Recap of CNBC's Fast Money Program, Tuesday January 20.
News that the British government increased its stake in Royal Bank of Scotland to 70% caused American banks to falter on fears that nationalizing banks might happen over here. However, with financials falling from the largest to the fifth largest sector in a mere two years, are financials really needed for a market recovery? Zach Karabell commented, “You probably don’t need the financial stocks to rally for the broad market to rally. You just need them to be functional.” The proof? Telecom, utilities and materials rallied while financials fell, and Karabell says there might be a beneficial decoupling of financials from the larger market. However, credit still needs to recover if the market is going to recover. Karabell recommends industrials and technology for a long-term trade.
While CEO Steve Jobs’ medical leave made some investors feel less optimistic about Apple, Piper Jaffray’s Gene Munster predicts the company will report a solid quarter; “Apple’s performance in December not only saved the quarter – but may have propelled earnings beyond Wall Street projections,” he says. Barclays Capital Analyst Ben Reitzes is also bullish on Apple long-term; “We are not expecting top-line upside, but we do believe Apple will get bottom line support from margins.”
As Obama is in the process of crafting a $1 trillion stimulus plan, many are wondering how he is going to pay for it. The classic method is to issue more Treasuries, which will mean a growing deficit. Jon Najarian would short Treasuries or be long gold or TBT. Tim Seymour would play emerging markets with MSD.
Tuesday saw carnage in the financial sector as Bank of America and Citigroup dropped to levels not seen since the early 1990s, State Street plunged 59% on an unrealized $63 billion loss, and even stable financials PNC and JP Morgan felt the pain. RBC bank analyst Gerard Cassidy said what the banking system needs is equity; “We might have to go with common equity like Britain did.” He continued, ”We need to bail out the system and recognize the losses. Then banks will start lending again. But it seems the new administration is more focused on the homeowner.” Guy Adami says the biggest job for the new leadership is to restore confidence in the banking sector and added he wouldn’t chase State Street even though it is low.
IBM rose in after hours trading after it beat earnings estimates and raised guidance. Guy Adami says the company’s margins improved thanks to new contracts worth $17 billion, and added that Hewlett Packard might be an attractive trade.
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