As stocks pulled back from 14-month highs on Tuesday, pushed by a higher dollar and with a statement from the Federal reserve looming on Wednesday, there is fear on the street that higher interest rates could have the potential to wipe out 2009's comeback. Also in the market, financialsand technology among the market's worst sectors and oil snapped a 9-day losing streak while names like Bank of America, JP Morgan and Verizon weighed on the Dow.
As 2009 comes to a close, as fears loom about the future of the dollar and sovereign debt concerns punish European markets, the Fast Money traders are looking at where you can hide from the landmines in the global economy.
Word on the Street
Jim Chanos, on Tuesday's special edition of the Halftime Report, was adamant about China being over-inflated and overvalued for investors, calling it the next bubble to burst that could potentially be "Dubai times 1000." Adami later added that Chanos has a history of being right, noting that he shorted Enron in 2000 when other investors were piling in. Chanos is very skeptical about China because when credit is pulled out, the bubble is set to burst, but Tim Seymour is skeptical on Chanos. He notes that some tangible demand is apparent, despite China's potentially unreliable economic numbers, pointing out that much of the real US demand in places like commodities and manufacturing may have been spurred by Chinese demand.
For his view on China and other parts of the market, Guy Adami calls Chanos "anything but bullish," and points out how Goldman Sachs, Morgan Stanley and JP Morgan are all off their 52-week highs. He thinks that these "leaders" in the financial space may be trying to tell us something.
There is a myriad of concerns in the financials, adds Tim Seymour, noting concerns of possible over-regulation of the financials along with write offs and charge offs that have been plaguing these banks of recent. But the real story is about the dollar, he says, with all the underling discussion concerning interest rates.
"You cannot have a real recovery in the economy and not be concerned about higher interest rates next year," says Gary Kaminsky, who says the most important thing the markets will deal with in 2010 is where interest rates will be, estimating that 80% of market movement will depend on it. Talking more short term, Kaminsky thinks that even if we see a hike in interest rates, there will be a minor correction in the market.
Joe Terranova, on the other hand, is a bit baffled by the amount of pessimism in the markets, with investors collectively trying to call a top to the markets, which is a no-no in investing 101. Pointing out that Q4 earnings are on the horizon, he thinks that there is still upside to come in this market. There is no reason to look at this market and not be confident, he says. Terranova continued later in the segment to say that the trade investors had to worry about earlier this year was the dollar, but even with a rising dollar, the S&P remains relatively flat, so he says the high dollar/low equities mentality may need to be thrown out the window.
Sovereign Debt Concerns Plague Europe
Developments abroad, including Greece and Ireland's sovereign debt concerns and the instability in Austria's banking system have rattled European markets. This is another reason that the dollar is rallying, says Tim Seymour, who thinks the Euro was too strong to begin with. "Not all are created equal under the European roof," he adds, although he advises caution in the dollar trade, suggesting it may be an opportunity to sell as people are piling into the trade and could be overreacting on the Euro's weakness.
Where to Trade on Chanos
After Chanos was on the Halftime Report, Adami gave offered some plays in the wake of the hedge fund manager's calls, suggesting short possibilities in Freeport-McMoran , which has been up in the triple-digit percent range over the past year but nonetheless experienced corrections along the way. Having big corrections at least 6 times over the past year, Freeport could potentially fall back near the 70 dollar range, which could give short sellers the opportunity to make some cash on the company's cyclical drops.
Topping the Tape: Wells FargoWells Fargo, which sold $10.65 billion in stock on the heels of its announcement that it will repay the government's TARP money was up Tuesday, despite this capital raise. The offering priced at $25 today, while Deutsche Bank upgraded the company to a buy, while FBR raised 2011 estimates for the company. With Citigroup engaging in a similar offering (expected to price $20.5 billion in the next 24 hours), bank capital raises are expected to top $51 billion in the span of two weeks. After a drop from its year's highs, Guy Adami thinks that Wells Fargo is potentially "no man's land," and thinks the play on the bank is to wait for the price to rise above $27 and look for more shorting opportunities.
But where should you be trading now? Joe Terranova thinks the place to be in the financial sector is in the asset managers, after it's becoming apparent that the technicals and the financials of big banks are broken. Asset managers offer customized solutions and are involved in M&A activity, he says, suggesting names like Blackrock , Blackstone and Piper Jaffray .
Market Buzzkill: Charge-offs Knock Banks
With data out that charge-offs are on the rise, the increase in delinquencies indicates that consumers are still stressed, causing JP Morgan , Capital One and Bank of America to end the session to the down side. This is part of the reason the S&P sold off today, says Guy Adami, who thinks the health of the consumer to this point has been over-exaggerated and finds it difficult to be bullish on retail stocks right now. On the other hand, American Express has experienced lower delinquencies, suggesting strength in the higher-end consumer, adds Joe Terranova.
Bull Market or BS: Will 2010 Bring Us Back To Fundamentals?
With only 11 trading days left in the year, investors are looking to what will drive the next leg of this rally. Will 2010 will see investors focusing on fundamentals, or will they stick with the sectors that outperformed the market in 2009? Jeff Palma, the head of Global Equity Strategy at UBS Investment Research says the higher risk trade is likely over and has some of his best plays for the new year. For his full perspective, check out the video!
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Trader disclosure: On December 15th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders;
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