Are Big M&A Deals overvalued or Did Home Depot Take A Kidney Punch
Wall Street slumped Monday after the National Association of Realtors reported that inventories of unsold homes were at a 16-year high, up 5.6 percent amounting to a 9.6 month-supply. Those figures contradict somewhat better figures released last week about new home sales and durable goods orders, suggesting that the economy might be able to weather the credit storm.
The Dow closed down 56 points, while the broader indexes, the NASDAQ fell 15 points and the S&P500 dropped 16 points (CNNMoney).
In gold futures, gold slid $1.30 to $676 an ounce, while in commodities, crude oil added 88 cents to $71.97 a barrel.
Phile’s Stock World: The big news of the day and possibly what determined the direction of stocks on Monday was news that Home Depot slashed its price on its commercial supply unit about 18 percent - close to $2 billion. HD also agreed to buy $1 billion of the buyer’s debt on the deal. That seems like a hefty concession.
But it also suggest that these big deals on Wall Street could be overvalued.
Nonetheless Phil describes the slash in price as a “kidney punch.”
He said in an earlier post on the 26th that when mergers and acquisitions begin to unwind, its time to go all cash and short the market, and this seems to be appropriate to do that.
However, an offer for Gateway for $700 million manage to ease through for Acer, Taiwanese PC firm. In total there is about $400 billion worth of deals at stake currently. And it will be interesting to see how they play out.
Some signs to look for: gold and the dollar. If gold breaks $680, that might signal a return to safe-haven investments and a flight from equities, while the decline of the dollar continues to put pressure on the currency.
Tags: Business , Stock Markets , Finance
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