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

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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

Mar 30-Apr 3: More Merger Mania

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US courier service FedEx agreed to by Holland-based TNT for $4.8 billion, signaling their interest in competing with UPS in a market that the Brown Uniform Guys previously dominated. A merger between UPS and TNT was actually blocked in 2013 by antitrust regulators. FedEx is a more acceptable partner as it is stronger in air-based business, complimentary to TNT's core business on the ground.

269,000,000

The number of cases of Bud Light sold in the United States in 2012. Revenues totaled $4.45 billion, making it America's most popular beer by volume. The next most popular beer was a tie between Budweiser ("Bud Heavy") and Coors Light,each selling 102 million cases. Happy National Beer Day!

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FedEx to buy TNT Express for $4.8B, WSJ

"FedEx already has a sizable air-delivery business in Europe, but it lags in ground deliveries. Executives declare that the deal is 'much better and much simpler' than the doomed merger between UPS and TNT in 2013."

Virtu restarts IPO with plan to raise up to $314 million, Bloomberg

Virtu Financial had its IPO shelved earlier in 2014 amid the furor against high-frequency traders triggered by publication of Michael Lewis' Flash Boys. Now, shares are scheduled to price on April 15 at around $17 to $19 apiece on 16.5 million shares. At the high end of the price range, the compay may be worth as much as $2.5 billion.

How the Vise on US Wages Tightened, WSJ op-ed

"US automakers used to manufacture nearly all of the 15,000 parts necessary to make a car. Today, they purchase around 70% of the value-added from independent manufacturers. A battle is being staged in Washington around whether an open US market, or some kind of alternative, is the best way to bring US workers in high-paying manufacturing jobs the wage increases they've been waiting for."

Want to Reduce Inequality? Consult China, India, and Vietnam, WSJ op-ed

"The past three decades have seen a dramatic improvement in the situation for the world's poor, most noticeably in China and India. This change is the result of a move by these countries and others to the markets from a government-managed system."

BlackRock to close or combine some money-market funds, Reuters via Yahoo Finance
"BlackRock, the world's largest money manager, is considering changing its funds lineup to comply with new SEC regulations issued in July. The reforms will require "prime" money funds used by institutional investors to float their values, instead of maintaining a stable value of $1 per share. The goal is prevent investors from getting spooked by the fund breaking the buck, where net asset value falls below $1 per share."

Vocabulary & People:

• breaking the buck
• BlackRock
• money market funds
• liquid alternatives
• Michael Lewis

Calendar:

• Mo Apr 6: Bill Dudley speaks, ISM non-mfg index
• Tu Apr 7: Gallup US ECI, JOLTS
• We Apr 8: Mortgage apps, FOMC minutes; AA, BBBY, FDO, WDFC
• Th Apr 9: Jobless claims, Wholesale trade; WBA
• Fr Apr 10: Import export prices, Treasury budget

Predictions from last week: 1/3 All-Time: 19/36

• Increasing trade imbalance: WRONG
• Rising consumer confidence: CORRECT
• Strong employment numbers: WRONG

Weekly Predictions: gathered at conclusion of weekly meeting

1. Chinese yuan strengthens against dollar
2. AA misses earnings
3. Another presidential candidate declares

Participants: R. Niu, C. Cooper, J. LaSala, S. Ballantyne, K. Meenan

Mar 16-20: Fedspeak reigns

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EURO 1.092 // OIL 47.69 // GOLD 1191 // BIT 246

Fed chair Janet Yellen spoke last week, removing the "patience" wording from FOMC minutes, but remaining cagey about specifics of when the Fed might raise the target rate. Markets interpreted the report bullishly, sending stocks skyrocketing.

5132.52

Highest-ever level of the Nasdaq, set on March 10, 2000 during the "Tech Bubble." The tech-heavy index has seen a tremendous run-up recently to within several percent of its all-time high, attributed to lower borrowing rates and the renaissance of the technology sector in the US.

Some incredible facts about the Nasdaq's latest run, Yahoo Finance

Despite having a down day on Wednesday, the Nasdaq Composite is still thisclose to breaking 5,000 and ever nearer to breaking its Tech Bubble record

Dollar bulls take it on the chin as Yellen says Fed won't rush to raise rates, Forbes

If there's been one bet on Wall Street that seems common of late, its putting money on continued strength of the US dollar. That presumption got turned upside down last Wednesday, when the Fed issued its latest policy statement and tempered expectations about US growth.

Starbuck's CEO Howard Schultz says Race Together "the right thing to do", CNN Money
Starbuck's CEO is not one to back down about an issue he cares about and last Wednesday he staunchly defended the company's much lampooned effort to improve race relations.

Problem: the bond "conundrum" is back, CNN Money
The 10-year Treasury started last week at 2.11% and tumbled to 1.94% during Janet Yellen's comments, as bond prices (inversely related to yields) we pushed up. But as the Fed move towards raising rates, bond yields should be moving up. What gives?

