Daily Market Update – July 16, 2014 (9:00 AM)
While today will be Day 2 of Janet Yellen’s testimony, which was fairly tepid in response to very tame questioning, the big news to start the morning is more merger and acquisition news.
It was odd listening to an interview with Gerald Levin, who in 1999-2000 was at the center of the Time Earner – AOL merger, which happened to occur on the precipice of what became known as the “dot com bubble.”
He was now commenting on a proposed buyout of Time Warner by Rupert Murdoch’s Twenty First Century Fox. At this point no one really cares about the eventual outcome of that merger, but rather what that merger represented in the scope of everything going on at that time and era.
It may be hard to draw a parallel to that era as right now there’s really no singularly spectacularly performing sector that could be called a bubble, unless it’s all a bubble. Nearly a generation ago it was obviously technology and the internet that was going wild, but the same just doesn’t exist these days.
While everything is at or near relative high points and everything seems expensive, it’s a far stretch to think that the current market is in bubble territory.
The early speculation is that talk of a buyout will spur others to start looking for their own synergies, so that more of the same can be expected. The same companies that received a boost when the Supreme Court ruled against Aereo could now be expected to more overtly look for those synergies.
The funny thing is that when you do start seeing an increase in merger and acquisition activity it is rarely something done at or near market bottoms.
Imagine the opportunities to pick up companies at fire sale prices back in 2008 and 2009. How many of those happened when it really seemed to make sense?
Instead, that kind of activity, just like IPO activity comes when prices are high.
That’s certainly understandable for the beneficiaries of IPOs, but it doesn’t make too much sense for buyouts and mergers, except when you realize that it’s other people’s money that’s being spent.
There’s rarely reason to be concerned about value when it’s not yours and it’s easy to be incredibly indifferent to getting value. It’s all about the getting and trying to stay ahead at any price, even if that price will turn out to be a noose around your neck.
The news this morning seems to be the catalyss sending the pre-open futures nicely higher. It will be interesting to see whether or not Janet Yellen, who did discuss, in a limited fashion, stock market valuation yesterday, will be asked questions about merger and IPO activity and whether that represents any cause for concern.
That question and its answer could be as explosive as when Greenspan commented about “froth” and “irrational exuberance.”
While the market looks to open higher this morning my only hope is that some of that move adds to some gains for the week, but it has otherwise been a very, very quiet trading week. In sharp contrast to last week.there have so far been no real activity in generating income from option sales, with the exception of some DOH trades of Holly Frontier.
If the market does generate some more strength this morning any opportunity to sell some more contracts on existing positions will be more likely that looking to add new positions, at this point. Any new positions are likely to look at expiration dates beginning with the August 2014 cycle, which begins next week.
With monthly and weekly contract expiration just 3 days away, the process of looking for rollovers begins today and there may at least be some opportunity to generate some of the weekly income that’s be really missing this week. Hopefully that will be coupled with some assignments so that the August cycle can get off to a good start.