Trader Talk

Durable Goods Causes The Big Pop!

Futures popped about 5 points as durable goods were unexpectedly positive(up 1.8 percent, expectations were for a drop of 0.9 percent).

Futures were up earlier as the Organization for Economic Cooperation and Development (OECD) raised its growth forecast modestly. The OECD is an organization of 30 developed countries loosely aligned around representative democracy and capitalism.

While the FOMC statement is the main event, the $37 billion 5-year Treasury auction will also be news at 1 PM ET. Yesterday's 2-year auction saw exceptionally strong demand, but will buyers (particularly foreign buyers) be interested as we go further out on the yield curve?


1) The FOMC statement today is expected to reiterate that the Fed "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

As for the economy, most feel they will also reiterate that "the economy has continued to contract, though the pace of contraction appears to be somewhat slower."

There is disagreement over what the Fed will say about inflation. Their previous statement said, "inflation will remain subdued."

There is also disagreement over whether the Fed will tweak its purchases of agency mortgage backed securities and debt. They had announced a total of up to $1.25 trillion of agency MBS and up to $200 billion of agency debt by the end of the year, and will also buy up to $300 billion of Treasury securities by autumn.

If all of this talk on how the Fed creates money and credit confuses you, let me refer you to the best explanation I ever read on this. It's called "Modern Money Mechanics," and it was written by the Federal Reserve Bank of Chicago. It describes what money is, and how the Fed expands and contract the money supply.

It's been out of print for some time, but it is available on the Internet at several places, including Wikipedia.

2) MGM up 8 percent pre-open, they said there was no longer a substantial doubt about its ability to continue as a "going concern"; they have raised $2.6 billion recently from the sale of debt and equity.

3) Seed provider Monsanto saw its sales fall 11 percent, but shares are rising 2 percent pre-open after its Q3 earnings beat the Street's forecast. Its weak herbicide business was offset by strength in its seed operations. With cost cuts helping its bottom line, Monsanto also announced it will eliminate 900 jobs or 4 percent of its workforce.

Guidance for the full-year remains mostly inline with the consensus forecast of $4.40, but will be at the low end of the company's previously-announced range of $4.40-$4.50.

4) Darden Restaurants is down 3 percent pre-open. Although it beat estimates by a penny in the company's fourth quarter, same-store sales declined, with notable weakness at its steakhouses (Longhorn Steakhouse down 6.5 percent, Oliver Garden and Red Lobster down fractionally, but Capital Grille down 22.1 percent!).

Darden dashes any hope for a significant rebound in its new fiscal year, seeing industry weakness to "continue through all of our fiscal 2010." The company sees more same-store sales declines ahead and expects earnings to be $2.59-$2.85, below expectations of $2.91.

5) Pepsi announced a new joint venture with Japan's Calbee Foods. The agreement will give the Pepsi a 20-percent stake in the Japanese food maker and will enable greater distribution of its snacks in Japan.

6) After hitting a 7-month low last week, the latest reading of the Mortgage Bankers Association's index saw mortgage applications climbing 6.6 percent. The average rates for 30-year loans fell slightly (-0.06 percent) to 5.44 percent.

7) The Mortgage Bankers Assn. said weekly mortgage applicationsto purchase a home rose 7.3 percent; the average 30 year mortgage rate fell to 5.44 percent, down 13 basis points from two weeks before. Remember, there is still an $8,000 home buying tax credit, on top of an additional $10,000 credit in California.

8) Congress is taking up the President's healthcare reform bill; critics are noting that the House plans under discussion would impose an 8 percent payroll tax if the employers did not provide a private plan for the employee. Critics say that because the public plans will eventually crowd out the private plans, this will effectively create a massive tax increase down the road.



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