Trader Talk

Next Up, Locusts

Next up, locusts. An earthquake and a hurricane in New York...all in one week? The Mayans might have been right.

Germany down over 2 percent again...some big players seem to be selling anything big and liquid. Why? While the Greek bailout deal is clearly getting more complicated, and getting an expansion of the European Financial Stability Facility (EFSF) through the European parliaments is also a headache, some traders are blaming the weakness on the continuation of the ban on short selling in France, Italy and Spain.

They may be right. For example, high-dividend utility stocks were also down in Germany—isn't everyone looking for yield these days? Well, yes, but if you can't short get the idea.

And there is a small camp that is really bearish—they think cashflow estimates for companies globally are too high, and that we might see dividend cuts ahead. But that is a minority camp.

In a sense, a crisis is good news, because it will accelerate the fiscal union of Europe. "The more Germany goes down, the more the market is forecasting Eurobonds backed largely by Germany," one trader wrote to me this morning.

Another issue: German Chancellor Angela Merkel is under attack ...even from her own party. CNBC's Silvia Wadhwa has noted that her own Christian Democrats are increasingly opposed to the EFSF expansion and the Greek bailout.

Back in the U.S., Ben Bernanke has a tall order: He needs to remain calm and explain what tools he has. But you can also expect a good amount of passing the buck: Telling Europe what it needs to do and how he can help, but more importantly expect a lot of suggestions for President Obama and the Congress. Remember after the Federal Reservebegan the second round of quantitative easinglast year, Bernanke made an open plea for more stimulus? He got it: remember the payroll tax cut? Expect that to be continued, for sure.

As for stocks, the larger camp is looking carefully at an asset-allocation trade. We have already seen some signs of topiness in Treasurys and gold, and stability in stocks. Many stocks are trading at single-digit earnings multiples with tons of cash.

Look at General Motors: It has something like $34 billion in cash sitting in the bank. GM's market cap: $34 billion. Huh??


1. Damage this month: Although the S&P is only down 10 percent this month, a look at Europe shows greater bleeding. Down another 2.5 percent Friday, Germany’s DAX has plunged 24 percent. Meanwhile, Italy is down 20 percent, Russia is down 19 percent, France is down 16 percent, and Spain is down 15 percent.

2. Tiffany rallies 5 percent after handily beating estimates 86 cents a share vs. 70 a share consensus, and providing bullish guidance. The luxury retailer saw same-store sales soar 22 percent, propelled by 41 percent rises both in Asia and at its New York City flagship store.

Unlike many retailers in recent weeks, the jeweler raises its full-year guidance above estimates ($3.65 a share to $3.75 a share, vs. $3.58 a share consensus). It sees sales growing at a mid-teen rate, led by growth in Asia, which is expected to be up at a mid-20 percent rate.

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