Vocabulary & People:

• derivatives
• greenback
• Janet Yellen
• Jan Hatzuis
• Jeffrey Gundlach
• CPI

Calendar: 

• M 3/23: Chicago Fed, Existing home sales
• T 3/24: CPI, PMI Manufacturing, New home sales, Richmond Fed
• W 3/25: Durable goods orders, EIA petroleum status
• T 3/26: Jobless claims, PMI services, Kansas City Fed
• F 3/27: GDP, Consumer sentiment

Predictions from last week: 2/3 All-Time: 17/30

• "Patient" removed: CORRECT
• Euro slide against dollar: WRONG
• Oil back above $45: CORRECT

Weekly Predictions:

1. Lululemon misses earnings
2. Another US presidential candidate declares
3. Consumer sentiment positive

Mar 9-13: Happy St. Patrick's Day

DJIA 17977 // S&P 2081 // NASDAQ 4929 // 10-YR TRE 2.098% //

EURO 1.057 // OIL 43.68 // GOLD 1154 // BIT 292

Calendar: 

• Mo Mar 16: Industrial production, Housing market index
• Tu Mar 17: FOMC meeting begins, Housing starts
• We Mar 18: FOMC meeting announcement, forecasts, chair conference
• Th Mar 19: Jobless claims, Leading indicators
• Fr Mar 20: Atlanta Fed business inflation

Predictions from last week: 0/3 All-Time: 15/27

• Stock market drops: WRONG
• AAPL shares up: WRONG
• Dollar General beats: WRONG

Weekly Predictions: gathered at conclusion of weekly meeting

1. Yellen removes "patient" wording from Fed report
2. Euro continues slide against dollar
3. Oil moves back above $45

Feb 23-27: And the award goes to...

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EURO 1.133 // OIL 49.14 // GOLD 1198 // BIT 236

Applicants at a recent job fair. The US economy has added 3.2 million jobs in the past year, helping to drop the unemployment rate to 5.7%.

283,000

Applications last week for unemployment aid. A drop in applications for aid is a positive sign that the economy is absorbing job seekers. Although more and more Americans are finding jobs, economists are arguing about the indicator's significance for the health of the overall economy.

Applications for US unemployment aid plummet to 283,000, AP via Yahoo Finance

Weekly applications for unemployment aid dropped by 21,000 last week to their lowest level since last October. The drop could be attributed in part to the economy adding 3.2 million jobs in the past year, helping to lower unemployment to 5.7% in January from 6.6% twelve months before. Number of people quitting jobs increased by 2.1, generally seen as a strong sign of job alternatives.

Walmart Raises Wages as Market Gets Tighter, WSJ

Following the lead of Gap and others, Walmart announced last Wednesday that it would raise associates' salary to $9 by this April and $10 by next year. The market responded by pushing WMT shares lower amid wage expense concerns. Investors are taking this as a sign that employment, at least at the lower end of the market, is tightening noticeably in recent weeks.

Economy's Supply Side Splutters, WSJ

Complicating bullishness associated with recent rates of employment is the fact that, at 3.6%, job vacancies in December were at their highest rate since 2001--well before the recession. Analysts are taking this as a sign that many employees are not well matched to the jobs currently available. Productivity has grown at just 1.3% per year since 2007, the slowest rate of increase since 1970.

Lenders Step Up Financing to Subprime Borrowers, WSJ

Almost four out of every 10 loans for cars, credit cards, and personal borrowing in the first 11 months of 2014 went to borrowers with FICO credit scores of 650 or less, or "subprime borrowers." These loans carry higher returns for investors, but also a greater chance of default. Autos, as opposed to credit cards or personal loans, are easier to cover because vehicles can be repossessed by lenders.

Fed Tiptoes into Rate Hike Debate, WSJ
The debate about when the Fed will raise interest rates continues, as Janet Yellen and her advisors remain extremely cagey about changing the wording used in FOMC minutes to give indications to markets either way--about a nearer-term or longer-term increase. One thing is clear--despite strong growth in jobs numbers, inflation is not yet at a level that the Fed would like it to be.

Vocabulary:

• Unemployment rate
• FOMC
• Labor productivity
• Janet Yellen

Economic Calendar:

• Mn Feb 23: Existing home sales, Dallas Fed Mfg survey; CHGG, HSBC, SF
• Tu Feb 24: Case-Shiller HPI, Consumer confidence; ; SAM, FSLR, FLTX, HD, ODP
• We Feb 25: New home sales, Janet Yellen speaks; CVC, CPB, DLTR, LOW, PLKI, TGT
• Th Feb 26: CPI, Durable goods, Jobless claims; BUD, GPS, JCP, LYV, RBS, SRE
• Fr Feb 27: GDP, Chicago PMI, Pending home sales

Predictions from last week: 2 / 3   All-Time: 12 / 18

• Chinese yuan weakens: WRONG
• Dow, S&P continue record highs :CORRECT
• Manufacturing expands: CORRECT

Weekly Predictions:

1. Yellen keeps "patient" wording in FOMC dialogue
2. CPI less food and energy at 0.0%, below consensus
3. GDP on Friday indicates annualized rate of over 3.5% economic growth

Participants: J. O'Brien, K. Meenan