'Fast Money' Recap: Mortgage Blues

The trading panel discussed the impact of souring mortgage-backed securities on Bank of America.
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NEW YORK (

TheStreet

) -- The market sank Tuesday on China's surprise rate hike and mortgage worries.

The

Dow Jones Industrial Average

dropped 165.07, or 1.48%, to 10,978.62, and the

S&P 500

fell 18.81, or 1.59%, to 1,165.90. The

Nasdaq

lost 43.71, or 1.76%, to 2,436.95.

Melissa Lee, the host of

CNBC

's "Fast Money" TV show, said the New York Fed and some other firms were going to try to force

Bank of America

to repurchase souring mortgage securities.

Karen Finerman said the asking price of $47 billion sounded overblown. She said it's important to figure out what the "realistic loss" will be and how much of what has occurred has been priced into the stock.

For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

3 Stocks I Saw on TV

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Steve Grasso downplayed the story, saying it's one "we've heard before." He said investors need to be patient and wait for a couple of other legs to play out.

Steve Cortes, on the other hand, said he took profits in Bank of America. He said he could not put money in Bank of America and its peers, knowing they are subject to political machinations and future litigation. He said investing in these banks would be analogous to investing in utilities which are heavily regulated by government.

Paul miller, an analyst for FBR Capital, who has a buy rating on Bank of America, said the bank has been hurt because it has not responded to inquiries from Pimco. He said investors are trying to quantify the liability, adding a settlement could take two to three years. He said the issue could drag earnings but stressed it's not a capital issue.

Brian Kelly weighed in, saying that he believes the government is not going to allow Bank of America or its peers go under after all that has happened. "These banks are going to be supported."

Shifting to

Goldman Sachs

(GS) - Get Report

, which turned in an earnings beat, Pete Najarian said Goldman is looking like the best of the breed as it moved above its 200-day moving average while its peers are just close to their 50-day moving averages.

Lee shifted to

Yahoo!

(YHOO)

which reported a weak outlook for the fourth quarter.

Najarian said it was not an exciting call, adding CEO Carol Bartz had not moved the needle. Jon Fortt,

CNBC

tech correspondent, said Yahoo!'s earnings were mixed, with strong display ad growth in Asia offset by lower revenue from a hitch as a result in a delay in ad orders from the transition to the Microsoft ad center.

Fortt said Bartz defended Yahoo!'s investment in Alibaba and wouldn't speculate on what it would do with the asset.

Jordan Rohan, managing director of Stifel, Nicolaus & Co., said Yahoo! is buying "a ton" of stock back in an effort to return capital to shareholders. Rohan, who has a hold rating, said the guidance for revenue growth came a little lower than expected.

Commenting on the pullback in

Apple

's

(AAPL) - Get Report

, Finerman said she would hold off buying shares until the stock falls below $300. Najarian said he jumped in and bought shares of

Cirrus

(CRUS) - Get Report

, which gets 30% of its revenue from Apple.

In the global trading segment, Rich Ilczszyn, a senior strategist for Lind-Waldock, acknowledged higher interest rates could be ahead for China as it makes a concerted efforted to monitor its economic metrics, including its CPI.

He said the correction in the metals and silver were due along with the bounce in the dollar. He said he sees a stronger dollar going into the mid-term elections and afterward.

Cortes said he was shorting crude and emerging markets. Kelly said it would be a mistake to conclude that the commodity trade is over. He said today's rate hike was a "token political move."

For the hedge fund pick of the week, Anthony Scaramucci picked

Dr. Pepper Snapple

(DPS)

. He said the company has a great balance sheet, a 2.9 percent dividend yield, good cash allocation and a 15.5% operating margin for the past five years. He said it's also a good potential takeover target.

Gary Butler of

ADP

(ADP) - Get Report

spoke about his company's new mobile payroll app for iPad and iPhone users. He said the app is aimed at small businesses.

In the final trades, Grasso said he liked the dividend play in

Altria

(MO) - Get Report

. Cortes said he would short crude. Finerman said she would go on the defense with

Microsoft

(MSFT) - Get Report

. Najarian said he liked what he heard about

Yahoo!

(YHOO)

.

--Written by David Tong in San Francisco.

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