Three Reasons for Bear - Fast Money Recap (10/15/08)

Recap of CNBC's Fast Money, Wednesday October 15.

The Three Reasons for Bear

Dylan Ratigan started with a discussion of the single worst day for U.S. stocks since the market crash of 1987. He explained that the catalyst for the sell-off was this morning's release of poor retail sales numbers. Ratigan also pointed out we have three major aspects that are causing this bear market: flawed housing finance, flawed regulation and the Lehman Brothers bankruptcy fallout. Joe Terranova says that "going into tomorrow, we don't know what lies ahead." He said that at a certain point this market action begins to bother you as an active trader or an active investor. Tim Seymour said the reality is that nobody is taking responsibility. Pete Najarian explained that the European markets should have tipped off U.S. investors as to what was going to happen with our markets today. He says "the buyers are on strike, and they don't know the rules." Guy Adami says "clearly we're in a recession, but Europe is in worse shape than us." Ratigan asked traders what they need to see to have the confidence to get back into the stock market. Seymour said we need to see a combination of a lot of things, such as a pricing mechanism, mark-to-market accounting, $65 billion of hedge fund money tied up in Lehman and rules about shorting that people find unclear. He says "hedge funds weren't blowing up today; they were just taking their books down."

Investors vs Traders

Adami explained as an investor you need transparency, but for a trader, they live for this volatility. Terranova said he needs to see progress on establishing a central exchange for credit default swaps , the return of natural buyers in the commercial paper market and accountability for the people who screwed up the system.

How To Trade This Market - Citigroup (C), Wal-Mart (WMT), PowerShares DB US Dollar Index (UUP), Freeport-McMoRan (FCX), Petroleo Brasileiro (PBR), Vale (RIO)

Najarian said investors can use the market volatility to their advantage by writing options on the stocks they like. He told viewers he bought Citigroup today and sold the high premium optionswaps, the return of natural buyers in the commercial paper market and accountability for the people who screwed up the system. Adami says "we will test the lows on the Dow again and then see the same move to the upside we saw Monday." He told viewers to take a look at Wal-Mart for Wednesday. Terranova likes the PowerShares DB US Dollar Index for a bet on the dollar moving higher. Seymour said, "Freeport-McMoRan, Petroleo Brasileiro and Vale could go much lower next week."

William Fleckenstein, president of Fleckenstein Capital

William Fleckenstein joined the gang to discuss what he needs to see to restore the integrity in the financial system. He said, "The problem with the stock market is that stocks aren't cheap if we are going to have a brutal recession." He says we would be in the same position we're in now, even if we had done something different with Lehman Brothers. He says "going forward we have to stabilize the financial system and fix the economy." Fleckenstein mentioned that someone close to the situation told him that we don't have enough good collateral in the banking system, and the Fed has to make unsecured loans. He said he isn't sure that solution will fix the problem in the financial system.

Wayne Angell Discusses the Fed - Fannie Mae (FNM), Freddie Mac (FRE)

Wayne Angell, a former Federal Reserve governor, joined the traders to discuss what can be down now to fix the problems in the financial system. He says the first step is that "Treasury Secretary Henry Paulson needs to admit he made a mistake in taking Fannie Mae and Freddie Mac shareholders to zero." He explained that the system will not be fixed by piling money into bank stocks. The second step, he says, is to "cut the federal funds rate so low that the stock market becomes attractive." He explained we can't survive deflation in house prices on top of a decline in equity prices.

