CAG ConAgra Brands Inc

With the Greek rumor mill quieting down a bit and nothing major on the economic calendar, the market will likely shift its attention to the Fed's two-day meeting, which gets underway today. The central bank is expected to announce the so-called 'Operation Twist' as a prop for the market, but the move's relevance to the economy's structural problems is far from clear.

Nevertheless, in the absence of anything negative from the across the pond, stocks will likely remain in a wait-and-see mode ahead of the Fed announcement Wednesday afternoon.

'Operation Twist' is similar to the Fed's earlier quantitative easing programs in that it aims to produce monetary easing through bond purchases. But it is different in the sense in that it doesn't involve an expansion to the central bank's already enormous balance sheet. Instead, the move enables the Fed to change (or twist) the composition of its balance sheet by replacing maturing short-term bonds with longer-dated treasuries.

The goal is to flatten the yield curve by bringing down the yield on long-term treasury bonds. The hope is that lower long-term yields and a flatter yield curve will push investors into riskier assets like corporate bonds and stocks, which is expected to benefit the underlying economy. With the 10-year Treasury bond yield at a historically low level, it is difficult to envision further yield compression. But the move will nevertheless be a net positive for stocks.

While the move will be beneficial to the market on the margin, 'Operation Twist' is no solution to the U.S. economy's structural problems. To address those issues, we need a bold fiscal response from the nation's political leadership. But with leaders gearing up for the 2012 elections, hoping for bipartisan solutions is nothing more daydreaming at this stage. It is in this context that 'Operation Twist' has effectively become the only game in town.

In corporate news, we have Oracle (ORCL) reporting quarterly results after the close today. ConAgra Foods (CAG) missed earnings expectations this morning, as high commodity costs weighed on its margins. The company had earlier terminated its buyout bid for Ralcorp (RAH).

The market has effectively been held hostage by developments in Europe. It appears that we will have fewer European distractions today, but don't get used to it. The story will be back all over again before we know it.
 
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