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

DJIA 16472 // S&P 1951 // NASDAQ 4707 // 10-YR TRE 1.99%
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.

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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