| MARKET ROUNDUP | |
| Dow | +77.52 to 17,138.20 |
| S&P 500 | +8.29 to 1,981.57 |
| Nasdaq | +9.58 to 4,425.97 |
| 10-YR Yield | -0.011 to 2.538% |
| Gold | +$2 to $1,299.10 |
| Crude Oil | +$1.40 to $101.36 |
Holy cow! Did you get a load of the latest mega-deal in Corporate America?
News broke today that media firm 21st Century Fox (FOX, Weiss Ratings: B) bid a whopping $80 BILLION for Time Warner Inc. (TWX, Weiss Ratings: A). The price would come to $85 a share, paid in a combination of stock and cash.
Fox’s move is just the latest that media titan Rupert Murdoch has pursued over the last several years to build his television, newspaper, and studio empire. It would combine Fox’s FX and Fox News businesses with Time Warner’s HBO and Warner Brothers units, among others. To offset antitrust concerns, Fox would look to auction off the CNN news business.
Time Warner reportedly rejected Fox’s overtures. But the company’s stock price soared after news of the potential deal broke. That will put substantial pressure on management and the board of directors to take action because the firm’s shareholders won’t want to see those gains evaporate.
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| Rupert Murdoch is behind the latest mega-deal in corporate America. |
Now it goes without saying that the biggest merger ever involving Time Warner was a disaster. The firm sold out to America Online (remember them?) for a whopping $165 billion right at the peak of the dot-com bubble, and the ensuing bust and economic recession cratered the combined companies’ businesses.
So is this latest deal the sign of a fresh financial apocalypse? Or is it just the latest in an M&A wave that has more room to run?
Well, the cheap money that’s fueling these deals is still there. That’s because Federal Reserve Chairman Janet Yellen has (so far) done nothing more than bloviate about cheap leveraged corporate lending and super-low junk bond yields. She hasn’t actually raised rates to eliminate the financial incentive to do megadeals.
Moreover, we haven’t seen a mega deal fail yet. Nor have we seen a truly, historically HUGE mega-deal like the AOL-Time Warner transaction that signaled the top in 2000. So it’s entirely possible we’re not yet done with this trend.
One way to profit from it is to try to identify companies that are likely to become acquisition targets. More and more activist funds are pressuring companies to buy back stock, sell underperforming divisions, or sell themselves entirely.
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“Now it goes without saying that the biggest merger ever involving Time Warner was a disaster.” |
One of my favorite investments in the Safe Money Report foots the bill. Its share price surged to fresh all-time highs in early June after news broke that an activist fund was pushing management to take a series of shareholder friendly actions.
We’re already sitting on open profits of more than 25 percent as a result, but I believe there’s even more gas left in the tank. So if you want more details, just click here or give my customer service staff a call at 800-291-8545.
Meanwhile, what are your thoughts about this move by Fox? Is this the top of the M&A boom, or do you anticipate seeing a $100 billion-plus transaction before long?
Also, what does this say about Fed policy and the economy? Is it just easy money fueling all these deals? Or is it a sign the economy is expanding and confidence in corporate board rooms is rising for legitimate, fundamental reasons? Let me know at the Money and Markets comments section here.
| OUR READERS SPEAK |
In the wake of Yellen’s comments yesterday, and her follow-up testimony today before the House Financial Services Committee, there was some debate about what exactly she meant with her comments, and what the real state of the economy is.
Reader Allan said: “The economy and employment situation are much softer than Yellen indicated. I’m not sure what she actually believes. Blaming the poor first quarter GDP numbers on the weather is shallow and too convenient. And the CEO of Wal-Mart said he has seen no increase in sales or revenue.
“Make up any unemployment number you want. The fact is the smallest percentage of the working age population since Jimmy Carter have jobs and no one except the wealthy and government has any ‘disposable'” income to spend. This feels more like the beginning of the next leg down, than a recovery.”
On the other hand, Reader Mike said: “There is some reason to believe the economy might pick up because the money supply is beginning to increase due to increased lending. The Fed can only plant the seeds for expanding the money supply. It is actually lending institutions that really control the levers along with government lending standards. Note the money supply is increasing even as the Fed ends its bond buying program.”
As for Yellen, Reader Brenda S. said: “When Yellen talks I don’t have a clue what she said. She should stay home and concentrate on her knitting. I really am not impressed with her at all.”
And Reader Richard H. took issue with the Fed’s calling out of sectors like biotechnology and social media for overvaluation, saying “What the hell is the Fed chairman doing commenting on the price levels of specific market sectors?”
