Fast Money Recap

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'Fast Money' Recap: Jobless Angst

David Tong

Wall Street took a blow Friday from yet another bad jobless report.

The conventional wisdom leading up to the Labor Department's report was that the jobless number would be bad, and it was. The jobless rate rose 0.4% to 7.2% in December as the nation lost 524,000 jobs for the month and 2.6 million jobs for 2008, the most since the end of World War II.

That report helped send the Dow Jones Industrial Average down 143.28, or 1.64%, to 8,599.18, while the S&P 500 dropped 19.38, or 2.13%, to 890.35. The Nasdaq lost 45.42, or 2.81%, to 1,571.59.

Dylan Ratigan, the moderator of CNBC's "Fast Money" TV show, focused the attention of the panel on the other big business story of the day: the departure of former Treasury Secretary Robert Rubin from Citigroup (C Quote) and word that its Smith Barney brokerage unit would on the block, with the likely suitor to be Morgan Stanley (MS Quote).

Ratigan said the news underscores the plight not only of Citigroup and its need for capital but also the rest of the industry as a whole. He said financial stocks have started the year already on the wrong foot, down 6% for the worst performance of any sector.

Tim Seymour said the Citigroup shakeup shows that its model does not work. "There's a lot of debt and uncertainty there," he said. On the other hand, he said it makes a lot of sense for Smith Barney to be picked up by Morgan Stanley because the latter has done "very well in the business."

Zachary Karabell tried to downplayed the news. "I don't believe this is a piece of bad news that will be a market mover," he said.

Karabell said the situation may not be as dire as it appears because the government indicated six months ago that it will backstop the financial institutions and no one knows what effect Obama's stimulus will have.

Karen Finerman said the "negative" for the banks may come when they have to mark their books at the end of the year with their auditors.

As for the jobless report, Karabell acknowledged how "terrible" it was but he said what's more important is that the fundamentals are deteriorating more quickly than imagined. He said the "one positive" out of this was the equity markets, which he said are stabilizing.

Najarian agreed, saying the volatility index held in all day, at 42. "That tells you people are not as nervous" about the markets, he said.

Seymour did not believe the unemployment situation is as dire as it seems because the current labor pool is much larger than the one in the 1940s.

Ratigan shifted the discussion to a report that Roche was preparing to raise its offer for Genentech (DNA Quote) to $95 a share.

Najarian said that the move has been rumored for some time. He said the question has always been about the financing of the deal, which is expected to run about $35 billion, and whether the $95-a-share offer is high enough.

Mike Huckman, a CNBC reporter, later came on the show and said the deal is important to Roche because it will allow it to capture all of the revenue and profits from the oncology drugs produced by Genentech as well as get its hands on its prized research and development engine.

Huckman told the panel word of the deal sets up nicely the huge JPMorgan Health Care conference that starts in San Francisco next week that is expected to draw 6,600 attendees.

According to Huckman, Steve Burrill said investors should be looking for deeply discounted biomedical diamonds in the rough. Instead of picking individual small cap stocks, Finerman said she invests in an ETF called iShares Nasdaq Biotechnology(IBB Quote).

Ratigan asked the panel to comment on the 12% decline this week in oil, which closed at about $40 on Friday. Karabell said the decline just reconfirms the fact that "global activity is definitely depressed."

Najarian, though, was a little more optimistic, saying he is seeing an improvement in shipping rates as well as in steel and copper.

Ratigan invited Charlie Gasparino, an on-air editor for CNBC, for his observations on the Citigroup story. Gasparino said Citigroup is caught in a bad situation, where it's been pushed by the Federal Reserve to increase capital on top of already having received $45 billion in government bailout money.

Moreover, it is being forced to do this by selling its cash cow (Smith Barney) at a discount, he said.

Gasparino said the deal would be great for Morgan Stanley because it's "exactly what they have to do."

Ratigan asked Jon Najarian to comment on Rubin becoming a poster child for the clawback issue. Rubin racked up in $115 million in pay since 1999, excluding stock options.

Najarian said he could sense a "thirst for revenge" among some senators like Rep. Barney Frank (D, Mass.), who want those "guys who took TARP money to give up their corporate jets."

Ratigan, though, said it's not so much revenge as it is fairness.

Finerman said she could see how clawbacks could work as a model going forward. However, she said getting a handle on with clawbacks going back six to seven years would be like trying to "unscramble" an egg.

Najarian said what might happen in the end is that the executives might come forward and offer back the money.

Ratigan brought on Robert Shiller, a professor of economics at Yale University, to talk about derivatives as a positive in housing financing.

Shiller said that is already happening. He said he worked with the Chicago Mercantile Exchange three years ago on a futures market for single family homes. Currently, he said his company, MacroMarkets, is developing securities markets for individual homes. That would allow people to trade on the New York Stock Exchange and buy and sell exposure to the real estate market, he said.

Shiller said the problem with the descredited credit swap derivatives was that they didn't deal with counter-party risks. He said that glitch is being worked out with the establishment of a clearinghouse for these derivatives.

Shiller said he's cautiously optimistic about the nation's economy, adding the Obama administration will need to come up with some good policies to deal with the problems.

In the final trades, Seymour liked EMBRAER(ERJ Quote). Karabell liked Charles Schwab (SCHW Quote). Finerman said she would short Abercrombie & Fitch(ANF Quote) and go long on American Eagle Outfitters(AEO Quote). Najarian said he liked Energy Conversion Devices(ENER Quote).

Check out the latest edition of "Cramer's Take on Top-Searched Stocks" on Stockpickr.