Lehman Talk
The traders discussed Lehman Brothers (LEH) after JPMorgan Securities forecasted a write down of $4 billion of mortgage-related paper for the third-quarter for the investment bank. Najarian explained that investors thought the worst was over for Lehman, but that isn’t the case. He said the trade is to short Lehman but he isn’t very comfortable with it. Terranova said he likes Goldman Sachs Group (GS) in the sector because it is best in breed. Najarian pointed out the yields on Fannie Mae (FNM) and Freddie Mac (FRE). He said its a high-risk trade but the yields are saying something. Macke said the yields are telling the market that they’re going out of business. He also mentioned that Lehman Brothers will have to raise money to survive.
American International Group Chat
Goldman Sachs cut its price target on American International Group (AIG) and released a bearish report that said the insurer will need to raise capital and will most likely see rating agency downgrades. Goldman said it sees $9 to $20 billion in losses from AIG’s CDS book. Zach Karabell said don’t get long AIG. Macke said avoid the financials for anything other than a trade. He feels the bad news will continue until the credit market cracks. Terranova disclosed he bought AIG puts for hedge against his Goldman Sachs long.
WATCH TOLL BROTHERS CEO INTERVIEW HERE
Options Activity
Najarian noticed unusual options action in Ryland Group (RYL). He mentioned that traders are buying lots of October puts.
Medical Trade
The crew took a look at Medtronic (MDT) after the electronic medical heart device maker beat analysts expectations and reported a 30% jump in revenues from its spinal and stent divisions. Najarian said he likes how MDT is trading. He explained that MDT and Johnson & Johnson (JNJ) are strong and outperforming the S&P and Dow right now.
Oil Take
The traders talked about the rally in oil off the dollar’s weakness Tuesday. Terranova thinks that Venezuela and Iran will ask for a production cut if oil falls to $100. He said the move in oil today was short covering ahead of the weekly inventory report set for Wednesday. Macke said oil is just bouncing here. Najarian told viewers to look at the Oil Services HOLDRs (OIH) for an interesting trade at these levels.
Finerman Phone Call
Trader Karen Finerman called into the show today from her office to talk about the markets action. She said their is a real disconnect between the stock market and the debt market. Finerman mentioned the financial sector continues to look bad. She pointed out that Freddie Mac’s (FRE) debt is so expensive that she wonders how they make money. She predicted that more shoes will drop for the financials, specifically in auto loans and commercial mortgage backs. She advised investors to short more bank stocks, especially if the Federal Reserve raises rates.
Retailer Trades
The traders discussed Home Depot (HD) and Lowe’s (LOW) after Home Depot said sales will fall 5% for the fiscal year ending in January. Terranova told viewers to dump HD if it breaks below the 200-day moving average at $25.85. Macke disclosed he sold his long position in Costco (COST) today, because the sector is just too tough. Chat and share ideas with the best small cap traders LIVE each day free at Stocknetworkonline.com