Wall Street Breakfast: Must-Know News

• FOMC decision creates "Rambo Fed." After a two-day FOMC meeting, the Federal Reserve will buy as much as $300B of long-term Treasurys (concentrating on two- and ten-year securities) and more than double its purchase of mortgage-backed securities to $1.45T. The Fed kept its main rate near zero and may keep it there for an 'extended' time. The $1T TALF program "is likely to be expanded to include other financial assets." In response to the moves, 10-year Treasury yields experienced their biggest drop since 1962, stock markets rallied and the dollar fell against the euro. The FOMC's decision was unanimous. (Read the FOMC statement)
• Reactions to the FOMC moves. "This is a very powerful and aggressive move," said economist Richard Hoey, by a "Fed chairman who understands the problem." Strategist Guy LeBas was amazed nothing amazes anymore, as the announcement that "the Federal Reserve plans on purchasing everything in America that isn’t nailed down raised relatively few eyebrows on our end." Pimco's Bill Gross was unclear what motivated the Fed's surprise announcement, but felt "there's a lot of ammunition here" and 30-year fixed mortgages could come down to around 4%, "which is where the Fed wants them."
• Bonus-blocking bill in Congress. U.S. House Democratic leaders will vote today on a bill that would apply a 90% tax on executive bonus payments made by companies receiving more than $5B in federal bailout funds. The tax would affect people with overall income above $250,000, including bonuses, would apply to payments made after Dec. 31, 2008 and would not apply to any bonuses returned to the company. House Majority Leader Steny Hoyer told reporters he expects it "to pass in overwhelmingly bipartisan fashion." In response to public uproar, AIG (AIG) CEO Edward Liddy has asked employees with bonuses over $100,000 to repay half the bonus money they received; some have already acquiesced, including Douglas Poling, who received over $6.4M.
• BoA loses bonus secrecy fight. A New York state judge denied a motion by Bank of America (BAC) to keep details confidential about individuals who received bonuses at Merrill Lynch. The judge also denied a motion to put a confidentiality restriction on testimony by former Merrill chief John Thain. Bank of America will now have to turn over the names of 39,000 people who received bonuses, and could do so as soon as today. (Read the judge's ruling (.pdf))
• Oracle surprises to the upside. Oracle (ORCL) posted better-than-expected quarterly earnings (see details below) and plans to pay out its first ever quarterly dividend of $0.05 per share. New software sales fell 6% vs. consensus of -12%. The firm's Q3 operating margin was a record 36%, but the software maker issued a cautious outlook for the current quarter because of the weak economy. Shares rose 6.8% in after hours trading.
• Nike laces up for tough times. Nike (NKE) beat expectations with third quarter EPS of $0.99 (see details below), but could see tougher times ahead. Despite only a modest drop in sales for Q3, the company's future orders for apparel and shoes fell 10% to $6.5B. U.S. sales provided a bright spot, growing 3%, while sales in Europe, the Middle East and Africa decreased 14%. This is a reversal for Nike which has seen its revenue increase consistently over the last several years.
• Sony, Google challenge Kindle. Sony (SNE) and Google (GOOG) are teaming up to take on Amazon (AMZN) in the growing digital books market. Trying to compete with Amazon's popular Kindle e-book reader, users of the Sony Reader device will get access to more than 500,000 public domain books from Google's book digitization project. The books will be offered free via the online Sony eBook store. Details of the deal's financial terms were not disclosed.
• Goldman makes USJ bid. A consortium led by Goldman Sachs (GS) made an offer today to take over the rest of USJ Co., operator of the Universal Studios Japan theme park, for $1.2B. USJ accepted the deal, which marks a 28.5% premium to its share price before the offer became public. Goldman's Crane Holdings fund already held a 41% stake.
• Madoff accomplice arrested. David Friehling, Bernie Madoff's accountant, was arrested and charged with securities fraud. He is the first accused accomplice to be named by authorities in connection with Madoff's $65B Ponzi scheme.
• CPI edges up. The Consumer Price Index rose 0.2% from a month ago, vs. +0.1% consensus. Core CPI was +0.4% from January, vs. +0.3% consensus. From a year ago, consumer prices are up 0.2%, and core prices are up 1.8%.

