'Fast Money' Recap: Uncertainty Looms

The trading panel discussed how uncertainty was behind today's precipitous selloff.

Author:: David Tong
Publish date:: Aug 11, 2010 7:47 PM EDT

NEW YORK (

TheStreet

) --

Cisco

(CSCO) - Get Report

disappointing earnings brought further gloom to the markets Wednesday.

The report added further angst to a day that saw the

Dow Jones Industrial Average

plunge 265.42, or 2.49%, to 10,378.83, while the

S&P 500

fell 31.59, or 2.82%, to 1,089.47. The

Nasdaq

lost 68.54, or 3.01%, to 2,208.63.

Jon Najarian said on

CNBC

's "Fast Money" TV show, wondered whether Cisco's earnings will drag the market down further on Thursday.

Joe Terranova said today's trade deficit numbers could lop off 1% from the second-quarter GDP. He said big money managers are concerned about the absence of fiscal stimulus to get the economy moving again.

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 onTV

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Karen Finerman, though, said the markets are starting to get certainty that Congress will not extend the Bush tax cuts.

Guy Adami said he hopes

Fed

Chairman Ben Bernanke likes Japan, because he feels the bond market is telling us that "we have become Japan." He said there are three important signs to watch as the market plunges: the S&P falling below its 200-day moving average, the rise of the dollar against the euro, and the rise in the VIX.

Melissa Lee, the moderator of the show, shifted to Cisco, the major story in the afterhours. She said Cisco saw gross margins slip and its revenue fall below expectations. Adamai said he was worried about an inventory build.

John Fortt, a

CNBC

reporter on the Cisco conference call, said that CEO John Chambers said he agreed with the

Fed

's report a day earlier about slower growth and choppy conditions ahead.

According to Fortt, Chambers defended Cisco's operating margins and 12.7% long-term growth rate. He also said the CEO said he had a difficult time reading the signals in the economy.

Najarian said the options market was blindslided by the "cautious" comments by Chambers who was so optimistic the quarter before. Terranova said the situation looked particular gloomy because investors were not getting any relief from China, with its uncertain outlook.

Lee said Cisco's slide in afterhours was affecting tech and blue-chip stocks such as

IBM

(IBM) - Get Report

Microsoft

(MSFT) - Get Report

and

Apple

(AAPL) - Get Report

, which were also trading down.

She brought in Anthony Scaramucci to comment on how hedge funds were reacting to the market plunge. He said the big players were talking about only a 5% to 10% correction because "a ton of derisking has already taken place" and the S&P's fundamentals appear intact.

He said money is definitely going into money markets and bonds. He remained optimistic about the economy, saying he doesn't see long-term deflation risks and believes the market will stabilize in three to four weeks.

However he said the weak economy has resulted in a negative psychology on future corporate expenditures that was putting a ceiling on the markets and earnings. He said the government needs to act to reduce the uncertainty plaguing the markets. Gary Kaminsky said interest rates will remain low for some time.

Brian Kelly said those low rates could lead investors back into the markets and help the bulls. He said he sold some of his

iShares Barclays 20 Year Treasury Bond

(TLT) - Get Report

He said he was worried about the short-term outlook and the prospects of a "messy open" on Thursday.

Shifting to Tuesday's Fed's report, Kelly said its comments is going to make the yield curve flatter. As a result he said he sold his long financials position and shorted the brokers via the

iShares Dow US Broker-Dealer Index Fund

(IAI) - Get Report

Finerman said banks are not making enough loans. She said they have taken a pretty big hit and may have to scale down what they can earn in the next year and a half.

Whitney Tilson, managing partner of T2 partners, said he was responding to the market uncertainty by getting defensive and taking smaller positions in the world's greatest companies like

Berkshire Hathway

(BRK.A) - Get Report

Microsoft

(MSFT) - Get Report

Kraft

(K) - Get Report

and

Goldman Sachs

(GS) - Get Report

. "They are solid blue-chips."

Tilson said the government has to step in to stimulate the economy even though he acknowledged it would be politically difficult.

Daniel Niles, co- CIO of Alpha One Capital Paratners, said Chambers' reference to a slowdown had been signaled earlier in the earnings of large-cap techs like IBM. He added a word of caution about the chip stocks, saying these stocks tend to move higher faster on improved margins and down just as quickly when margins slip.

Lee asked the panel their picks for safe haven trades. Kelly liked gold. Finerman liked the medical products space while Adami went with

PG&E

(PCG) - Get Report

Najarian said he went with

Proshares Ultrapro Short Qqq

(SQQQ) - Get Report

which was up 8% today and 4% in afterhours. He said it's a move that triple-shorts the Nasdaq. He said he was going to turn around and short SQQQ Thursday morning.

In the final trades, Kelly liked

SPDR Gold Trust

(GLD) - Get Report

. Terranova liked

Potash

(POT)

while Terranova liked

Caterpillar

(CAT) - Get Report

at $66. Finerman liked

McDonald's

(MCD) - Get Report