Takeover Mania, Uncle Ben and Earnings Season
Sally Limantour
Another strong week on Wall Street and the focus continues to be on takeover activity and stock buyback news. Vodaphone is considering a $160 bn takeover bid for Verizon which would rival AOL’s takeover of Time Warner and Vodaphone’s earlier acquisition of Mannesmann.
The FT this morning is quoting Stephen Jen, Morgan Stanley’s currency strategist on major emerging market economies. He is saying that while cheap credit may be drying up the emerging market economies are flush with cash and their growing interest in establishing sovereign wealth funds could well drive equity and other capital markets around the world to new heights. ”Major emerging market economies currently have a collective $1,500bn worth of excess reserves, - defining “excess” as official foreign reserves exceeding the amount needed for liquidity purposes, based on their “conservative rule-of-thumb”. http://ftalphaville.ft.com/
Dr. Bernanke is to appear before the House and the Senate this week. Those appearances which occur Wednesday before the Senate and Thursday before the House will dominate the discussions for the week. The market will be listening for any mention of inflation concerns as well as thoughts on the economy and housing.
The news is of better-than-expected earnings reports thus far, and 2nd quarter reporting is in full swing. Expectations for further upbeat earnings will support the market, but at what point does high energy prices, weak consumer spending, subprime problems and higher interest rates come into the picture? I am still looking at mid August for this market to correct, but blow off phases can be much longer and stronger than we can imagine.
Commodity prices are strong lead by the metals and crude oil. The gold ETF (GLD) rose 60% over the past two years while stocks such as Barrick has risen 30% and Newmont +14%. Perhaps it is time for the gold mining stocks to play catch-up. Attention will be paid to future earnings from gold mining operations.
Energy is on a tear as I pointed out the spreads weeks ago were starting to show the tightness. The market is showing demand is so strong that crude oil is not being moved into storage, but brought to market. That is bullish and should keep prices firm.
Good Trading to All
