|Dow||+40.07 to 17,687.82|
|S&P 500||+10.48 to 2,051.80|
|Nasdaq||+31.44 to 4,702.44|
|10-YR Yield||-.018 to 2.322%|
|Gold||+$12.80 to $1,196.30|
|Crude Oil||-$1.34 to $74.30|
The massive flood of easy money washing over the world isn’t doing much for average Americans. But it sure is making it rain on Wall Street!
Yesterday’s massive $66 billion deal for Allergan (AGN, Weiss Ratings: B) by Actavis (ACT, Weiss Ratings: C-) and $34.6 billion acquisition of Baker Hughes (BHI, Weiss Ratings: B) by Halliburton (HAL, Weiss Ratings: A-) made Monday the biggest day for M&A so far in 2014.
For the year, we’ve seen a whopping $1.5 trillion in transactions involving U.S. companies announced. That would make this the biggest year for domestic corporate buyouts since 2000. Throw in overseas firms and you’re talking about $3 trillion — a massive 50 percent increase year-over-year to the highest since 2007.
|The flood of M&As is filling the coffers of Wall Street’s mega-banks.|
One group of companies is making it rain from all these mega-deals: Wall Street mega-banks! Mergers in the energy and pharmaceutical space over the past few days will result in firms like Goldman Sachs (GS, Weiss Ratings: A-) and Bank of America (BAC, Weiss Ratings: B+) reaping up to $316 million in fees, according to Bloomberg.
The Wall Street Journal reports that overall M&A advisory fees are running at almost $18 billion. That’s up 14 percent from a year ago, with no end in sight as corporate CEOs tend to follow the “me too!” theory of business — if everyone else is doing it, why shouldn’t I? Says one lawyer in the Journal, Scott Barshay at Cravath, Swaine & Moore LLP:
“Good deals beget more good deals … Companies are going after targets within their core competencies, and when you add in the price of debt being as cheap as it is, that helps tremendously in making a deal look smart.”
Of course, the pessimist in me can’t help but underscore the last two years we saw M&A activity this heated — 2000 and 2007. Buying stocks then was basically a recipe for disaster, because the dot-com bust and housing bust followed almost immediately.
|“It can’t hurt to have your antennae up for failed deals.”|
There’s no telling if we’ll have a three-peat. But it can’t hurt to have your antennae up for failed deals, really dumb transactions, or wildly inflated deal prices — all signs that an M&A boom is on its last legs!
So what do you think? Are these mega-deals a sign of an impending financial apocalypse? Yet another reason to have confidence in stock prices (just like corporate CEOs obviously do)?
Have you benefitted directly from the buyout boom? Or are you generally avoiding pharma and energy stocks — two key beneficiaries of the latest transaction surge? Let me know at the comment section on the Money and Markets website.
|Our Readers Speak|
So what can we learn from Japan’s dismal economy and the destruction of its currency? Namely, that borrowing and spending like mad — to promise things to voters that you can’t possibly deliver — is a recipe for disaster. That’s true for both Republicans and Democrats here, and members of multiple parties in Japan.
Reader James said: “Our problems are structural. They have been created by our political class to win votes. And they have been created and propagated by members of both parties.”
Reader Howard added: “This has little to do with politics from either side, but more to do with big spending bureaucrats. A simplistic view could be to look at the national credit card. There are far too many voters wanting something for nothing and no idea how to pay for it. Don’t look at Left or Right, look at how society is changing and forcing investment capital into cash.”
Reader James picked up on that theme too, adding the following: “It is time to stop listening to the overpaid and underworked inhabitants of the Ivory Tower who believe they can tax the working class, bribe the poor for their votes, and spend their way out of a recession.
“Having solid fundamentals matters, and our federal government has taken us financially off the rails. Americans know in their gut the debt will hit the fan, and when it does it will be very bad. They just don’t know when.”
And I’m guessing from his comments that Reader Fred agrees. His take: “American economists like Paul Krugman do not know $#@$ from Shinola. They have recommended that Japan borrow and spend money for years now to get that country out of recession. It has NOT worked. Yet these pinheads keep offering up the SAME OLD TIRED advice. They know nothing else.”
No, they certainly don’t, Fred. Great insights! Anyone else want to weigh in? Then don’t be shy. Use the comment section as your forum!
|Other Developments of the Day|
Attackers burst into a Jerusalem synagogue earlier today, then reportedly killed four worshippers using a gun and hand-held weapons. A Palestinian terrorist group claimed responsibility, illustrating how simmering tensions in the Middle East remain.
Home Depot (HD, Weiss Ratings: A) weighed in on the earnings front, saying profit jumped 14 percent in the third quarter that ended Nov. 2. Same store sales gained 5.2 percent, while revenue of $20.5 billion slightly topped forecasts. But it’s facing unknowable costs related to a massive customer data breach, weighing slightly on HD shares.
Stop me if you’ve heard this one before. Super-low interest rates are pushing investors to “chase yield” anywhere they can, especially in real estate. That was the case in the mid-2000s real estate bubble, and it’s the case again.
One example: Ivanhoe Cambridge just bought an Avenue of the Americas office tower in Manhattan for $2.25 billion. That was the biggest such purchase since a $2.8 billion transaction in 2008 (which was the tail end of the last commercial real estate bubble)
Is Russia ready to bring war and conquest to space? Maybe because it’s not having enough “fun” fomenting discord in Eastern Europe? This Washington Post story tells the tale of a mysterious Russian satellite that may (or may not) be designed to knock other satellites out of the sky. Such attacks could disrupt transportation, communication, and other industries here on earth.
Until next time,