Can The Fed Be Expansive Enough?

So what does the Fed do now? Many desks are hopeful that the Fed will be expansive in its statement today: that they will begin purchasing long-term Treasuries through some form of quantitative easing (read: printing money), which has attracted a lot of attention in the UK, or perhaps even expand the Term Asset-Backed Securities Loan Facility (TALF), which is having a troubled start.


1) How about the rally! Selling into the rally was not successful! They tried yesterday, but the selling pressure just evaporated midday. The failure of selling pressure to decrease has been one of the main reasons traders remain skeptical about the staying power of the rally.

2) IBM down 3 percent, Sun Micro up over 60 percent on WSJ report that IBM is in talks to buy the company, with the purchase price amounting to a 100 percent premium over its $4.97 closing price share. This is a deal that makes sense on a strategic level.

3) Coke down 1 percent, is scrapping its $2.8 billion bid for China Huiyuan Juice Group. It would have been the largest foreign takeover of a Chinese company, but Chinese authorities said it would stifle competition. This is already creating talk of protectionist policies on the rise.

4) Get me out! Bank of America up 2 percent as CEO Ken Lewis told the Charlotte Observor his company could pay back its $45 billion in TARP funds by late this year or early next year depending on the economy. He expects the bank to be profitable in 2009.

5) MGM reported earnings below expectations, but more importantly is trying very hard to reduce its heavy debt load. They said they would consider asset sales and a debt exchange, where they would swap existing debt for new notes priced at a discount, which would be at a higher interest rate. They also noted that its lenders granted a waiver on covenants on its senior credit facility through May 15th. Remember, its auditors recently raised doubts about its ability to continue as a going concern.

6) Darden, owner of Red Lobster and Olive Garden, up 10 percent pre-open as earnings of $0.80 was well above consensus of $0.68, and guidance was also stronger. Not surprisingly, value propositions like Olive Garden saw only a 1.4 percent comp sales decline, while higher-end steakhouse Capital Grill saw a 19 percent decline.




Questions? Comments?