Word On The Street
Dylan Ratigan hosted CNBC’s “Fast Money” Friday night. He kicked the show off with a discussion of the proposed bailout of the housing and banking system. Joe Terranova told viewers to forget about the bailout. “I bought the SPDR Trust (SPY) on Wednesday because the short sellers are piling in since they can’t short the financial stocks,” he said. Terranova says when the short ban comes off on October 2 the S&P 500 will pop. Tim Seymour said he loved how the S&P 500 traded today in the face of bad news. “Technically we have room to run here, past 1220 or maybe up to 1260,” he added. Jeff Macke says he doesn’t want to be long this market because they are making up rules as we go along. Karen Finerman said she really didn’t do a lot today in the markets.
Bailout Talk
Republican Adam Putnam of Florida joined the traders to discuss the bailout plan. He said negotiations are ongoing and there is some momentum towards a hybrid of what Paulson proposed and what the republicans are proposing. He says the goal is to have a completed deal before the markets open on Monday. “The five core principles of the deal will be: tax payers will benefit from the upside of the assets, more accountability and oversight from Congress, no golden parachutes for executives and doing more for Main Street,” he said.
Wachovia Merger?
Andrew Ross Sorkin, a reporter for the New York Times joined the traders to discuss breaking news that Wachovia (WB) is in merger talks with Spain’s Banco Santander, Wells Fargo (WFC) and Citigroup (C). Sorkin said Wachovia is worried that if a bailout bill doesn’t happen they will have to start looking for alternatives. “Wachovia wanted to know who was around the hoop this weekend in case things started to look like things weren’t going the right way. In an ideal world Wachovia CEO Bob Steel would love keep the good stuff and hope the bill bails out the bad stuff,” he added. Ratigan asked Sorkin if any transaction would result in the loss of Wachovia’s equity. Sorkin says he doesn’t want to cause a run on the stock and the firm is well-capitalized at this momentum. “The banks will keep falling, so buckle up,” Macke added. Terranova reminded viewers that Wachovia paid $24 billion for the pioneer of option arms. Ratigan told viewers that he saw a huge crowd around the post for JPMorgan Chase (JPM) on the NYSE that was buying the stock. Finerman says the money is flowing into JPMorgan. Macke advised viewers to sell into the 10% rally in JPM
Free Market Solutions
Jon Najarian joined the traders to discuss some market-based solutions for the bailout plan. Najarian says a system exists right now that we can use to get a price discovery system for mortgage-backed securities. “The problem here isn’t just leverage, its transparency and the fact that mortgage-based securities weren’t marked-to-market until the eleventh hour,” he said. He says if the mortgage-backed securities were brought to an exchange we would have a continuous marked-to-market process, the Federal Reserve could be a clearing firm and we could unify the amount of risk we have around the world.
Stifel Financial
Ron Kruszewski, the CEO of Stifel Financial (SF) joined the traders to discuss the bailout plan. He said the bailout is a restructuring and not a bailout because everyone was involved in this. “As people deleverage coupled with the fact that financial institutions will now become bank holdings companies, we will be better able to compete,” he added. He pointed out that on average Stifel leverages three-to-one and has averaged an 18% return on equity. “Our industry is going to shrink because we will not have the leverage we had before,” he said.
Bailout Progress
Democrat Chuck Schumer of New York joined the traders to discuss the progress of the bailout. He said right now Congress is at a bit of an impasse. “The Democrats have an offer to the House Republicans that they wouldn’t object to putting their insurance provision into the packages as an option,” he said. He says the Democrats don’t believe the insurance provision will work. “The problem is the government will have a downside and no upside, plus it’s very difficult to actually accomplish,” he added. However, he says if it would bring the House Republicans to the table they are willing to put it into the package. 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!