Jun 13, 2011

Another Merger Monday

June 13, 2011

After a six week decline, the markets are opening with a positive bid today. As I mentioned last week, history is on the side of the bulls for at least this week as typically six week declines are met with a positive 7th week. This week will be full of key economic data beginning tomorrow with retail sales, PPI and business inventories kicking off the data deluge.

Merger Monday is back with VF Corp agreeing to buy Timberland for $43 a share, a 43% premium to Friday’s close but below the stock’s April 28th close of $45.72. The deal is valued at $1.8 billion. Wendy’s/Arby’s agreed to sell a majority stake in Arby’s to the Roark Group, which valued the division at $430 million.

APAC markets fell last night as the risk-off trade continued. Oil fell back under $100 as markets in Japan, South Korea, Hong Kong, China, Taiwan, New Zealand, Singapore, Kuala Lumpur, India, and Thailand all declined. EMEA markets are mixed this morning.

Copper has continued its decline, falling another 1%+ after China announced that May imports declined 36% year over year, signaling a potential slowdown in Chinese construction. Bank lending in China fell to $85 billion in May, well below the year over year average as the country’s money supply showed its smallest monthly increase since 2008.

Wheat has begun to spike on higher demand as US farmers substitute wheat for corn as an animal feed. Corn has been under pressure due to federal mandates for ethanol production. As most outside of DC are aware, ethanol is not only uneconomical and contributing to global food inflation, it doesn’t reduce the overall carbon footprint of a mile driven by a car, reduces the fuel economy of most internal combustion engines, and accelerates the deterioration of car engines. I’m not sure how this is good policy for anyone except corn farmers.

Bloomberg is reporting that three of the worst performing diversified funds this year are managed by three of the top long term managers: Bruce Berkowitz, Ken Heebner, and Bill Miller. All three run very concentrated portfolios and have excellent long term track records, demonstrating the difficult investing environment this year.

The chart below (courtesy www.thechartstore.com), shows the number of hours required to purchase a single unit of the CRB index. As you can see prices have typically dropped during recessions (gray bars). After a 21 year decline from 1980 to 2001, commodity prices have jumped almost 3x over the past decade (as measured by hours worked). It is interesting to note that of the 23 hour of work increase over the past decade, only 3 can be attributed to oil.

I was finally able to confirm that the NBA did in fact hold an NBA Finals without either the Lakers or Celtics. The Dallas Maverick’s prevailed over the star-studded Miami Heat in six games, winning the title last night 105-95. It was a great series, with the first five games being decided in the last two minutes.

Have a great day


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