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Tuesday, February 27, 2024

M&A Monday – Goldman’s Golden Goose

Hope springs eternal at Goldman Sachs.

This morning our favorite Banksters goosed the EU markets by upping targets on international mining operators Kazakhmys, Lonmin and BHP and that got the European markets off to a flying start out of the gate, despite the fact that UBS had just DOWNgraded the same sector on Friday.  UBS said on Friday that the sector is facing difficult times concerning potential growth with government rulings on mineral leases and the proposed supertax on mining profits in Australia set to hinder metal-based stocks.

We also have a lot of M&A activity, also courtesy of GS, who are leading the resurgence this year with 225 deals to date worth $401.6Bn, accounting for about 20% of all activity going through Goldman's sticky fingers.  In a sign of the times, however, GS only generated $961M in revenues as an M&A advisor as they cut a lot of discounts in order to land the top spot in dealmaking.  Although outdealt by GS, MS, Rothchild, JPM and DB all made more in fees than the Uncle Lloyd show.

In a sign of the end of times, GS's London Headquarters has been taken over by lenders after the owner fell into receivership.  GS's landlord, Antedon, is an offshore real estate firm that bought the building for $500M at the top of the market in 2007 and GS has locked up the building through 2026 at what seems to be not enough money to keep Antedon liquid – it would be very interesting to trace the web of deals that led to this massive default.  

Meanwhile, the consortium of Irish investors that own GS's other London building are also bailing out, this action is coinciding with what Ireland's Independent says is a campaign by Wall Street Hedge Funds to short sell Irish Government Bonds.  US hedge funds Groveland Capital and Corrientes Advisors are thought to have taken major positions against Irish debt. Giant €60bn asset-manager Pictet also revealed that it had earlier bet against Irish government bonds. JP Morgan is also thought to have taken a bearish position on Irish debt.  The International Monetary Fund estimated that up to €3bn of Ireland's debt was being targeted by speculators through the uses of derivatives.

So, plenty of reasons to be cautious this week although it will be hard to cut through the fluff as our hedge fund heroes all do their best to jam things higher into the end of quarter.  I said to Members over the weekend, as we reviewed our September's Dozen, that if I were going to make an October list – it would more likely be a list of stocks to sell short at the moment.  Still, we need to wait and see how our indexes perform into the last few days of Q3, even as we begin to get the fist hints of earnings.  The S&P is up 10% from where we flipped long and we are well-hedged (maybe over-hedged) for a downturn:  

It's been exactly a month since I blamed the MSM for engineering the last downturn (see "CNBC and the Rally Killers") and now they are back in cheer-leading mode.  On Tuesday, the 30th, I made my case for why I thought we were in "Depression" mode on our Market Mood Chart (below) but I did worry that I was only in "Denial."  It turned out I was right to be a little ahead of the curve with my "Hope" (the whole week at the bottom can be reviewed here) but now I have to wonder if my "Anxiety" is coming too soon after "just" a 10% move back up in the markets.  


With the dollar at year lows on Friday, it was easy to punch commodities back up, led by gold at the $1,300 mark with copper breaking over our $3.60 target and oil back over $76 ($77.50 is our "sweet spot" for crude) but we do not like gold to be up with the market and we don't like to see TLT over 101 as that's more of a "fear indicator" than the VIX ever could be as it shows people are willing to essentially put money under the mattress at no interest rather than risk it on the stock market.  That's leading to these pathetically low-volume moves up which, in turn, lead to these spectacular sell-offs.  

Duck season/Rabbit seasonSo our big and proximate market dangers are Irish defaults, commodity bubbles popping, resistance at 1,150 on the S&P, and income tax increases (along with the usual suspects).  Tomorrow we get the Case-Shiller Report for July and September's Consumer Confidence numbers.  Wednesday is just oil inventories but Thursday gets exciting with revised Q2 GDP, Job Losses and the Chicago PMI and Friday is a big finish this week with Personal Income and Spending, PCE Prices, Michigan Consumer Sentiment, Construction Spending, ISM AND Auto Sales – Wow, what a way to head into earnings season!  

Warm-up earnings we'll be watching this week are JBL and PAYX today, WAG and ZZ tomorrow, ATU, AM, FDO, MDRX and WOR Thursday and APP, MCK, ACN, BLUD, and MU on Friday.  Next week things get serious with AA on Thursday but, before that, we'll hear from MOS, DMND, YUM, STZ, COST, MON, MAR, RT, HELE and  PEP and THEN it's earnings season!  

Even if we pull back this week, we have accomplished what we were looking to accomplish back at the end of August.  We've established a floor at 1,070, 10,200 that looks like it may hold this time and that gives us a firmer base from which to retest those 10% lines but the low volume keeps us nervous, as do the uncertain and unresolved global issues.  

We finally saw some signs of life from the Shanghai, which jumped 1.4% this morning and was straight up all day into the close at 2,627.  The Hang Seng added 1% EXACTLY and closed right where it gapped open at 22,340 and even the Nikkei played ball with a 1.4% gain – despite the fact that they still can't get the dollar over 85 Yen.  

Japanese Foreign Minister Seiji Maehara said that Japan's government is determined to prevent further appreciation of the country's currency and raised the possibility of further government intervention to curb the yen's rise.  Mr. Maehara told The Wall Street Journal that the Japanese yen has "strengthened more than indicated by the actual strength of the Japanese economy." He said "speculative moves" had contributed to the currency's rise against the dollar. 

"Any further appreciation of the yen should be stopped," Mr. Maehara said, in an interview on the sidelines of the United Nations General Assembly meetings here. "Going forward, there may be a possibility for the Japanese government to show its very determined intent" to keep the currency from strengthening," said the foreign minister.

The EU, on the other hand, wishes their currency were stronger – as it would keep borrowing costs down and lower the price of commodities.  In general, the EU nations trade with each other so a strong currency is less of a concern for them than it is for export economies like Japan and China.  Keep in mind that the EU has a pathological fear of INflation, owing to their experiences between WW's 1 & 2.  Also, when the government is already on the hook for medical care and retirement for 500M people – they are right to be concerned about little increases in long-term costs.     

Europe is flatlining into our open which, in turn, looks flat as well.  We had such a good day on Friday, just holding most of those gains will be a win today and we really would like to see a little volume consolidation before we make another run at the 1,150 line on the S&P.  Ideally, another look at the 1,123 line that holds followed by a nice, steady move up through earnings would make us a lot more confident that we will be able to see 1,200 by the years end.  

We had plenty of short-side hedges going into the weekend and it does not look like we're going to have a big crash at the open so we'll be watching our levels with 5% lines at Dow 10,710, S&P 1,123, Nas 2,310, NYSE 7,140 and Russell 666, with all of them over the line – those are the lines we want to hold for the week to stay bullish.  7.5% lines are Dow 10,965, S&P 1,146, Nas 2,365, NYSE 7,280 and Russell 672 and that's right about where we are with the Nas leading us over so we'll see what sticks this week and whether or not I have to start putting up 10% lines!

Until then, let's be careful out there. 



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