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The Year of the Bear

by: SA Editor Joan Wickham October 09, 2008 | about stocks: AAPL / C / EWZ / EZA / GM / GOOG / IBM / MA / PG / POT / RIMM / WB / WFC / WMT    

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Recap of CNBC's Fast Money, Thursday October 9.

Plunge Protection

Dylan Ratigan started the show with a discussion of the stock market crash today. He mentioned that over the last 10 days the Dow has gone from 11,000 to below 9000. Ratigan says there's a total crisis of confidence in the U.S. financial system. He says the debate now is when U.S. banks will be able to start lending in a rational way. Joe Terranova says the U.S. government needs to step in and be a buyer of futures. Tim Seymour says the plunge protection team is already buying futures. Jon Najarian says he would love to trade against the government and he hopes they do it. "I don't think it's a good idea because they can't manage anything," he said. Frequent guest Zachary Karabell, a chief economist with Fred Alger Management, said this is a run on the equity markets. "This is the only liquid place to go globally for money on a daily basis," he said. Ratigan asked the traders what a rational investor in the U.S. stock market should do now. Karabell says rational investors in this environment shouldn't liquidate all of their holdings. "If you don't need the money tomorrow, you don't need to run to your bank or computer and sell," he said. Terranova says we need the market to find stability and we need a convicted buyer in the market. Seymour said unless you have to sell, you shouldn't be selling here. He explained the big sellers are hedge funds with redemptions and big mutual funds. Najarian said investors don't trust the market right now. Terranova says we are in the process right now of deleveraging and it will stop at some point. "I guarantee you three years from now we will be higher than we are now," he added. Seymour said the market doesn't trust the regulators. He says hedge funds have thrown their playbooks out the window because of things like the short-sale ban.

One Year After the Bear - Mastercard (MA), Potash (POT), Research In Motion (RIMM), Procter & Gamble (PG), Wal-Mart (WMT)

October 9th, 2007 -- it felt like any other day on Wall Street. The Dow added 121 points on its upward march toward 15,000. The big headline involved the bull market celebrating its 5th anniversary. But exactly 5 years to the day after the bull began its stampede, it was stopped in its tracks by a resurgent bear. The slumbering giant began to awake when Merrill Lynch CEO Stan O'Neal became an early victim of subprime and resigned after an $8.4 billion dollar write-down. Still by the beginning of this year, the S&P was only down 5%. Not so bad. But it would soon become abundantly clear that this grizzly was just coming out of hibernation. Next, one bear took down another when venerable Wall Street firm Bear Stearns swiftly collapsed in March. By this point the market was down 18% from it's high. Jump ahead a few months to early summer when Wall Street hemorrhaged cash and credibility. Soon after Fannie, Freddie, AIG, Lehman, Merrill, Wamu and Wachovia were all gone or sold at fire-sale prices. A third of the market's value has been wiped out since that seemingly innocent day one year ago. Now on the first anniversary of the bear market Fast Money examines various ways to battle the bear.

  • Treasuries: They’re a great place to go if you’re scared but I think there are other places to go that are better, says Jon Najarian
  • Gold: I wouldn’t go overweight or underweight, says Joe Terranova.
  • Consumer Staples: I’d look at Procter & Gamble or Wal-Mart, says Tim Seymour.
  • Health Care: I think it’s a challenging space, says Zach Karabell. There’s going to be government action in the industry so be careful here.
  • Cash-rich companies: The best example of a cash rich company is Exxon and they’re buying back shares, says Tim Seymour. This stock looks good to me.
  • Victims Of Hedge Fund Liquidation: I think hedge funds threw more than a few babies out with the bathwater, says Joe Terranova. Some of them include Mastercard, Potash and Research In Motion, says Joe Terranova.

The Stock Market Story - General Motors (GM), Apple (AAPL), Research In Motion (RIMM)

Ratigan pointed out that General Motors trading action today was the center piece of the American stock market story. Karabell said the S&P downgrade of General Motors’ debt was backward looking. He says new-economy companies like Apple and Research In Motion did well today and that's a sign that this market isn't completely indiscriminate.

Plan To Take Equity

CNBC's Hampton Pearson joined the crew to discuss the government's possible plan to take a direct equity investment in the banking sector. He said the government is looking at taking stakes in banks to help free up the credit markets. Karabell says the government needs to get involved here. Terranova said they will have to let some banks fail as part of this process.

