Recap of CNBC's Fast Money program, Wednesday November 19.
The Dow plunged to below 8,000, the lowest level in 5 years, on concern over the fate of the big three auto companies: GM, Ford and Chrysler. The Federal Reserve slashed its growth forecasts and more interest rates cuts are expected. Pete Najarian noted the financials are not leading and are in turmoil, and the volatility index is at 70. Guy Adami is concerned the Dow could drop all the way to 6,000. Jeff Macke cites deflationary pressure as the reason for the selloff. Karen Finerman does not see a recovery for oil until there is a substantial decrease in production.
Citigroup led the downward spiral in financials on Wednesday. Even once-solid financials like JP Morgan and USB dropped, and Melissa Lee noted Goldman Sachs is close to its IPO level of $53. Pete Najarian says options action indicates Merrill is headed lower and Karen Finerman is critical of the fact that in return for TARP funds, banks are not required to lower their dividends.
As the big three automakers make their case for government aid, Jeff Macke says the spectacle is embarrassing because they have no plan. He suggests shorting Toyota. Guy Adami thinks the $25 billion will only delay the inevitable fall of the companies, and since they are reducing spending on ads, Google will suffer.
On news consumer prices for October fell the largest percentage on record, Walmart, Costco and Target shares took a hit. Guy Adami thinks Target reached capitulation and he would look out for Church & Dwight.
While some were expecting renewed talks about a Yahoo acquisition, Microsoft CEO Steve Ballmer rejected rumors of a takeover, but said the two companies may do a deal. Macke, a former shareholder, expressed his disgust; “Everyone that has a brain is at Google. There’s about 4 guys and a dog left at Yahoo! and that’s about where I’d value the company.” Despite growth, Ballmer says Microsoft will try to protect itself from tough times by cutting hiring which will "point to much, much slower growth...in head count for the remainder of this financial year and I suspect into next financial year."
Falling prices signal a deflationary rather than an inflationary environment. While lower prices might seem like a bullish sign, they can actually slow spending as consumers put off buying until prices fall still lower. Dennis Gartman discussed the reason deflation is more problematic than inflation: “Inflation is easier to handle. Everyone feels a little wealthier when there’s inflation. But with deflation you don’t know how far prices can fall. And everybody’s net worth diminishes.” While lowering interest rates is one way to cure deflation, the Fed may be unlikely to make this move. How to trade in this environment? Dennis Gartman would not buy gold and he is short Goldman Sachs, Simon Property Group and NVR Inc.
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