Oct 5-9: Earnings Season Opens, Debt Dries Up

DJIA 17084 // S&P 2015 // NASDAQ 4830 // 10-YR TRE 2.10%
EURO 1.136 // OIL 49.49 // GOLD 1155 // BIT 244

Alcoa kicked off the Q3 earnings season with, as many expected, some pretty dismal numbers: for the second quarter in a row, the aluminium manufacturer missed sales and earnings estimates. Contributing factors cited were a slowdown in Chinese demand and a supply and energy glut. Alcoa has recently announced it will be splitting apart its Upstream and Value-Add businesses. (Zacks.com)

36x

The number of times larger that US student lending debt ($1.2 trillion) is than debt (bonds) issued by schools themselves ($32.7 billion) (WSJ)

NOTE: If article is paywalled, use Google to search for the title or try accessing via mobile

EQUITIES:

Demotion on Wall Street: Bond Traders Take a Back Seat, WSJ

"For the first time in at least half a decade, head count of traders and salespeople on equity desks in the first half of the year topped head count on bond-trading desks 17,300 to 17,100, according to research firm Coalition Ltd ... Overall revenue in fixed income remains larger, with $39 billion in fixed income traded by 10 of the biggest global banks over the first six months of the year, compared with $24.6 billion for equities."

CREDIT & GOVERNMENT DEBT

Central Banks Dump US Debt, WSJ

"In a dramatic shift in the $12.8 trillion US Treasury market, foreign official net sales of US Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July .. It was the biggest decline since data started being collected in 1978. A year earlier, foreign central banks had purchased $27 billion of US notes and bonds."

INDICATORS

Economists See US on Cusp of Full Employment, WSJ

"The US will be in a state of full employment within the first half of 2015, according to 56% of economists surveyed by the Wall Street Journal .. 'Full employment' is a term economists use to signify an economy in balance, where there is no longer cyclical economic weakness, but also no pressure pushing the inflation rate higher. The term doesn't signify an economy in which everyone has a job, let alone a good one ... Even as the unemployment rate has fallen in recent years, other signs of weakness have lingered. In particular, the share of Americans participating in the workforce declined. The rate declined in September to 62.4%, the lowest share since 1977."

M&A

Debt Markets Hold Key to Dell's Bold EMC Bid, WSJ

"Michael Dell is pressing ahead on a $50 billion-plus acquisition of data-storage giant EMC ... Following record or near-record debt issuance in recent years that supported the M&A surge, credit investors have lately become more fickle. In late September, JP Morgan cut a planned high-yield bond sale backing Altice's purchase of Cablevision for $1.5 billion, making up the difference by selling more debt on the loan market. Leveraged loans are viewed as safer than bonds because they are secured by corporate assets."

Vocabulary, People & Companies:

• EMC Corporation
• Going private
• Leveraged loans
• Full employment

Upcoming Calendar:

• Mo Oct 11: Columbus Day - equity market open, bond market closed; INFY 
• Tu Oct 12: NFIB Small Business Optimism index; CSX, JPM, JNJ
• We Oct 13: PPI-FD, Retail sales; BAC, DAL, NFLX
• Th Oct 14: Consumer price index, Jobless claims; UNH, MAT, GS
• Fr Oct 15: Industrial production, Consumer sentiment; GE, HON

Predictions from last time: 1/3 All-Time: 26/51

• $25B merger: CORRECT
• Oil falls: WRONG
• Bitcoin $242-238: WRONG

Weekly Predictions:

1. Honeywell beats
2. CPI falls
3. Another $25B merger

Sept 28-Oct 2: M&A Boom Showing Less Energy

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EURO 1.121 // OIL 45.66 // GOLD 1138 // BIT 240

Northeastern US pipeline owner and manager Williams Companies agreed to be acquired by Energy Transfer Equity for $37.7 billion including debt and other liabilities, creating one of the largest energy companies in the world.

$13,600,000,000

Energy Partners' decline in price offered to William Companies between August and this past week, a 28% discount. Both companies have been affected by squeezed margins as a result of falling oil prices.

NOTE: If article is paywalled, use Google to search for the title or try accessing via mobile

M&A

Energy Transfer and Williams Cos. to Merge, MarketWatch

The deal will exchange ETE stock for shares of WMB at a price of $43.50, valuing WMB at around $32.6 billion not including debt. Williams had rejected a bid of approximately $50 billion early this summer, when oil was $60 a barrel. The deal unites two regional pipeline supervisors--ETE in central US, and WMB out of the northeastern Marcellus deposits.

BANKS & ASIA SLOWDOWN

Standard Chartered, Credit Suisse Face Equity-Raising Dilemma, WSJ

Both banks, heavily invested in Asian growth and the connected commodities boom, have drastically fallen in price as China rebalances its economy away from resource-heavy manufacturing. To meet requirements for minimum capital ratios, they are now faced with the decision to either issue new shares--heavily diluting existing shareholders--or selling off parts of the business.

INDICATORS

US Jobless Claims are Near Record Lows, Bloomberg

Jobless claims climbed 10,000 to 277,000 in the week ended Sept 27. This remains below the 300,000 level taken by some economists to indicate an improving job market. The four-week moving average, which smooths out fluctuations and considered a less volatile measure, decreased to 270,750, its lowest level since early August.

CREDIT

Investors Pul Back from Junk Bonds, WSJ

Expectations of a Fed rate hike in coming months is driving up the returns investors are demanding for corporate credit, threatening to derail the merger boom happening throughout 2015. Recent shortfalls in demand for bonds from Euro cable company Altice and chemical producer Olin will be supplemented by corporate loans, which require less spending and collateral from borrowers.

BEHAVIORAL FINANCE

Paying CEOs Big Bonuses for Stock Performance Doesn't Work: Cornell, Yahoo Finance

Total shareholder return (TSR) connects stock price gains and dividends paid to shareholders to CEO reimbursement. in 2004, 17% of S&P 500 companies had such plans in place; today, 50% have TSR plans. Yet a Cornell study says returns over the past 10 years does not demonstrate strong correlation between companies with TSR plans and outsized shareholder returns they're intended to encourage.

Vocabulary, People & Companies:

• junk bonds
• Marcellus shale
• Altice
• Williams Companies

Upcoming Calendar:

• Mo Oct 5: ISM non-manufacturing index; 3-, 6-month bill auction
• Tu Oct 6: International trade; Gallup US ECI
• We Oct 7: EIA petroleum status report; Consumer credit
• Th Oct 8: Jobless claims: FOMC minutes
• Fr Oct 9: Import/export prices; Baker Hughes rig count

Predictions from last time: 1/3 All-Time: 25/48

• 10-year yield rises: WRONG
• CARZ ETF falls: WRONG
• $25B+ merger announced: CORRECT

Weekly Predictions:

1. Another $25 billion+ merger
2. Oil prices fall
3. Bitcoin price within $2 of $240