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Stocks Rise In Face Of Bank Bailouts

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STOCKS RISE IN FACE OF BANK BAILOUTS

The Dow rose on Friday on strength in the energy sector and companies that hold up well in recessions, while reassuring comments from Britain's Barclays late in the day helped financials cut losses that had driven the market lower earlier.

The banking sector was in the spotlight throughout the session after a fresh $20 billion government capital injection for Bank of America revived worries about the fate of the sector.

On the heels of that lifeline, Bank of America posted its first quarterly loss in 17 years, while Citigroup also reported a hefty quarterly loss and said it plans to split into two units.

Although JPMorgan is viewed as being healthier than Bank of America and Citigroup, it too posted a hefty decline in quarterly profit on Thursday.

Despite the maneuvers surrounding the financial sector, analysts said worries persisted over the health of the group and whether banks will need to raise more capital as they struggle to deal with the credit crunch and global economic slowdown.

Strategy Session with the Fast Money Traders

I want to know what happened at Merrill that caused Bank of America to need more money, muses Karen Finerman. Did the assets deteriorate faster than anticipated? I think they lost a fortune in commercial backed securities.

It’s possible that Bank of America CEO Ken Lewis was pushed into the merger by the feds, adds Jeff Macke. And maybe he thought worst case scenario, the government bails us out!

No way, counters Finerman. Absolutely, no way!

By the way Ken Lewis is the same guy that bought Countrywide, reminds Tim Seymour.

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CIRCUIT CITY TO LIQUIDATE

Shares of Best Buy surged on Friday after rival Circuit City Stores said it will liquidate its assets and shutter hundreds of U.S. stores after failing to reach a deal to sell the company.

U.S. Bankruptcy Judge Kevin Huennekens approved the plan to sell Circuit City to a liquidator group, capping a tumultuous year for the specialty chain.

Circuit City is one of the largest retail bankruptcies in the current U.S. recession

This is the beginning of a torrent of failing retailers, speculates Jeff Macke. Anyone with debt is in question and that could include Macy’s. I think there will be a ton of retail space coming onto the market.

Circuit City is widely mall based, reminds Karen Finerman. When they close, what happens to the other retailer trying to hold on -- as traffic slows down?

Should Circuit City have gotten a bailout. Tell us what you think?










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OIL MAKES MODEST GAINS

Oil prices rose 3 percent on Friday, with short covering amid choppy pre-holiday trade outweighing a gloomy demand outlook.

"There's short-covering on the February contract, which is expiring on Tuesday," says Andy Lebow, broker at MF Global.

"The market contango is also extraordinarily wide, also provoking covering here," he adds, referring to the March NYMEX contract's $6 premium over February.

Oil is pricing around $60 as of March 2010, reminds Joe Terranova. Ultimately it looks poised to go higher. I’d play the integrated names as a long-term play on oil. I think there’s pent up demand. If there’s a little bit of a recovery in oil we could see a fast bear market rally, he adds.

But the price of gasoline fell 43% last year, reminds Jeff Macke. That’s what deflation looks like. There’s no pent up demand. There’s no demand, he bristles.

In the larger commodities space, I like Freeport McMoRan as a copper play, adds Tim Seymour. By the end of the second quarter I think you see commodity prices move higher.

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INTEL HIGHER

Shares of Intel rose Friday in a relief rally following word that the firm expects margins to bounce back to "healthy" levels in the second half. The world's largest chip maker had issued two revenue warnings in the past three months which sent shivers through the technology sector.

I think they could benefit as their clients get subsidies from the government, says Tim Seymour.


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WORD OF '09: DEFLATION?

Inflation slowed to a half-century low this past year and industrial output fell for the first time since 2002, data showed on Friday, as the recession deepened toward year-end, raising the specter of deflation.

With consumer confidence remaining at depressed levels, the reports suggested the economy could take longer to pull out of a downturn that is on track to be the longest and possibly deepest since WW II.

The Fed is lying when they say they’re not concerned about inflation, muses Jeff Macke. Without inflation people just wait to spend believing prices will continue lower.

Maybe the key is to anchor inflation to a low rate, adds Joe Terranova.

The thing that’s scary is the velocity of the change, says Tim Seymour.




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Trader disclosure: On Jan 16, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (C), (BAC), (SDS), (TM), (MCD), (DIS), (MSFT); Seymour Owns (AAPL), (BAC), (EEM), (F), (COP); Finerman's Firm Owns (DSX), (MSFT), (COP); Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO), (VNO), (BBT), (COF);

Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (DLR), (EPR), (EXR), (IGE), (SLB), (MAC), (DBC), (DBV), (SKT), (UA), (CLB); Virtus Investment Partners Owns More Than 1% Of Seagate Tax Refund Rights; Virtus Investment Partners Owns More Than 1% Of Corporate Office Properties Trust SBI MD; Virtus Investment Partners Owns More Than 1% Of Goldman Sachs Financial Square Fund - Money Market Fund

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