Monday, June 18, 2007

The Week Ahead

Father's Day has been a blast. I'm a very blessed guy to have three wonderful children. They gave their old man at iPod Nano, so I'm now a really musically high tech dad. The gadgetry is always appreciated since my home office is gadget central, but my six year old son gave me a hand made card and a hand made replica of neck tie - amazing, the designs that construction paper and crayons can inspire and something that I will always cherish.

Will a traditional merger Monday return? Things have been pretty dead of late on the merger front on Mondays and it will be interesting to see if the deals return or if the recent surge in bond yields has helped to dry up some sources of capital for the LBO whizzes - not to mention the Washington effort to levy a chunk of new taxes on firms like Blackstone (BX).

Here's one small deal that's taking place: Lexicon Pharma in financing agreement with Invus (LXRX) is the ticker and will be a big mover on Monday.

As I've blogged recently, I have had my doubts about whether a Murdoch (NWS) takeover of Dow Jones should be seen as a forgone conclusion. Now, it appears that Roop may have some real competition. Pearson, GE in talks about joint bid for Dow Jones: report. Sources for the stories that have popped up this weekend about a GE/PSO bid are quick to point out that the talks could collapse, but if the two parties were to bid and enable the Bancroft family to retain a piece of the action, I would imagine that no amount of money Murdoch could offer would be good enough to get him a deal. With the Bancroft's as part of a potential GE/PSO privatization of the Journal, I'm inclined to believe that there may be little chance of much premium to Murdoch's $60 a share offer. Why should GE/PSO pay more if a Bancroft 'final-say' blessing would clinch an anti-Murdoch deal?

Nymex (NMX) is another potential deal in waiting: NYMEX in talks with three suitors, sources say.

The economic calendar is fairly quiet in the week ahead. Housing starts are scheduled for release on Tuesday. An annual pace of 1.47 mln is expected for May which would be down from the April figure of 1.528 mln. But really the key number to watch is Building Permits, which tumbled more than 8% in April. The usual Thursday release of jobless claims is on tap along with leading indicators that same day.

On the earnings calendar, Tuesday features numbers from Best Buy (BBY), Carnival (CCL) and Darden Restaurants (DRI) which should give a snapshot in retailing, leisure and casual dining and whether folks tightened the purse strings or found some extra money to spend. Wednesday earnings feature numbers for Carmax (KMX), Morgan Stanley (MS) and Fedex (FDX) which again gives us a look at retail spending, another look at Wall Streeet after less than spectular numbers from Bear (BSC) and Goldman (GS) and a peek into corporate spending with the Fedex numbers. Thursday earnings include numbers from H&R Block (HRB) and Jabil Circuit (JBL).

As for the week ahead on Wall Street, as J.P. Morgan famously quipped long ago, "Prices will fluctuate". I think it again comes down to whether the bond market can remain stable which helped stock prices to recover on Thursday and Friday. Any type of re-ratcheting of yields higher and it will be last Wednesday's swoon all over again. The Dow is only 3-dozen points away from another record high and the S&P is a scant six points away from a record, so it's not hard to imagine potential resistance at those high water marks should they be re-visited. It's also not hard to imagine a reversal of some of the Friday quad-witch gains on Monday which often happens (unless merger Monday comes back to life). Energy could also be a spoiler in the week ahead. WTI is already trading a bit above $68. A $70 handle on crude is likely not to be received warmly by the crowd down on Broad and Wall. There's also geopolitical problems which go hand in hand with crude, but in and of themselves can dampen sentiement (eg. Israel plans attack on Gaza. Still, last week was an up week for the market even with all the aforementioned negatives in play so I continue with mostly long plays but ever vigilant for a good short scalp when the opportunity comes along.

Corporate court room drama is set to begin on Monday: Brocade stock backdating case could have wide impact.

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