'Fast Money' Recap: Looking Ahead to 2009

The trading panel talked about the prospects for the housing market, retail stocks and volatility in the coming year.
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The markets ended on an up note in a shortened Christmas Eve trading session on Wednesday.

The

Dow Jones Industrial Average

added 48.99, or 0.58%, to 8468.48, while the

S&P 500

rose 4.99, or 0.58%, to 868.15. The

Nasdaq

nudged 3.36 higher, or 0.22%, to 1524.90.

Dylan Ratigan, the moderator of

CNBC

's "Fast Money" TV show, started off the discussion with a look at a report today showing a 48% spike in the mortgage applications.

Karen Finerman said the "big question" here is how many of those are funded. She acknowledged that lower interest rates have increased the buying power of home buyers.

Joe Terranova was skeptical of the spike. He said that only 15% of the applications have actually closed and that the number is inflated because it doesn't take into account the number of people applying at multiple institutions. He also said tighter lending standards will be a big factor in the approval process.

Zachary Karabell said the lower interest rates will trigger a round of refinancings and home-equity withdrawals for credit-worthy customers. Pete Najarian added the spike in applications demonstrates a "hunger out there" to get into the housing market with prices and financing moving to affordable levels.

Moving to the energy markets, Terranova said the $2 selloff in oil prices came at the last 20 minutes of the market session and was due to the thin market and a "ridiculously low volume."

Asked to comment on the formation of a natural gas cartel, Terranova said the 15-member group, a brainchild of the Russians and Iranians, will have a difficult time "cornering the market" because unlike the oil market, there is no global benchmark for natural gas and there are regional breakdowns in the distribution channels.

Najarian said the low oil prices have prompted him to trade in the airline stocks. He said there is a good opportunity to take advantage of the extreme volalitility in airline and financial stocks to make some trades.

Ratigan shifted the discussion to large stimulus packages China and India are initiating to revive their troubled economies. Karabell said this coordinated global spending is taking off with the exception of Germany and European Union, which are having a hard time coordinating their stimulus plans.

He said this spending "really matters" because the money represents an investment and will pay for itself in terms of revenue and tax dollars. "They're not rebates," he said.

Finerman, though, was a little skeptical, saying there are going to be winners and losers in this process. She said she's not optimistic after what she's seen in the unsuccessful attempts of government intervention in the residential mortgage markets. By extrapolation, there's no reason to believe such intervention will be successful in dealing with the consumer credit crisis, she said.

Najarian told the other panelists it will take patience. "It's going to take time to get all this money working."

Ratigan brought on Michael Lewitt, president of Harch Capital Management, to talk about his forecast that the Dow will head down 30% to 6,000 in 2009.

Lewitt said most people agree that earnings are going to be substantially down next year. Moreover, he said believes the forward EPS number for the S&P 500 will be about $50 to $55. He said strategists have incorrectly pegged the multiple on that number too high at 20 times. He believes it should be 10 times, a level more appropriate, he said, of the distressed economy.

He said there is a lot of debt deflation connected with the low multiple, adding there's going to be "a lot of pain" for highly leveraged corporates.

Asked to pick some investment opportunities in this gloomy climate, he noted investment grade bonds and equity infrastructure plays like

Manitowoc

(MTW) - Get Report

.

Ratigan then brought on Brian Tunick, managing director of specialty retail for JP Morgan, to discuss the prospects for the battered retail stocks in 2009.

Tunick said the "bad news" is that a lot of public traded retailers will still be standing because they have cut their square-footage growth dramatically and most of them don't have any debt.

He said the market wants to see reduction of capacity. He said some of that is occurring with the closure of 10,000 retail stores, although most of them don't belong to publicly traded companies.

"It looks like another year or two of apparel deflation" and "that's a bad thing for their stocks," he said.

Finerman inquired about the future of

Macy's

(M) - Get Report

, which she said has "a lot of debt."

Tunick said the market seemed "pretty happy" when Macy's renegotiated some of their credit agreements. He said it's one of the few modern department store chains "left standing," but its market share is being eroded by discounters and companies like

Walmart

(WMT) - Get Report

and

Target

(TGT) - Get Report

.

Asked which retail stocks he would short for 2009, Tunick noted

Men's Warehouse

(MW)

,

Tiffany

(TIF) - Get Report

and

Abercrombie & Fitch

(ANF) - Get Report

.

Ratigan asked Terranova to comment on the move to develop an exchange for credit default swaps. Terrranova said

CME (CME) - Get Report Group

(CME) - Get Report

has come up with a facility to clear CDS.

CME's facility now guarantees the counter-part risk that was so much in question in September and October, he said. Moreover, CME is encouraging CDS transactions going forward to take place on its platform where there will be transparency, he said.

Ratigan asked the panel to talk about the prospects for volatility for 2009. Najarian said he sees a return to low volatility. Finerman agreed, saying she doesn't expect hedge-fund unwinding to be a factor in the next six months.

However, Finerman said there are still some dramatic events that could still unfold. Pressed on that point, she said the EU could fall apart.

Karabell said he expects a lot of 401K rebalancing to occur because of losses sustained after October. He said that rebalancing could result in a flight from equities.

Finally, Ratigan brought on to the show Jeffrey Hirsch, editor in chief of the Stock Trader's Almanac, to talk about his January barometer. Hirsch said the barometer has been more than 90% accurate over the years and basically uses the performance of the S&P in January as a harbinger for the rest of the year.

"Check out

"'Fast Money'Portfolios of the Week" on Stockpickr every Thursday.