STOCKS FALL IN THE FACE OF NEW STREET REGULATION
Financials weighed down the Dow and S&P on Wednesday, largely due to the uncertainty surrounding the new regulations introduced by Barack Obama designed to clamp down on Wall Street.
The proposals are headed next for debate in the Congress and include closing one bank regulator and creating government watchdogs to prevent excessive risk-taking.
How should you position yourself?
Strategy Session with the Fast Money Traders
I think the market now trends lower, muses Guy Adami. I see investors looking to buy dips but I don’t think that’s the right play.
I think the market is hanging in there, counters Tim Seymour. The market has digested a ton of uncertainty. I’m cautious but we haven’t traded out of the channel yet.
I’m positive on the late day action, adds Joe Terranova. But clearly for the first time in weeks the market is on the defensive.
I think you can use these short-term pullbacks as buying opportunities if you’re a short term trader, adds Jon Najarian. But if you’re a long-term investor I’d wait. I’m looking for a 5%-10% correction.
On Wednesday, Standard & Poor's cut ratings on 18 banks including BB&T Corp, Capital One, Regions Financial and Wells Fargo.
Five companies were cut to "junk" status, including Huntington Bancshares and Synovus Financial.
"The banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions," S&P analyst Rodrigo Quintanilla wrote.
"Financial institutions are now shedding balance sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings."
What’s the bank trade?
I think you can still short JPMorgan, counsels Guy Adami, but with a very tight stop.
I think Wells Fargo goes down to $20, adds Jon Najarian.
Forget inflation it’s deflation that’s got the traders worried. New data from the Labor Department showed when compared to the same period last year, consumer prices fell 1.3 percent, the largest decline since April 1950.
Remember, an economy can go from deflationary to inflationary very quickly, reminds Joe Terranova. In fact, that's what I think is behind the drive in commodities.
Right now I think deflation is the bigger issues, counters Guy Adami. So how do you play it? I’d look at Home Depot.
SECTOR TRADE: HEARTLAND HURT
It seems the white hot ag trade may have started to cool off. Shares of Potash and Mosaic were big losers after K&S, a Germany-based rival, forecast a significant drop in 2009 profit and sales.
K&S is Europe’s largest fertilizer producer, explains Tim Seymour. And it seems their pricing power has gone down. But crops need to be tilled and fertilized. It can be delayed but it’s something farmers have to do, eventually.
I’d get long Potash below $95.11, counsels Guy Adami. In my book it’s a buy.
TOPPING THE TAPE: TECH
Technology proved to be a bright spot in an otherwise gloomy market with Texas Instruments leading the space higher after Merrill Lynch upgraded it to a “Buy”
It’s hard for me to embrace TXN at these levels, says Guy Adami. But Intel looks interesting to me. I think it’s a buy at $15.75
Meanwhile Cisco Systems also buoyed the sector after its influential CEO John Chambers told CNBC that he has seen business activity level out in the last few months.
Qulacomm was another notable advancer after Goldman Sachs added the wireless technology supplier's stock to its "conviction buy" list.
I think Qualcomm is the name to own in the space, adds Tim Seymour. They have significant exposure to China.
TOPPING THE TAPE: CONSUMER NAMES PULL HIGHER
Shares of Abercrombie jumped on Wednesday after the company announced plans to close its money-losing Ruehl chain. The move higher was largely viewed as a relief rally triggered by a belief the retailer will soon focus on core brands.
In the consumer space, I’m watching Visa, Mastercard and JPMorgan – three banks involved in the credit card trade, reveals Tim Seymour. With the new regulations they should come under pressure.
It seems to me Mastercard has another $10 on the downside, echoes Guy Adami.
TOPPING THE TAPE: PHARMA & BIOTECH
With so much uncertainty in the market it appears money is rotating into Pharam names making the Health Care SPDR a big winner for the day.
Biotech and Pharma came back with a vengeance, says Joe Terranova. I’d play it with the XBI .
It seems to me that Abbot Labs bottomed out at $41.88 back on April 15th, adds Guy Adami. I think you can take a shot.
THE OBAMA TRADE: DID OBAMA FIX FINANCIAL MARKETS?
As you may know President Barack Obama laid out his vision for reshaping U.S. financial regulation on Wednesday.
