Word On The Street
Dylan Ratigan hosted CNBC’s “Fast Money” Monday night. He started the show off with a discussion over the news that Wall Street investment bank Lehman Brothers (LEH) had filed for Chapter 11 bankruptcy. Pete Najarian said that initially the market digested the bad news, but later in the day when we didn’t get more clarity from American International Group (AIG), the Financial Select Sector SPDR (XLF) tipped over. Jeff Macke explained that uncertainly is death on Wall Street and that is making it impossible to own any financial stocks into the close. “For me, it’s an extraordinarily said day but the market will recover from Lehman Brothers,” Guy Adami said. Joe Terranova explained that a market bottom will be set by the psychology of those who are trading it. He thinks we are entering the final stage, which is the stage of “capitulation.”
Goldman Take
Ratigan moved the discussion to Goldman Sachs Group (GS) which is set to release earnings on Tuesday. Adami said the AIG news is a “game changer,” but he thinks earnings have been taken down to a level where Goldman will beat expectations. Najarian said that “counterparty risk” is what dragged Goldman down today in front of their earnings. He also pointed out that Goldman called for $149 oil and now crude is trading under $95. Terranova said tomorrow we will get a glimpse into how Goldman traded commodities themselves. Najarian mentioned that 100 puts on Goldman traded 4 times the open interest and the 95 puts also traded above open interest. He explained that shows that traders are think Goldman could trade much lower.
Consumer Talk
Ratigan asked the traders what will happen to the American consumer now that less money is available for borrowing due to the financial crisis. Macke said it will depend on a lot of different things, but as long as people have jobs institutions will issue them debt. He mentioned he is more worried about the employment number and the drop in oil.
Fed Decision
CNBC’s Steve Liesman joined the “Fast Money” traders to discuss the Federal Reserve’s rate decision set for tomorrow. Liesman said he will be very surprised if the Fed cuts rates. He pointed out that the Fed Funds Rate is beginning to bake in a rate cut for the future. He also pointed out that financial credit has risen to $3 trillion on Wall Street and Lehman is just the beginning of the process of deleveraging that excess credit.
Market Opportunity
The traders discussed some great opportunities in some non-financial stocks that were unfairly beaten-up on Monday’s massive market plunge. Adami said look at McDonald’s (MCD) because it’s “bulletproof.” He also likes Church & Dwight (CHD) which made an all-time high today. Terranova advised viewers to get diversified into consumer staples, healthcare, commodities and real estate. Najarian said stick with the pharma plays like Amgen (AMGN), Johnson & Johnson (JNJ) and Novartis (NVS). He said if you want to stick to financials look at Northern Trust (NTRS), State Street (STT) and USB (UBS). He pointed out that NTRS hit a 52-week high today. Macke advised viewers to have an exit point on any stock they buy right now.
Commodity Prices With Gartman
Strategic investors Dennis Gartman, author of the Gartman Letter joined the show to discuss the commodity complex. “The endowment funds, the pension funds that got involved in the commodity market are probably wondering what they got talked into,” Gartman said. He explained those funds bought the highs in a number of commodities. Gartman explained that for the first time in a long time he is concerned about how the whole financial crisis seems to be imploding. He thinks the rating agencies are the problem here and they were late to the game with informing investors of the problems in the mortgage market and among the financial major’s balance sheets. Gartman said the only trade he has on right now is a large position McDonald’s and short the stock market.
Dr. Gloom
Bill Fleckenstein, of Fleckenstein Capital joined the traders to discuss the credit crisis. Fleckenstein said the U.S. will most likely have a difficult recession. He thinks that will mean that companies won’t earn as much as before and some will get hurt. “It’s going to take a while to fix all of this,” he added. Fleckenstein thinks investors would be better off holding more cash. However, he feels the U.S. dollar is vulnerable to inflation and the policies of the Fed. “I think were in the early stages in figuring out just much the credit crisis has put the U.S. economy at risk,” he said.
Financial Trades
The crew gave out ways to trade the battered financial sector. Adami said keep an eye on Jefferies (JEF) because they’re hiring people while the rest of Wall Street is firing. Terranova thinks American International Group (AIG) is too big to fail because they touch Main Street. Najarian said buy puts on Wachovia (WB). He feels the bank has more trouble coming.
POPS&DROPS
POPS- Trucking stocks like Old Dominion Freight Line (ODLF) popped 3%. Terranova pointed out that J.B. Hunt Transport Services (JBHT) was up today off lower oil.
DROPS- Research In Motion (RIMM) dropped 7%. Najarian explained that what’s hurting RIMM right now is losing customers through consolidation. Take-Two Interactive (TTWO) plunged 24% after Electronic Arts (ERTS) pulled its offer to buy the company. Macke said today was a bad day to come out with this kind of news. Refiner stocks such as Sunoco (SUN) fell 20% and Tesoro (TSO) lost 16%. Terranova said move to the sidelines on this sector right now. Steel names like United States Steel (X) slipped 11%. Adami said it’s “unbelievable” that United States Steel is trading at where it started the year.
Final Trade
Macke said do nothing. Adami likes Johnson & Johnson (JNJ). Terranova picked Alcoa (AA) . Najarian went with Lowe’s (LOW). Get the scoop on tomorrow’s hottest trade ideas – TODAY! BeaconEquity.com PREMIER PICKS have an amazing track record. Join this select group and ride the profit wave!