The Wells Fargo/Citigroup War - Citigroup (C) and Wells Fargo (WFC), Wachovia (WB)

CNBC's Mary Thompson joined the traders to discuss the latest developments between Citigroup and Wells Fargo over their merger battle for Wachovia. She said Citigroup is now saying it will not be able to reach a mutual agreement with Wachovia. However, she pointed out that Citigroup says it remains willing to complete its first offer of $2.2 billion for Wachovia's banking operations. She also reported that Citigroup says it has strong legal claims against both Wells Fargo and Wachovia. Terranova says at the end of this Citigroup will get a settlement. Najarian says Citigroup should walk away and "shut-up" because the American tax payer will win with the Wells Fargo deal.

Technology Could be the Trick – IBM (IBM), Apple (AAPL), Google (GOOG)

Take a hard look at IBM’s quarterly results. Big Blue surprised the Street and said it was still prosperous in the third quarter despite the worsening economic climate. IBM's profit beat Wall Street's forecast by 4 cents per share, and the company reaffirmed its full-year earnings guidance. Both were strong signs that IBM's core businesses are holding up well despite the economy and the crippled financial services industry. The company released its results more than a week ahead of schedule to help stop a steep slide in its stock price and to offer some perspective to the broader market. (As you might remember, IBM is a Dow component.) That sounds hopeful. And Gene Munster tells us there's another tech company that could also be well positioned. Specifically, he thinks you should keep an eye on Apple. “The reality is that Apple is gaining market share. They’re a leader in a growing market and they have a phenomenal balance sheet. This storm will pass,” he says. Munster is also bullish on Google. “I think Google is in a great position over the long-haul. Advertisers are going for more direct marketing and search is someplace where advertisers spend.” You can’t go wrong in the long-term with Apple or Google, at least according to Gene Munster.

Final Trade – Advice for Friday October 10.

Joe Terranova says don’t liquidate 401K or mutual funds.

Jon Najarian says this is like a boxing match. I think the government needs to become a referee and stop this fight.

Tim Seymour counsels to keep the good companies in your portfolio if you are not a distressed seller. I’d buy the EWZ (EWZ) of EZA (EZA) as emerging market plays.

Zach Karabell adds everyone has an opinion. Ask yourself, is there’s value in the world we live in as well as the US economy going forward? That’s really the only thing that matters.

Seeking Alpha is not affiliated with CNBC, or Fast Money.
 

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This article has 4 comments:

  •  
    Oct 10 01:16 AM
    A banker friend of mine has suggested this entire financial crisis is consolidation of wealth and power in order for the U.S. to stave off a rising superpower we know as China from becoming the world's most powerful financial/military force. I don't want to repeat the entire conversation but basically this is necessary and people in the U.S. and Europe need to hurt financially and stop buying imported stuff for a while. Those who are smart will survive; inverse etf's, gold, currencies, s/t treasuries.
    Reply
  •  
    Oct 10 01:30 AM
    Really ? that maybe so, but by doing so, it hurts your own citizens as well.
    Also, how can anyone stop people from buying foreign products ?
    Maybe people will buy more because its cheaper and can't afford American Made goods. There maybe a little truth in this but I think Russia should be the top of the list if that's true. Right ?
    Reply
  •  
    Oct 10 03:10 AM
    20% unemployment might help us to build more factories and build our own products. Modern factories are not the sweatshops of yesterday. Most work is machine driven, not hand. China has enough wealth now to do fine without us. I know, a bit hyproctical because Apple makes much of their products overseas. I do hope the "rumor" of an American Apple factory is true(highly doubt it), and that it "somehow" lowers costs or does not raise them. But think if an iPod cost $219 instead of $199 because it was made here, it wouldn't stop me from buying, it would encourage me, but maybe not all people would see it that way.
    Interesting point Philly.
    Russia should definetly be considered, and guess who's their neighbor?
    Reply
  •  
    Oct 10 12:29 PM
    I think there is a good chance that Apple will move some manufacturing back to the USA. It's a wild rumor, but it makes sense on several levels and also fits the characters involved and would be a timely move as well given concerns over labor, transportation, environment, energy etc...
    Reply
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