Earnings: Wednesday After Close

• Cintas (CTAS): FQ3 EPS of $0.47 misses by $0.01. Revenue of $909M (-6.9%) vs. $959M. "Our customers are reducing head count and closing facilities, which has negatively impacted our revenue. We have not seen such a sudden and dramatic change in our business since we started our company in 1968." (PR)
• Nike (NKE): FQ3 EPS of $0.99 beats by $0.20. Revenue of $4.44B (-2.3%) vs. $4.48B. Future orders from March-July are 10% lower than same period last year. (PR)
• Oracle (ORCL): FQ3 EPS of $0.35 beats by $0.03. Revenue of $5.45B (+1.9%) in-line. Declares first-ever dividend of $0.05/quarter. "If you look past the effect of exchange rates, our new software license revenues for this quarter were higher than our new software license revenues for Q3 of last year." (PR)

Today's Markets

• Asian markets closed slightly up. Nikkei -0.3% to 7,945.96. Hang Seng +0.1% to 13,130.92. Shanghai +1.9% to 2,265.76. BSE +0.3% to 9,001.75.
• In Europe at midday, London +0.75%. Paris +0.85%. Frankfurt +0.8%.
• U.S. futures: Dow -0.4%. S&P -0.4%. Nasdaq -0.4%. Crude +4.1% to $50.11. Gold +5.2% to $935.30.

Thursday's Economic Calendar

• 8:30 Jobless Claims
  10:00 Leading Indicators
  10:00 Philadelphia Fed Survey
  10:30 EIA Natural Gas Report
  10:30 Fed's Daniel Tarullo testifies on bank supervision
  4:30 PM Money Supply
• Notable earnings before Thursday's open: BKS, DFS, FDX, ROST
• Notable earnings after Thursday's close: BBI, COMS, PALM

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Hedged In:]

On the Fed announcement, Kirk Shinkle has a good article analyzing it and questioning whether the stock market rally is sustainable:
seekingalpha.com/artic...

Mar 19 07:32 AM

[stockartist:]

The Fed's move could create runaway inflation by the end of the year. Oil has already moved up along with gold due to the creation of more fiat currency to fund the huge Treasury purchase.

Mar 19 08:19 AM

[foxy 44:]

problem is; "Rambo" Fed , there are IV or V versions, they forecast the same ?

Mar 19 08:41 AM

[daffy:]

Very true Hedged In,

Good article. It would be interested in knowing exactly what the actual increase in debt has been thusfar, and where the directed numbers are taking us in regards to national debt. From my simplistic models using growth charts over the last century (pop, GDP, debt, etc.) I am finding that by 2015 we will hit a 34 T Public debt. That is eliminating all extra deficit spending by 2010, which is now a wholly ridiculous assumption. It appears we may approach 50 T with servicing costs, etc. People are just starting to bring numbers to the table and speaking out about this. Thta is not a sustainable debt.

The only thing that is happening here, is that we are moving the over leveraged part of our economic system to the gov which will then become weaker, and much more vulnerable to economic attack. We should be embarrassed to be letting all of this happen.

I agree that this rally is not sustainable. I am in for a short ride, maybe til earnings start coming in.

Mar 19 08:49 AM

[jay fredric...:]

4% long term mortgage rates will help, but only if banks lend the money to people other than doctors with no debt.

Mar 19 08:57 AM

[Igorsky:]

On bonus bill blocking Congress ....that would apply a 90% tax on executive bonus payments made by companies receiving more than $5B in federal bailout funds, it seems like our legislators once more are protecting their campaign contributors.

When they put in the provision that the law....."would apply to payments made after Dec. 31, 2008" ... they put in a big loophole that Merill Lynch bonus receipients will get to keep their bonus money after running down the company and saddling the taxpayers with debt. I wonder if this is another of Chris Dodd's/Barney Frank's unconsionable acts.

Mar 19 09:10 AM

[I weep for ...:]

The real genius here is the architect of this outrage residing in the current adminstration. They were able to turn the country's attention to these bonuses (which they knew about for months and endorsed since AIG's Board is unable to take any action without running it by the Fed) and away from the billions that went to the counterparties, i.e., Goldmen, etc... They were the ones bailed out, not AIG. They were the ones who created the mortages not AIG. The day the identity of the counterparties were released the outrage from Washington was created.
It is obvious, but still the sheep all waive their pick signs and our upset that these folks got bonuses because they are trying to unwind accounts that could cost the taxpayers way more than they have paid so far!
_
The greatest trick the Devil ever pulled was getting the world to believe he didn't exist!

