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Farrell: Durable Goods and a '60s Flashback

If my college classmates from the 1960's (boy, that was so long ago) and I could ever have envisaged I would be talking about why the durable goods reportwasn't as bad as it looked we would have figured "no way."

We were going to part of something very different.

And what the hell is a durable good? How the world turns. I recently went to my 40th reunion and we tried to convince our wives we really did sit around and wonder what it would be like to be grandfathers! Like all the college stories it fell on deaf ears. I do think my pal Doug Kass was right in saying on Kudlow's show some time ago that if you remember the '60's, you weren't enjoying yourself enough.

But the durable goods headline looked so bad it instantly sold the futures market off. However, if you peel the onion a bit, it was not a bad report. The headline was durable goods orders fell -2.5% and hopes had been for only a slight decrease. But defense orders fell -28.3% and non defense aircraft fell -38.5%. Both these categories are crazy volatile and were up strongly the last two months. These declines just bring those categories back to a normalized pattern. The core durable goods number was up 1.1% and that had been expected to be flat. A sub-category, non defense capital goods, was up 1.4% and that is viewed as a proxy for investment spending. It was up 4.3% last month and lends evidence that if the recession is not over, it soon will be. It does not, sadly, indicate a strong recovery, but we'll take what we can.

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The five year auctionwas poor at best.

The bid to cover ratio was 1.92 and it had been averaging 2.22. Indirect buyers (foreign) was a low 36.7% and had been 42% recently. This does not bode well for Thursday's 7 year auction. Throwing billions of debt on the market is starting to take its toll as buyers appear to be very cautious.

Chad Bartels, one of Soleil's ace sales traders passed along a very interesting article from Bloomberg News. The Dow Jones Industrials average recently went to a 10% premium to its 200 day mean level. It had been 34% below that line in November. For the 21 times since 1921 that the Dow has gone from more than 10% below its 200 day to 10% above its 200 day, the market has been higher 18 times by an average of 18%. It's been higher 17 out of the 21 data points for six months following by an average of 8%. And higher three months later 18 times by 5.7%. There are no rules to stuff like this, but I love historical patterns for the insight they give you and wanted to pass this along.

Other items of interest that caught my eye was a statement that Goldman Sachs has cut its estimate of Treasury bond sales by 28% due to stronger economic projections (which would mean higher tax receipts.) The firm still expects $2.8 trillion in debt to be sold for the two years ending September, 2010. The NY Times, which I understand is not required reading among Wall Street types, says housing prices have fallen to low enough levels that buyers are coming back into the market place. Real estate titan Sam Zell says residential real estate has reached a point where prices are starting to stabilize. This will, he says, allow the economy to turn but commercial real estate has yet to bottom.

But commercial property companies may soon start to sell Commercial Mortgage Backed Securities under the expanded TALF program. Three billion in CMBS's might come this September and that would be the first signs of life in that market since it effectively shut down in 2008 when all the credit markets froze.

On CNBC now:

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