On the next page you'll find a comprehensive look at what’s on the table as reported by CNBC’s news partner, Reuters as well as Fast Money's interview with Sen. Judd Gregg (R – NH).
THE OBAMA TRADE: DID OBAMA FIX FINANCIAL MARKETS? (pg. 2)
President Obama laid out his vision for recrafting U.S. financial regulation on Wednesday, vowing to halt "a cascade of mistakes ... over the course of decades" that eroded bank and market oversight.
The proposals, under development over the past six months are headed next for debate in the U.S. Congress and include closing one bank regulator and creating government watchdogs for big-picture economic risk and financial product safety.
The administration takes on tough jobs, such as forcing large firms to boost their capital cushions and regulating over-the-counter derivatives and securitized instruments.
But it only partially tackles a task once seen as vital -- a top-to-bottom revamp of financial regulatory agencies.
No merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is being proposed, for instance, due largely to political obstacles.
"With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse," Obama said in a White House speech.
"We seek to create a framework in which markets can function freely and fairly, without the fragility which in normal business cycles bring the risk of financial collapse, a system that works for businesses and consumers," he said.
EMPOWERING THE FED
Obama called for putting the Federal Reserve in charge of monitoring "systemic risk" to the economy posed by the largest financial firms, with the aim of preventing a repeat of the banking and capital markets crisis of the past year.
He also appealed for the creation of an agency that would seek to protect consumers of financial products, ranging from home loans to credit cards.
"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression," he said.
Months of congressional debate loom. Senate and House of Representatives committees will hold more than a dozen hearings on regulatory reform between now and mid-July, and conservative House Republicans have already offered a rival plan.
"There are clearly some ideas that we agree with," House Republican leader John Boehner told reporters. "But I do think that this idea of having this consumer board is very cumbersome, will limit the number of new financial products that come to the market and will give the government an awfully strong presence in an industry that's been very creative."
Obama defended the plan as a balanced approach that restrains excessive risk, but doesn't clamp down so hard that firms would be prevented from helping drive economic growth.
The president and his top economic advisers see the current financial upheaval as the latest in a series of crises going back decades, so their regulatory reform intends to correct problems beyond just those blamed for the latest episode.
As detailed in an 88-page document, the Obama plan calls for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision.
A council of regulators to be chaired by the U.S. Treasury secretary would work with the Federal Reserve, which would gain new powers, as it monitors risks that could threaten the entire financial system.
The goal is to make sure a failure of one company -- like bailed-out mega-insurer American International Group, for instance -- does not destabilize the broader economy.
The administration has been discussing how best to tighten bank and market regulation for six months, with the European Union moving on a similar track and more quickly in some areas.
Under the Obama plan, the government would be empowered to seize and unwind large, troubled companies that are not banks, modeling the process on the Federal Deposit Insurance Corp's existing power to unwind failing banks.
The administration also wants to rein in markets for securitized debt and over-the-counter derivatives, and beef up regulation of money market mutual funds, credit rating agencies, and hedge funds.
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Trader disclosure: On June 17th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (C), (GS), (BTU), (AGU), (INTC), (MSFT), NUE); Najarian Owns (V), (CSCO); Najarian Owns (C) Preferred; Najarian Is Short (POT) Puts; Najarian Is Short (WFC); Seymour Owns (AAPL), (BAC), (BX), (EEM), (FXI), (F), (IYT); Terranova Owns (SDS), (XBI), (TER), (BTU), (ABT), MSFT); Terranova Is Short (XOM) Call Spread; Terranova Is Short (GENZ) Call Spread; Terranova Is Short (OIH)& (OIH) Puts; Terranova Is Short (RIG)& (RIG) Puts; Terranova Is Short (FCX)& (FCX) Puts; Terranova Is Short (RIMM)& (RIMM) Puts; Terranova Is Short (GENZ)& (GENZ) Puts; Terranova Is Short (IBM) Calls; Terranova OWns (BRCM) & Is Short (BRCM) Calls; Terranova Owns (POT)& Short (POT) Calls; Terranova Is Short (JPM)& Is Short (JPM) Calls; Terranova Owns (MS) & Short (MS) Calls; Teranova Owns (X) & Is SHort (X) Calls; Terranova OWns July Nat Gas Futures; Terranova Owns (DIS) Octovber Call Spread
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