EmailA relatively quiet week of news got a lot more boisterous this morning with a bevy of headlines that incorporate M&A, earnings reporting, and economic (in)activity.
We'll get right to it then.
Berkshire Hathaway (BRK.B), along with 3G Capital, is buying HJ Heinz (HNZ) for $28 bln, or $72.50 per share, in cash, which is a 20% premium over yesterday's closing price. US Airways (LLC) and American (AAMRQ) won merger approval and will become the nation's largest airline. Cardinal Health (CAH) is buying privately-held AssuraMed for $2.07 bln in what is expected to be deal accretive to earnings this year.
The takeaway: The fact that Warren Buffett is paying a 20% premium after HNZ has rallied 17% over the last year will play into the conventional belief that the market in general is not overvalued.
The earnings reporting season isn't over yet. Cisco (CSCO), PepsiCo (PEP), Applied Materials (AMAT), General Motors (GM), Whole Foods (WFM), Mondelez (MDLZ), and Waste Management (WM) are among the headliners that have reported results since yesterday's close.
The takeaway: More of the same. Most companies that reported exceeded Capital IQ consensus estimates that had been reduced in many instances. In turn, most companies providing guidance, Cisco included, have provided cautious-sounding guidance offset by an expectation that things should get better as the year unfolds.
Initial claims for the week ending February 9 declined by 27,000 to 341,000 (Briefing.com consensus 365,000). Continuing claims for the week ending February 2 fell to 3.114 mln from 3.244 mln (Briefing.com consensus 3.200 mln).
The takeaway: The report was better than expected and the Department of Labor hasn't made any mention of special factors contributing to the drop. Hiring activity may not be accelerating, but this report will be seen as a hopeful sign that firing activity continues to slow.
We have saved the worst for last, which brings us to the battery of Q4 GDP reports out of Japan and the eurozone. The numbers are ugly: Japan -0.4% on an annualized basis; Italy, Germany, and France down 0.9%, 0.6%, and 0.3% quarter-over-quarter; and the eurozone down 0.6% or 2.4% on an annualized basis.
Economic output in the eurozone contracted every quarter in 2012, which is a streak that hasn't been seen since 1995. The remarkable thing about that decline is that it occurred despite all the ECB has done to try to save the euro. The extended contraction is a hallmark attribute of the adverse effects of fiscal austerity and the disconnect between the real economy and financial markets.
The takeaway: Unemployment rates and the output gap in the eurozone have gone up, not down, after fiscal austerity. It is naive to think fiscal austerity in the US is going to be an easy-breezy thing to deal with. Higher tax rates and lower spending, the full force of which have yet to be felt, seem destined to take some of the bloom off the rose-colored view of growth momentum being restored in the second half of the year.
One final takeaway: The S&P futures are trading 0.3% below fair value, setting the stage for a lower start for the cash market.
