Notes on AT& T DEAL AND MARKETS

By Gary Kaltbaum October 24,2016

Thoughts on the AT&T/Time Warner deal as well as the other rumored or proposed deals:

It’s all about EASY MONEY. It cannot happen without easy money. Easy money keeps rates low so borrowing costs stay low and easy money buoys stock prices so higher stock prices can be used as currency. This what causes the “buy at any price” activity. Do you ever see big buyouts during bear markets where companies can buy on the cheap?

It’s all about NO GROWTH. For example, British American Tobacco is buying the rest of Reynolds for one reason. NO GROWTH. Their sales was down 11% year over year. What else to do but buy someone else to keep growing. Keep in mind, Reynolds just bought Lorillard two years ago for $27 billion.

The AT&T/ Time Warner deal will take time and will not get done easily. With a potential Clinton presidency, look out for Warren and Sanders as influencers. They both would be proud to tell you they are not for bigger. There are those that say this is not a merger of competitors. They are correct in that sense but no doubt there will be worry about holding content back from others. Trump has already done the hip shoot by saying the deal will be blocked if he was Prez and Clinton spokespeople have already said this will need a close look.

Keep in mind, the Obama administration killed Baker Hughes/Halliburton, Pfizer/Allergan  a couple of big managed care deals and the dreaded Office Depot/Staples combination as they must have been worried about a pencil monopoly.

We may be getting into the “if we don’t buy, someone else will” time frame. No wonder we saw many other content companies up in trading Friday.

Is this a potential sign of a late stage market? Let’s just say the market has been late stage a couple of years, held up by ever higher printing of money and ever lower interest rates but the answer is yes. January 10th, 2000…that was the announcement of the AOL/ Time Warner debacle of a deal. You know what happened to the market soon after. Of course, any bad market will have Yellen starting QE4. No really! And of course, we will let the market decide.

This is a good move by AT&T. Smartphone and broadband internet service markets are slowing down and maturing. One has to look elsewhere. The first shoe to drop was Direct TV…and now the potential to feed all that content to it. The word “bundling” will grow louder. On top of that, no more having to negotiate price with everyone.

Short shrift on the markets:

The good news is that important support refuses to break. In fact, there have been several occasions where it looked ready only to reverse to the upside intraday. The bad news is that it also refuses to move topside. In fact, any rally has been anemic and short-lived. So we remain in the nauseating trading range that has been going on for quite a while. We recently wrote to you that major indices are now where they were anywhere from 18-30 months ago. Maybe this is just the pause that refreshes. The problem is that there has been a clear loss of sectors and a clear loss of stocks in uptrends. Sector-wise, a ton of areas remain in downtrends. To keep things short, the areas that are getting money flows are banks, airlines, oils  and now starting to see better action in steel and a few commodity names…but not much after that. We’ll have more as we go through a major league earning’s week coming up.