Toll Brothers Staying Alive - Fast Money Midday Recap (8/19/08)

by: Joan Wickham

Recap of CNBC's Fast Money, Monday August 18.

The traders opened the show by speaking on today's market activity, specifically the financials.

American International Group (NYSE:AIG) - The traders noted that the stock was down about 5.7% for the day. Goldman Sachs released “a scathing report” this morning, according to Dylan Ratigan. Joe Terranova spoke on some AIG puts he traded, likening the situation to the 1970s gasoline crisis. He said that oil and financials go back and forth every other day, generally controlling the market activity. Jeff Macke said that “there is no reason to be long financials right now,” because this downfall “will continue to build on itself.” Zach Karabell agreed, saying that for AIG “it has been a slow bleed,” and that investors cannot get in the way of this trade.

Lehman Brothers (LEH) - Peter Najarian weighed in on the financials, saying that Lehman Brothers is in the headlines today. He said that everyone thought the “kitchen sink had been chucked in” already and that it is pushing low $13s from the $17s. Najarian summarized with “I am not comfortable in this point in time.” Macke said Lehman will have to raise money.

Goldman Sachs (NYSE:GS) - Terranova said that he likes being long Goldman Sachs because it is best in breed. Terranova advised investors to stay in best-in-breed stocks, saying that is where investors want to be.

Fannie Mae (FNM), Freddie Mac (FRE) - Najarian said to take a look into Fannie Mae and Freddie Mac because it is a “high-risk trade right now” and “the yields are telling you something.” Macke said that the yields are telling you they are “going out of business.”

About the Oil Spike - Oil Services HOLDRs (NYSEARCA:OIH)

Oil spiked within the last hour. Terranova spoke on Venezuelan and Middle-East not being happywith oil prices. He said that a production cut could be possible and said to keep an eye out for the weekly inventory reports coming out tomorrow. Terranova wrapped up by saying that today's activity is probably short-covering in the marketplace. Najarian said to take a look into Oil Services HOLDRs. He said that this stock is having a “great bounce today,” and “this is starting to get to be an interesting trade.”

Retail Grim Today - Home Depot (NYSE:HD), Target (NYSE:TGT), Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST)

Macke said that Home Depot was “a little grim.” Macke, an enthusiastic buyer of Wal-Mart and Costco recently, said that he sold his Costco position today because it is in a “tough industry,” and he “took the opportunity,” to sell his shares. Terranova suggested that investors who are being cautious should get out if Home Depot breaks below its 200-day moving average.

Ryland Group (NYSE:RYL) - Najarian mentioned Ryland Group is showing heavy activity in put-buying. This is unusual options activity, he said to “have it on your radar.”

Medtronic (NYSE:MDT) - Continuing on buys, Najarian said to look at Medtronic, because it is “trading very strong right now.” He said that investors have “got to like the action right now,” and said the stock is outperforming the S&P 500 and Dow Industrials.

Focus on Financials - Trader Karen Finerman called in to offer advice on today's market activity. Finerman said that she is “focusing on the financials.” She said that we have not seen the further shoes to drop, specifically in auto loans and commercial mortgage backs. Freddie Mac (FRE) - Finerman mentioned Freddie Mac is “raising paper today,” which is very expensive and carrying a higher risk premium. She said that if the Federal Reserve raises rates, it will be bad for banks.

Bob Toll, the CEO of Toll Brothers (NYSE:TOL) - Next, guest Bob Toll, the chief executive officer of Toll Brothers spoke on his firm's health. He said that his firm has been trying to stay alive by selling homes without giving them away and accumulating cash. Toll said that the company “sacrificed volume” rather than sacrifice in costs. He said that new-home “inventory should be pretty low at this point,” but it is the used-home inventory which is providing a bigger problem. Toll said that the housing cycle bottom is hard to predict, because it depends on how many foreclosures happen. He wrapped up saying that the “more inventory that goes away, the better the market is.”

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