Mar 19 11:10 AM

[bbowen7:]

We don't need to worry about inflation and the decline of the dollar because the Fed is politically independent of the Congress and the Executive, and they will unwind the massive infusion of dollars as the economy recovers. So, has anybody noticed thatt the Fed Chairman's four year term expires on February 1, 2010, and that he will require presidential reappointment and Senate confirmation? Or that this chairman has been closely affiliated with the Treasury Secretary in both the Bush and Obama administrations? Or that Larry Summers is looking over his shoulder? Good luck in getting Ben to buck the political headwinds in time by withdrawing liquidity and increasing rates! Buy TIPS.

Mar 19 01:03 PM

[LJR:]

Rachael,

A note of thanks for the work you put into these morning snippets. I live in a place without TV and no morning Wallstreet, though I could get it on the internet I suppose, and it is nice to receive your summaries - They seem light- hearted too - which makes morning coffee go down better!!!

Again thanks!

Mar 19 01:45 PM

[AndrewBaker:]

Yep, it's starting: they'll inflate the debt away, they think. In the meantime, gold and oil and the like will go north at a rate of knots, and the US $ will head southwards. We'll also get treated to a lot of irrelevant chatter and going-nowhere "disputes" (like the AIG bonuses) to try to get us on side and stop us noticing what's really happening.

Mar 19 02:53 PM

[backtoreality:]

WTF...your right wing ramblings are repudiated by your last sentence.."the devil...and so on.."...why is it the only people who believe in the devil live in borneo, the amazon jungle...or some religious fairyland?


On Mar 19 11:10 AM AIG IS A GREAT AMERICAN COMPANY. wrote:

> The real genius here is the architect of this outrage residing in
> the current adminstration. They were able to turn the country's attention
> to these bonuses (which they knew about for months and endorsed since
> AIG's Board is unable to take any action without running it by the
> Fed) and away from the billions that went to the counterparties,
> i.e., Goldmen, etc... They were the ones bailed out, not AIG. They
> were the ones who created the mortages not AIG. The day the identity
> of the counterparties were released the outrage from Washington was
> created.
> It is obvious, but still the sheep all waive their pick signs and
> our upset that these folks got bonuses because they are trying to
> unwind accounts that could cost the taxpayers way more than they
> have paid so far!
> _
> The greatest trick the Devil ever pulled was getting the world to
> believe he didn't exist!

Mar 19 03:11 PM

[foxy 44:]

National Debt $11,042,553,971,450.47 treas.gov
New all-time high

banksters, are you happy?

www.treasurydirect.gov...

Mar 19 04:39 PM

[daffy:]

Andrew Baker

you are more right than most will ever know. Silver and gold, silver and gold . . .

Yep, it's starting: they'll inflate the debt away, they think. In the meantime, gold and oil and the like will go north at a rate of knots, and the US $ will head southwards. We'll also get treated to a lot of irrelevant chatter and going-nowhere "disputes" (like the AIG bonuses) to try to get us on side and stop us noticing what's really happening.

Mar 19 05:48 PM

[User 308124:]

your user name seems to be a misnomer


On Mar 19 03:11 PM backtoreality wrote:

> WTF...your right wing ramblings are repudiated by your last sentence.."the
> devil...and so on.."...why is it the only people who believe in the
> devil live in borneo, the amazon jungle...or some religious fairyland?
>

Mar 19 11:00 PM

[Joseph Sherman:]

Sony, Google challenge Kindle. - Making public domain books "free" as with the Google Books project shows that Sony and Google have a good cause. As Seth Godin has suggested, authors and publishers may also let Kindle or a similar device use titles for free to gain interest in their books. This will be a giant plus for the new product. This could also be a great resource for developing countries and underprivileged communities. Considering the cost of buying, storing and replacing physical books, having an easy to use digital version that feels like a book could benefit many.

Mar 20 01:33 AM