, shoes, jewelry, consumer electronics, restaurants, spa and beauty services, or other non essential purchases, were being pared by a record 69% of households, with 42% reporting a considerable reduction and 27% reporting a modest reduction in spending.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 4:13 PM ET

Using Analysts As Contrarians?

Posted By: Bob Pisani

Stocks improved midday as oil could not hold its gains, but gave up much of the gains toward the close. Three stocks advanced for every two that declined.

Airline stocks, which are now microcaps (United has a market cap of about $800 m), gyrated all over the place; United moved in a 12 percent trading range.

After a month of having the stuffing knocked out of them, financials traded a bit better. The Lehman conference call went as well as could be expected, with a lot of detail.

Speaking of Lehman, you wonder why analysts drive me crazy? How about Guy Moszkowski at Merrill Lynch? The banking analyst downgraded Lehman when it was about $24 on Wednesday and upgraded it when it was about $33 in the beginning of June. So what happens? It is closing today at $27 and change; that call was the short-term bottom.

In fact, it might be possible to use analysts as contrarian indicators. Have you noticed how many analysts have suddenly gotten all gloomy over their space, even though they have taken down numbers? The theory here is that with the exception of a small group of aggressive analysts (perhaps 10 percent of the total), most analysts are slow to change their worldview; when many begin doing it all at once, it's a sign of capitulation.

Today a number analysts issued gloomy reports on their universe, even though prices are down significantly. For example:

--UBS noted that a 50 percent decline in KeyCorp'sstock in one month (!) "doesn't necessarily imply KEY is cheap;"

--JP Morgan seems convinced that a weak consumer and rising steel prices will cause Whirlpoolto miss or lower guidance;

--Unilever,Danone and Cadbury were downgraded at UBS, citing slowing growth in emerging markets;

--UBS downgraded AT&T and Verizon, saying the weak economy would hurt wireline and broadband.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 11:08 AM ET

JP Morgan On GE: We Can No Longer Recommend

Posted By: Bob Pisani

Long note from JP Morgan on our parent company, GE . Morgan downgrades GE; they also cut estimates for 2009 (to $2.30 in 2009 versus $2.42 previously and a consensus of $2.44).

Some highlights from the report:

--"Despite a valuation that now discounts bad news and an attractive story for the patient, long-term buyer, we can no longer recommend GE as we see further earnings risk and dislocation from necessary portfolio management in 2009."

--"Credibility is now damaged, and we are hard pressed to see a re-ignition in investor interest without more transparency. This, we think, can only be driven by a more simplified structure."

--"We think there should be further cuts at some stage over the next 2 years. Most of the developed markets assets in GE Money could go, with the rest folded into Commercial Finance. NBCU could be broken up and sold in pieces, giving prime-time some room to recover. It's even debatable that Healthcare should remain in the portfolio."

Questions? Comments? tradertalk@cnbc.com

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  Monday, 16 Jun 2008 | 9:22 AM ET

Market Issues For Week: Oil, Earnings, Financials

Posted By: Bob Pisani

S&P futures dropped about 5 points as the New York Empire State Index was notably weaker than expected and has been down 4 of the last 5 months, then dropped again on oil.

The most important issues this week:

1) we are entering earnings pre-announcement season.

2) whether oil can break significantly below the roughly $135 pivot; ; (NYMEX crude just hit a record, $139.89).

3) whether Goldman and Morgan Stanley will have any significant surprises this week.


1) Barclays up 5 percent; they have said they may raise capital with an outside investor (Reuters says it may include Singapore sovereign fund Temasek, which already has a 2 percent stake), but may also give existing shareholders right to take part.

2) AIG up modestly as CEO Martin Sullivan was forced out and replaced with Chairman Robert Willumstad, who will also retain the Chairman title. Willumstad was formerly President and COO of Citigroup.

3) Lehman came in in-line with its statements last week , a loss of $5.14.

4) Our parent company GE downgraded at JP Morgan, where they also cut estimates for 2009 (to $2.30 in 2009 versus $2.42 previously and a consensus of $2.44).

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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