Dylan Ratigan hosted CNBC's "Fast Money" Tuesday night. He began the show with a discussion of the selloff in the stock market that continued today, breaking through the lows of yesterday's market bottom.He explained that the selling continued becuase of a lack of confidence among market participants to trade with each other, forced selling from hedge funds, concerns over the Federal Reserve's efforts to restore short-term borrowing to the markets and the fundamental problem of a slowdown in the economy. Joe Terranova says the Fed has to step up to provide solvency for the buyers and sellers in the commercial paper market. Jeff Macke said the confidence problem persists because the Fed President keeps talking and nobody understands the rules. "I have no confidence at all going forward," he added. Guy Adami said it's going to take time go get confidence back in the stock market. "Time will heal this, it's just going to take a lot of it," he said. Pete Najarian says the market wants to see the elimination of the short-sale rule. He explained that volatility is high right now because of all the various rule changes that keep happening. "We traded 25 million options contracts yesterday, and the average for 2008 was 14 million per day. We need the uptick rule, but we don't need the short-sale rule," he said. Ratigan asked the crew what they did today as traders. Najarian said he added or took off some of the positions he already had on. Terranova said he sold straddles and made a trade in crude oil. "I think hedge fund managers right now don't see the V-shaped recovery in the market, they see the U-shaped recovery, and that makes them want to clear out," he added.
Macke said he bought the ProShares UltraShort S&P 500 ( SDS) early in the day. Adami said that if you look at the cheap valuations on Freeport McMoRan ( FCX) and Alcoa ( AA ), it frankly doesn't matter, because everybody is forced to sell, and nobody is stepping up right now. Ratigan switched the conversation to Morgan Stanley ( MS), which saw its stock fall 25%. Najarian says the stock was falling because of fear-mongering and rumors. "It's not about fundamentals right now; it's about the momentum of the market and the panic of the market," he said. Macke pointed out that Morgan Stanley gave away a huge chunk of the company at terrible rates without a "Warren Buffett" endorsement. Najarian told viewers to look at General Electric ( GE ) and Goldman Sachs ( GS ), which are trading below the prices that Buffett bought in at. Ratigan asked the traders what the action in some of the consumer names means for the fundamentals of the American and global economies for the next year. Adami pointed out that Target ( TGT) and Wal-Mart ( WMT) were hugely owned by hedge funds and now they're being forced to sell. "My sense is there is a meaningful slowdown," he said. Recession Forecast John Ryding, chief economist at RDQ Economics, joined the traders to discuss the possibility of a recession for 2009. He said it's clear we're in a recession now. He highlighted two possible scenarios for 2009. The first scenario is we fix the confidence issue and stabilize the financial markets and get away with a conventional recession. The second scenario is that the financial fixes don't come and we spiral into a depression that could last two years or longer. "We could be looking at quarterly drops in the GDP of 5%, and unemployment could go to 8% or 9%," he said. The Bear Market Playbook Jeff Degraff, the head of technical analysis at ISI, joined the traders to discuss what he is looking at from a technical perspective in the markets. He explained that the new 52-week lows in the S&P 500 spiked to 57% yesterday. He says that when the reading is above 50%, it's usually a sign of a washout and is generally a period of liquidation in the markets. "In the interim we're set up to have some type of mean reversion, and in the long-term we're probably in the fifth inning and not the eighth or the ninth," he said. He also pointed out that bear markets usually run about 600 trading days, and right now we're 250 trading days into the current bear market. Attractive Values Zachary Karabell, a chief economist with Fred Alger Management, joined the crew to discuss some real buying opportunities in the stock market. Karabell says that unless you believe the stock market is going to zero, then there is selling that is completely out of proportion. Karabell said he doesn't even like Pfizer ( PFE), but the equity markets aren't pricing it appropriately to the fundamentals. He said Yum! Brands ( YUM) is also trading at disconnect to its fundamentals. "The selling in the equity market is credit market driven and not the fundamental collapse of these companies," he added. Karabell likes Freeport McMoRan, Fluor ( FLR), Manitowoc Company ( MTW) and Vale ( RIO ) from a valuation perspective. Adami said the valuation on YUM here doesn't make sense. He also recommended Lockheed Martin ( LMT). Najarian told viewers to look at Celgene ( CELG), which he says is too cheap at $55. Final Trade Macke said to sell the ProShares UltraShort S&P 500 ETF. Adami said Target is trading at "stupid levels." Terranova told viewers to look at Exxon Mobil ( XOM). Najarian recommended Manitowoc Company on the basis of unusual options activity.