Morning News of Interest
Financial reform inches forward. Lawmakers are said to be close to an agreement on financial reform, with plans to house a new consumer-protection agency in the Federal Reserve. Key senators representing both parties have also reached an agreement that would enable the government to break up large, failing financial firms.
Kohn to retire from Fed board. Donald Kohn will retire as Federal Reserve vice chairman in June. His decision will give Obama a chance to reshape the Fed since it creates the third vacancy on the Fed’s seven-member board. If the White House and Senate move quickly, they could have replacements on the board in time to influence the timing of an eventual interest rate increase. Possible nominees could include Harvard’s Ken Rogoff, White House economic adviser Christina Romer and San Francisco Federal Reserve Bank President Janet Yellen.
Sovereign debt risk for U.S. banks. As concerns about Greece’s deficit mount and European contagion fears grow, U.S. Comptroller of the Currency John Dugan says regulators are taking a very careful look at the exposure of U.S. banks to sovereign debt risk. He declined to discuss the specific situations of individual banks.
Aussie rate hike. Australia raised its key interest rate this morning to 4% from 3.75%, betting that faster-than-expected economic growth will outweigh fears related to European deficits. Governor Glenn Stevens said the increase was a “further step” in bringing the interest rate “closer to average,” a level he previously signaled could be 75 basis points higher than where it currently stands.
Schlumberger buys Smith
Schlumberger agreed to buy Smith International for $11.34B in stock yesterday, creating an oil services giant and continuing the industry’s consolidation trend. Based on the closing prices for both companies on Thursday, before rumors of the deal surfaced, the deal values Smith at $45.84 per share, a 37.5% premium. The deal is subject to shareholder and regulatory approval, but the companies expect antitrust approval without having to sell any major assets.
This could be the start of a major industrywide consolidation and one that we will continue to monitor. We already own RIG in the space and I am looking to add more as appropriate.
New Recommendation – SSYS
New Recommendation: Stratasys, Inc.
Symbol: SSYS
Buy the Sep ‘10 25 Put Option @ 2.60 or better
Sector: Machinery and Tools (Unfavored)
Rationale:
SSYS is a textbook case of more hope than money. It’s in a competitive market and the global economy remains weak. Their market is limited in size, gross margins are below their peak, and working capital is not efficiently deployed.
SSYS is worth about $15 in a good market. Hopefully it will fall to that price over the next few months.
Google goes electric
Google goes electric. The Federal Energy Regulatory Commission approved Google’s ( GOOG) request to become an electricity marketer, allowing it to buy and sell bulk power like a utility. Google has said it has no plans to sell energy management services or speculate in energy markets, but a spokeswoman acknowledged the company isn’t completely sure how it will proceed. Separately, a federal judge delayed his ruling on Google’s amended settlement to digitize millions of books, saying he first wants to hear oral arguments from as many as 28 parties. A ruling may still be several months away.
Wednesday Notes
Today was a rough one – I got ripped up in the currencies even though we ended ok. I did vent at the dealer for putting the screws to me though.
Rumor mill – Peabody Energy (BTU) has approached Massey Energy (MEE)
Yield curve (2-10 yr) is at its steepest point ever with the 10 yr hitting 3.72%
I am thinking about shorting Russell 2000 Index (IWM) – I’ll keep you posted.
Bullish Percent Numbers came in today at:
BPNYSE: Os @ 62%
BPOTC: Os @ 50%
BPSP500: Os @ 60%
We have the defense on the field for now.
Back later with more.
