Thursday, March 19, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • 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

Seeking Alpha editor Eli Hoffmann contributed to this post.

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