We're hearing that July was even worse for the banking sector than the second quarter... and the second quarter was pretty bad!
Financial Times reporter Francesco Guerrera who broke the story tells Fast Money in an exclusive interview, “I’ve been talking to a lot of people in the banking sector and they’ve been telling me July was even worse than the second quarter. Investors are on the sidelines and banks are just not trading.”
Global economic uncertainty and Europe’s sovereign debt woes are largely to blame. As a result (banks) are bracing for a slump in trading profits, he says.
"Unless there is a big rebound we're going to see another bad quarter of trading; and don't forget trading has been a huge driver of profits for banks."
In fact the situation is taking such are sharp turn that Wall Street may be facing more layoffs.
"Deepening fears of a permanent end to the trading boom that supported financial groups’ earnings after the financial crisis are prompting some banks to consider laying off traders," he says.
What should you make of it?
Instant Insights with the Fast Money traders
I think it’s way too early to be throwing in the towel on banks, says Karen Finerman.
I agree that it's early to be making an earnings call, says Tim Seymour.
It seems to me that capital markets are doing well, adds Joe Terranova. I’d expect to see strong numbers when banks report again in October.
Click below to go to Francesco Guerrera's full story:
> FT: US banks braced for slump in profits
FT: PAULSON TAKES A BEARISH TURN
Are you turning incrementally bullish on the market? Billionaire investor John Paulson sure isn't!
Also according to our news partner the Financial Times, Paulson & Co, the world’s third-largest hedge fund manager, is scaling down its bullish positions on the US economy.
Amid increasing uncertainty over the sustainability of the US recovery and a vicious second quarter that saw many funds hit hard by a spike in market volatility, Paulson & Co has cut its net long bets across almost all its funds.
What’s the takeaway?
I see the move not as Paulson turning bearish but that he has a less directional view than before, says Tim Seymour.
And I’m wondering what his plans are to reallocate capital, muses Joe Terranova.
TOPPING THE TAPE: GOLDMAN
According to CNBC’s Kate Kelly, Goldman Sachscould spin off at least part of its proprietary trading operations as early as this month.
The move comes in the wake of new rules that limit Wall Street firms from betting their own money in financial markets.
Though details are still sketchy, a couple of options are on the table. One is to seed a hedge fund staffed by former Goldman proprietary traders with Goldman money and replace it in the coming years with third party money as the new rule goes into effect.
Another possibility is to move proprietary trading into the firm's asset management unit, where Goldman invests clients' money rather than its own.
How should you trade Goldman in the wake of this news?
The move allows Goldman to retain intellectual capital and not have restrictions on the work it does best, muses Joe Terranova on the Halftime Report. I’m bullish.
Also, keep in mind the performance of the capital markets in July was very strong and that should bode well for Goldman’s earnings in October. On top of that, from a technical perspective, I think the stock is poised to break out. Right now is a good spot to get in.
I’m not sure I’d start nibbling at Goldman in the high 150’s, says Zach Karabell, but I think the stock is fine.
Goldman has already had an amazing run, reminds Brian Kelly. I don’t know if the spin-off is a reason to buy. However, if you like the bank space, then a long position in Goldman makes sense.
I don’t get it, says Karen Finerman. I just don’t understand how it creates value.
> Goldman Sachs May Spin Off Proprietary Trading This Month
TOPPING THE TAPE: RETAIL
Consumer stocks topped the tape Wednesday with traders impressed by two strong releases.
Polo Ralph Lauren reported better-than-expected quarterly profit and raised its sales forecast for the year, helped by a pickup in department store orders and growth at its Club Monaco chain, and its shares rose more than 2 percent.
And online travel agency Priceline posted quarterly profit above analyst forecasts as bookings jumped 43 percent, led by international bookings and hotel reservations as the industry recovers from a downturn.
What’s the trade?
In the space I’m watching CTRIP , says Pete Najarian. The call buying suggests the stock could have more upside.
I took off my airlines exposure on this news, reveals Joe Terranova. Priceline strength suggests consumers are looking for discount fares and that’s bad for margins.
When I look at airfares it seems that the airlines are almost gauging consumers, muses Tim Seymour. I wouldn’t read too much into Priceline results other than why wouldn’t fliers want a better deal?
The tradres are closely watching RIM , which slipped on reports that Saudi Arabia will move forward with its ban on BlackBerry’s instant messaging service as soon as Friday.
Elsewhere in the region, government officials in the United Arab Emirates (UAE) say they will shut off BlackBerry e-mail, messaging, and web browsing features on Oct. 11 if the government is not granted more access.
But perhaps the greatest concern for investors is that India, which constitutes one of the largest emerging markets and has 1 million BlackBerry users, is threatening to stop BlackBerry services as well.
What’s the trade?
I’m concerned, says Karen Finerman. I look at the trouble Google had with China and worry if this could become a similar situation.
I think the market is overreacting, says Pete Najarian. If you believe RIM can resolve the situation quickly I’d buy the weakness.
What do you think? We want to know!
CHART OF THE DAY: DOLLAR
Check out the chart of the day: the dollar index bounced right off the 200-day moving average.
What should you make of the action?
I don’t think the bounce is sustainable but I do think it lasts a couple days, says Tim Seymour.
I expect the dollar’s trajectory to be lower into the end of the year, says Joe Terranova and that should benefit the resource names.
In the currency market, I’m a seller of yen, says Steve Cortes. Japan is so export dependent I don’t see how Tokyo allows the yen to stay so strong.
HOTTEST MARKET OUT THERE: GRAINS?
A big earnings beat from Agrium and soaring wheat prices are calling attention to what's possibly the hottest market out there - grains.
How should you play the surge?
In the grain market I’d buy weakness but not sell strength, says strategic investor Dennis Gartman. However many grains have climbed substantially already so at these levels I’d wait for a pullback before making a move.
Dennis Gartman has much more to say about this trade. Get all the details. Watch the video now.
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Trader disclosure: On Aug 4, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (BAC), (BX), (GOOG), (INTC); Terranova owns (AMZN), (AKAM), (APA), (AGU), (ADBE), (BAX), (BBY), (BMO), (C), (COP), (CVS), (EMC), (FCX), (GOOG), (GS), (JNPR), (JOYG), (KOL), (KR), (MMM), (MOS), (MSFT), (PCP), (PEP), (PFE), (POT), (RIMM), (TER), (SKX), (SU), (UAUA), (WYNN), (XBI); Finerman owns (AAPL); Finerman's firm owns (ARM); Finerman's firm owns (LEA); Finerman & Finerman's firm owns (RIMM); Finerman's firm owns (WMT); Finerman's firm owns (DAN); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (SPY); Finerman's firm is short (IWM); Pete Najarian owns (C); Pete Najarian owns (CTRP); Pete Najarian owns (ALL); Pete Najarian owns (GS); Pete Najarian owns (MGM); Pete Najarian owns (PFE); Pete Najarian owns (RSH); Pete Najarian owns (ETFC)
For Joe Terranova
Terranova is chief market strategist of Virtus Investment Partners, LTD.
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For Barry Ritholtz
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