Finally, Reader Don asked about my recommendation to sell bonds, and whether it pertains to foreign bonds and bond funds. The short answer is that foreign long-term bonds are vulnerable to rising interest rates just like domestic bonds. If the dollar rises in value against the foreign currencies, those bonds are denominated in, you will take an even bigger hit in currency-adjusted terms.
So I would say stay domestic … stay short term or floating rate … and reduce your exposure to bonds entirely.
If you have any other thoughts on bonds, Fed policy, the economy, or anything else, don’t forget to share them here!
| OTHER DEVELOPMENTS OF THE DAY |
 Apple (AAPL, Weiss Ratings: A-) inked a deal with IBM (IBM, Weiss Ratings: C+) to jointly develop apps aimed at business customers. IBM will also sell Apple’s phones and tablets to its customers, potentially expanding Apple’s reach into the corporate arena. It has traditionally focused on the consumer marketplace.
Love it or hate it, the Obamacare program is going to reduce bad debt expenses for hospitals and result in more insured patients seeking out care. So you might as well go along for the ride!
Reminder: You can let me know what you think by putting your comments here.
Until next time,
Mike Larson
P.S. Charles Goyette is filling in for Laura Ingraham on her national talk show tomorrow morning. It’s one of the biggest talk shows in the nation.
It’ll be three hours of Freedom and Prosperity radio with provocative conversation and some outspoken guests including Ron Paul, former Reagan Budget Director David Stockman, “America’s Toughest Sheriff” Joe Arpaio on the border crisis, and others.
In most markets The Laura Ingraham Show airs 9 AM – 12 N ET;Â 6 AM – 9 AM PT.
To find Laura’s home station in your market, go HERE.
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
{ 9 comments }
I found the Fox offer more interesting in terms of a conservative versus liberal take. Fox doesn’t worry about CNN because it blows it away. If I am not mistaken, TWC, HBO, and CNN would all be considered liberally bent, and would cringe at a Fox takeover. Personally, I would love it. Might be a huge plus for American culture and integrity.
Richard H….you are right on the money (question), unless someones short and needs a push to get it started.
Fired, all fired!! ha
Oh great. Now there will only be Faux News version everywhere. Rupert Murdock
will have his opinions everywhere.
Mergers are great for shareholders and management but ultimately lead to fewer jobs for the two firm’s employees. with the farming out of manufacturing to off shore companies and the mergers, it should not be a mystery why there are fewer people employed in America. We seem to value shareholder equity more than we do supporting our society. when no one is employed, who are the consumers that will buy products and drive the economy?
I take everything that the government or media with a grain of salt. The plain and
simple truth is that this country has been mired in “GREATER DEPRESSION NUMBER
TWO” since the 3rd quarter of 1999. Just look at this horrible economy statistics; real
unemployment is actually somewhere around 67% ( this includes some 40 million working
age individuals who don’t get counted since they aren’t getting unemployment checks,
plus millions of college grads living at home working at garbage paying part time jobs
who are stuck with tens of thousands dollars in student loans they’ll never pay off. Real
wages are at the lowest as a percentage of the national GDP while the real cost of
living keeps exploding ( been to the grocery store lately or try to pay your medical bills?)
The only thing that is going up is POVERTY for the 95% of the population while the top
5% reaps any increase. This is the greatest disparity between the rich and poor. Only
an absolute moron can look at this situation and say that we’re going in the right dir
rection . This nations economy is a great big JOKE!
Louie,
Thank you for giving me my big belly laugh of the day! I love how you pull stats out of your @$$. I’m solidly middle middle-class and can say that things are fine. Easy even. Louie, go get a job.
Reader Mike is forgetting that the entire QE program I, II, & III Has been an exercise in running govt. printing presses, producing trillions in cash & govt. bonds that will have to be cleared somehow. Which could result inflation as high as that experienced in Germany in the ’20’s, when Germany printed Marks to pay WWI reparation to the allies.
I believe that it is easy money that is encouraging these deals. These deals will do nothing to create the jobs that we desperately need. Taxes have to be cut as well as spending. We also must reduce regulations at all levels of government. The small business administration did a study on regulations. they cost business 1.5 trillion dollars a year! We also have the highest business taxes in the world. These structural problems cannot be addressed by the Fed. They must be addressed by the President and Congress. Regards, Robert Calabro.
In this part of the world we have way more jobs than people to work them. Although the pay is slowly rising, it is rising. Most of the men here in central MN are heading out to ND where the big money is, leaving a sucking sound of local workers. Pay has risen because of that and anyone who wants to work can have a job right now. The problem is, many of the ones who aren’t working got unemployment during the Recession and now they don’t want anything but an easy check. I noticed how when they stopped unemployment checks, the unemployment numbers dropped. No one wants to be mean, but work is there. People just have to be flexible and find a job outside the area they worked in before.