Corporate Greed Run Amok

If there’s one billionaire investor you don’t want to aggravate its Carl Icahn. What makes us say that? He’s aggravated; really aggravated. Wait till you see what’s got him going. Carl Icahn came on to discuss the events that have led up to where we are now. He said the corporate governance in this country is "nonexistent." He says "we have a lack of confidence in this country and we need to change the laws so we can make people who run companies accountable." Icahn is particularly angry about the failure of Lehman Brothers. On his website, he takes aim at Lehman's top brass suggesting their weakness was arguably the single biggest cause of the current crisis. “Why, for instance, did the Lehman board allow Richard Fuld to occupy both the chairman and CEO role?" Icahn writes. "The CEO is the chief manager of the company but the chairman’s job is to look after shareholders interests. Clearly these two roles should have been separated a long time ago, as they should in most companies. He didn’t want to talk about individual stocks, however we got a little tidbit on Yahoo! You might remember Icahn owns a large stake in the Internet company and joined the board after the company bungled negotiations with Microsoft. He tells Fast Money, “Sooner or later there has to be a deal between Microsoft and Yahoo! I really do believe that.”

He chastised Ben Bernanke and Henry Paulson for not removing the bad apples from the system. Icahn says, "If we want money to flow into equities in the U.S., we have to put some partnerships together to takeover companies and insert better managers." Najarian asked Icahn if he likes any specific stocks right now. Icahn said he's been buying some senior level bank debt recently, because he will either own the company or get paid 16% to 17%.

Trader Radar - Callaway Golf (ELY)

Callaway Golf was among the most actively traded stocks in the NYSE today.

Your First Move for Thursday October 16th.

Guy Adami told viewers to join Icahn's United Shareholders of America campaign.

Seymour said to avoid emerging market currencies.

Joe Terranova suggests getting long the dollar through the PowerShares DB US Dollar Index Bullish (UUP).

Pete Najarian thinks Abbott Labs (ABT) is a buy on strong forward guidance.

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Comments

[MarvinMBA:]

This is a good time to be out of the market. If you are not out already, the market is going to TAKE YOU OUT as the real economy and its negative outlook come into play....so take you choice...out yourself or be taken out as we go to under 5000.....MarvinMBA

2008 Oct 16 01:56 AM

[blondino:]

Wayne Angell, a former Federal Reserve governor, joined the traders to discuss what can be down now to fix the problems in the financial system. He says the first step is that "Treasury Secretary Henry Paulson needs to admit he made a mistake in taking Fannie Mae and Freddie Mac shareholders to zero."

hmmm, i like this one...but the ego is a strong and viscious enemy

2008 Oct 16 09:27 AM

[Richard Col...:]

I like Carl Ichan. His attitude is make money or take over the company. We need more of this from the wealthy. Let's pay CEO's if they perform and not give them a blank check.

Dn Kowkabany

2008 Oct 16 11:28 AM

[Socialism c...:]

Angell is an idiot!!:

"He explained we can't survive deflation in house prices on top of a decline in equity prices."

Sorry Wayne...but over-inflated housing prices are a big part of the problem! We *need* them to deflate, in order for buyers to come into the market!! I waited to buy...and am still waiting. I *saw* that prices were bubbling. Do you think I'm going to step in now, with the government and idiots like you talking about using artificial means to prop prices up???

Let's cut to the core here: there are reasons why home prices are overinflated, and it's not just banker greed, or greed by those flipping houses. We have a population that is heavy to the "boomer" segment -- they have now reached a point in their lives where they are selling second homes...downsizing a bit in prep for retirement. That is being overlooked. The boomer population is also at the heart of the medicare & S.S. funding crises...and will be a tax revenue problem in general...because the government will soon be paying all kinds of *entitlement* and providing *services* to a large group of people with a much smaller base supporting it all...and the government will never trim back to any significant degree, while those boomers are still voting. *THAT* is the problem with ever having gotten onto a socialist, entitlement path to begin with!! It also underscores the grave error of our birth-control, anti-population mentality!! We'd have millions more in the work-force right now if it weren't for that immoral, fallacious thinking. The chickens are coming home to roost in all these respects.

It is clear that any efforts to prop up home pricing in the face of such significant demographic shifts are doomed to failure, and will only result in creation of another artificial bubble at the expense of taxpayers. This bailout is setting up for an even harder fall...and sooner or later, the people will have had enough and there will be another Tea Party.

2008 Oct 16 11:50 AM