MUTUAL DISDAIN
Shares of Washington Mutual and National City plunged Monday afternoon as investors shied away from banks with large mortgage portfolios after IndyMac Bancorp failed late Friday and was taken over by the Federal Deposit Insurance Corp.
Analyst Bruce Harting wrote in a research note that Washington Mutual will need to "substantially" increase its loss reserves to cover still mounting losses in its mortgage portfolio.
Some of the regional banks present greatrisk returns, says Karen Finerman. Most will survive but I wouldn’t go near them right now because you can’t know which one or two won’t.
It’s clear to me that the market thinks there’s more to come, adds Joe Terranova.
“Next, I think you’ll see weakness in the credit card areas,” says Bill Fleckenstein of Fleckenstein Capital. "And in the interest of full disclosure I’m short Capital One ."
I think you can look at Banco Santander , from the long side, adds Tim Seymour. They’re the second largest bank in Europe and they just announced that they will acquire U.K. mortgage lender Alliance & Leicester. It’s not all bad news.
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JUST PRECIOUS
Gold ended above $970 an ounce on Monday, trading at its highest level in nearly four months as lingering fears of financial market instability and rising inflation boosted buying of the metal for its safe-haven appeal.
Investors are genuinely concerned about the economic landscape right now, explains Joe Terranova. Call if a safe heaven trade but gold is moving higher. It’s also worth noting that the last time gold traded at these levels was right before the Bear Stearns debacle, he says.
No matter how they fix the Freddie Fannie mess, it’s probably going to be dollar negative and that gets investor going into gold, adds Jeff Macke.
Look at Barrick , counsels Tim Seymour. And AngloAmerican out of South Africa. Both names appear attractive.
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FERTILE TRADES
The ag space rallied on Monday after commodities including corn, wheat and soybeans fell on favorable weather conditions in the Midwest.
I think there’s so much more risk in ag names such as Potash at these high levels, says Karen Finerman than there is in a Citigroup or any name that’s been badly beaten up.
Potash’s 10-year chart is not a chart that occurs in nature, says Jeff Macke. The trend will break eventually, but I think you can play the name, at least for now.
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BREAKING NEWS: KIMBERLY-CLARK
Shares of Kimberly Clark sank in after-hours trading on Tuesday after the maker of Kleenex tissues and other consumer products reported preliminary second-quarter results that were below analysts' estimates.
Their results, however were not an absolute disaster, adds Karen Finerman. The miss wasn't horrible. Still I’d stick with Procter & Gamble , she says if you're looking for a consumer play.
It’s a cost side miss, adds Tim Seymour. Inflation is coming home to roost.
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AFTER HOURS ACTION: DNA
Biotechnology company Genentechsays sales of its cancer treatments, led by blockbuster drugs Avastin and Rituxan, drove nearly 5 percent growth in second-quarter profit, but the results didn't meet Wall Street forecasts.
I don’t think these numbers are so bad, says Joe Terranova. I like the stock longer-term.
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1 MILLION SERVED... ALREADY?
Apple said Monday it has sold 1 million iPhones in the three days following the release of the latest model on Friday.
But the launch was plagued by software problems. All the new iPhones had to connect to Apple's servers for activation, which quickly overloaded them. Lines of customers built in stores as employees were unable to get the phones working.
I’m not particularly impressed with the whole iPhone phenomenon, says Tim Seymour. Those lines will dwindle.
It’s another cell phone, exclaims Jeff Macke. Nothing more.
