It's Monday and the money is flying on Wall Street!
Thank goodnees SLB chased us out of shorting most of the OIH group last week but I still have some leftover RIG puts that are never coming back now that they announced a $53Bn mega-merger with GSF. $15Bn is going back to the shareholders in a very large financed buy back so both companies should go up on this news and the OIH may make a nice momentum play in the morning.
Our faith in CCJ may be rewarded as Electricité de France SA said Friday that it will buy an interest in CEG in order to develop next-generation nuclear reactors in the US – well, if we're not going to invest in our own infrastructure at least foreign companies are starting to make some investments! Constellation and EDF said they aim to build 1,600-megawatt nuclear machines designed by French state-run engineering company Areva SA and which are being reviewed by the U.S. Nuclear Regulatory Commission for licensing. Also, there has been nice progress on our negotiations to power up India – all bad news for the oil pushers.
TFX is buying ARRO for $2Bn in cash, German lender Hypo Real Estate is buying Depfa Bank for $8Bn ($4Bn cash) in a risky dillutive move I'd love to play, TomTom is buying Tele Atlas for $2.7Bn after announcing a 37% increase in sales and a 79% increase in profits, the $5Bn bid for EMI Group has been extended, European insurers Friends Provident and Resolution are in a $17Bn merger and HPQ is spending $1.5Bn for OPSW. Another Monday, another $25Bn in equities coming off the market and another $91Bn in transaction for GS et al to collect some fees on. Hard to be short on a day like today – I always try to keep things in perspective by multiplying Monday's deals by 52, to see if it seems strong for the year and $91Bn x 52 is $4.7 Trillion, so I can state with virtual certainty that this is indeed – A BIG DEAL DAY!
I'm not even mentioning that BCS has upped their bid for ABN to $93.2Bn because that mostly cash deal alone multiplied by 52 would be about the same as someone just taking the entire Russell off the market. BCS is finding partners in Asia, including one of our "Duh" stocks – China Development Bank. At the pace BCS and RBS are upping offers, we could have $100Bn on the table by the end of summer!
Asia was very mixed this morning with both sides of the Shanghai posting 4% gains and the Hang Seng also celebrating China's swift action to curb inflation (as we discussed Friday morning). The Nikkei dropped another 194 points as Japan continued to assess the impact of their earthquake (TM, for example estimates 55,000 cars were delayed). Japan was mainly hit in the export sector as ships that left Japan 6 weeks ago on June 15th will arrive this week to collect 4% LESS YEN than they thought they were getting when they left – that's how much the dollar has dropped in that short time! That has driven the Nikkei back below 18,000 and resting just over the 50 dma at 17,937. I wrote last week that there is a very serious danger of the Yen carry trade unwinding into the Dollar carry trade so let's watch out for signs of that trend developing as it can upset the global applecart.
Europe is flat ahead of our open, despite all that exciting M&A activity, which may not seem as big when converted to Euros. Our markets are nowhere near as shy as merger mania gives our pre-market a boost, aided by MRK's (got 'em) nice beat kicking the Dow in gear. SGP also put up great numbers and it will be good to see Pharma recover after the hit they took when PFE panicked that sector last week.
TASR put up some great numbers as well and we are going to be thrilled that we risked half naked into earnings on that fairly heavy LTP position. Last week was all about Google and you know I thought they were unfairly punished on Friday but this week will be all about Apple and Happy Trading and I continue to focus on the S&P and our 1,555 target:
Kudos to the Trading Goddess, who graced us over in Wang's World with some amazing picks back on 6/19. Her selections were KO (+3.54%), NTDOY.PK (+23.59%), MAT (-4.78% – I say they come back), TGT (+6.51%) and ENR (+8.26%) – that's a really good return for straight stock picks! Happy also posted a list of sectors to watch, including the breakout he's been predicting on the OIH for weeks so I'm very concerned about the chart he posted on USO, which belies my fundamental premise that these oil prices are unsustainable:
This is not to say I disagree with Happy's chart interpretation, it's just that I believe charts can be manipulated by NYMEX shenanigans and that we are likely to get a "surprising" drop in oil as we continue to rush towards December and that 181Mb pile-up of barrels that are already on order. We are starting September with 389Mb in that contract period, even though less than 30Mb were actually delivered in August. THAT'S RIGHT – TRADERS ARE PRETENDING TO WANT 360M BARRELS OF OIL MORE THAN THEY NEED TO KEEP THE PRICES UP AND YOU PUT UP WITH IT EVERY MONTH. October has 107Mb on order and jut 64Mb are scheduled for November delivery but September is printing over $75 per barrel and next September is already below $73 so the reward (contango) for pretending you want oil that you don't need has disappeared and now it costs a lot of money to maintain this charade.
ZMan is, of course, watching the mergers as well as well as this Bloomberg article which is polling analysts who target $100 oil by the year's end. Read ZMan's excellent rebuttal, which uses actual facts and statistics that are generally ignored by the oily perm-bulls. Oil had better get to $100 per barrel in order to justify their market cap as they seek to overtake the GNP of the Netherlands, the 16th largest on the planet!
If Gold continues to climb and rates continue to fall it means dollars are being dumped again and much of our market gains will be no more than window dressing but we'll take it for the week as we were fairly bullish heading into the weekend – skeptical but bullish…
Have a cautious day!
– Phil
