Financials Down Market - Fast Money Recap (7/11/08)

by: Joan Wickham

Recap of CNBC's Fast Money, Friday July 11. 

Friday was a down day in the markets, ending with the major indices finishing lower. The Dow lost 1.14% to 11,100.54, the S&P 500 dropped 1.11% to end at 1239.49, while the Nasdaq lost 0.83%, finishing at 2239.08.  

Financials Move the Market Down:  Fannie Mae (FNM), Freddie Mac (FRE) 

Alarm swelled on Friday that Fannie Mae and Freddie Mac might run short of capital, placing the fragile U.S. economy at even greater risk, but after the closing bell both said they’re well capitalized and worries are unfounded.

On CNBC's Fast Money TV show, the traders began the show with a lengthy discussion on, Fannie Mae, Freddie Mac and the financials.

Karen Finerman said that the financials are "vague," with "a lot of swirling around." She said she is unclear whether there’s a plan in place to address the crisis or whether they are just saying there is no crisis? Either way lack of clarity is not a good thing. Fannie Mae and Freddie Mac.

Jeffery Macke said that you cannot buy the financials. He said that Fannie and Freddie are “simply in the house of pain,” and “financials are a falling knife.”

Guy Adami said that he has no idea what to do with these stocks and said that we “saw capitulation today.”

Dylan Ratigan asked the traders if they believe that investors understand the macroeconomic risks surrounding the markets today, examples being housing and banking issues.

Macke said that “every crisis has a rhyme,” and said this situation cannot be plugged into a spreadsheet. He said that no one is on the other side of these trades, and that this whole situation will “play itself out.”

Ratigan asked if the Fannie and Freddie crisis would presume massive default on mortgages.

Finerman responded by saying “90% of these AAA mortgages will be fine.”  

Long and Short of Banks: UBS (NYSE:UBS), HSBC (HBC), General Electric (NYSE:GE), Unibanco (UBB), ICIC Bank (NYSE:IBN) 

Moving on to banks, Pete Najarian weighed in, saying that there is an opportunity with foreign banks. He said that domestic banks are trading below book value and that foreign banks "have not been beaten." Najarian says “Get long a domestic bank such as Bank of America and short HSBC, UBB, UBS or IBN.

Looking at names which were not involved, Adami said to look at what General Electric(GE) said today. He said GE announced that infrastructure is up 20% and that “these plays are working.”  

Financials Impact Unrelated Stocks: Research In Motion (RIMM), Apple (NASDAQ:AAPL), Chesapeake Energy (NYSE:CHK) Johnson and Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), Amgen (NASDAQ:AMGN), and Celgene (NASDAQ:CELG) 

Macke said that when non-related names react and are pulled down in financial crisis, we will know we're in capitulation. An example was Research In Motion.

Najarian agreed, saying that Apple "was flat while others got crushed.”

Adami agreed, saying to look at Chesapeake Energy. He said that "opportunities exist if you get rid of the tunnel vision and look for them but the time to buy it was probably a few days ago.”

Speaking on the pullback in trends that have recently been observed, the traders weighed in.

Macke said that it is wise to “not ride these things down,” but he “would take a risk.”

Najarian agreed and said to look at the airlines because they make a good trading opportunity. He said that if you feel oil is at the upper end, then there may be an opportunity by going across the board to airlines.

Macke warned, “I do not want a portfolio betting on airlines rallying.”

Next, Doug Cliggott, chief investment officer of Dover Management, discussed the current economic environment. He said that we are “about halfway” to the bottom and that “we're uncomfortably far away from the bottom.”

He thinks the way to play stocks right now is long healthcare, specifically Johnson and Johnson, Pfizer, Amgen and Celgene. Continuing, Cliggott said that “tech is the most overcrowded long in the market right now,” and that is his short.

Following Cliggott was Jeff Harte, brokerage analyst with Sandler O'Neill. He said that it is “hard to say what exposures could be,” within the market. Harte said that although investors may think stocks are cheap but he “cannot say for sure.” Wrapping up, Harte concluded that the markets “need to see greed take the place of fear again,” and there must be housing price stabilization or a stabilization of the housing market's deterioration.  

Upcoming Earnings - Johnson & Johnson (JNJ), Budweiser (NYSE:BUD), Pride International (NYSE:PDE), McDonalds (NYSE:MCD) 

The traders looked to Johnson & Johnson for salvation in earnings ahead. Najarian and Adami both like JNJ saying it is “interesting,” and they like “where JNJ's been.” Guest Matt Simmons, chairman of Simmons & Co., detailed the current fluctuations in oil. He said that he is “flabbergasted with the misinformation going around” and said that we are currently in a "witch hunt." Instead, Simmons noted, we should be doing our homework to get ourselves out of this mess. Simmons continued, saying that the false belief that that oil is in a bubble is “terrible” and “poppycock.” Following this up, Simmons warned investors that it is possible we will see a catastrophic collapse due to the dropping of inventories bringing about a price collapse thus creating an oil shortage. He said a "shortage will create a bank run."  

Final Trades – Monday’s M First Moves 

Macke said to "sell Budweiser," (BUD).

Adami advised to buy Johnson & Johnson (JNJ) "ahead of earnings."

Finerman likes going long Pilgrim’s Pride International (PDE).

Najarian suggested being long McDonalds (MCD).