Years ago I decided to opt out of putting gas in the car. I figured there were several non-optional parts of motherhood (growing, delivering, feeding babies) and this seemed like a fair trade-off. Husband for the most part accepts. However, this weekend as we were headed to our son’s birthday party he grumbled, “Why am I the only one who fills up the tank?” as it gauge sat near empty. I said if he could name one child coming to the party I would fill up the tank. Needless to say, the car is now full of gas and I am still oblivious about which side of the car it goes on.
Very few people are willing to be bearish on the biggest tech companies in the world. And you’ll find almost no one who says they are an outright short. But in this episode of In the Money with Amber Kanwar, legendary Wall Street strategist Larry McDonald, founder of the Bear Traps Report and author of the new book How to Listen When Markets Speak, explains why the next big rotation is already underway from overvalued tech stocks to overlooked hard assets. Listen now on Apple, Spotify or here.
Teflon: US futures are bumping higher and gold is hitting fresh records ahead of the Federal Reserve’s rate decision next week. Ahead of that we will get revisions by the Bureau of Labor Statistics in the US that could revise jobs numbers lower from earlier this year to March. At this point the markets are unlikely to be fussed considering the expectation of a rate cut next week. The TSX will get a boost today from a blockbuster mining deal (more on that below). Tomorrow we get a key read of producer inflation in the US and on Thursday we get consumer inflation. These will be the final bits of data the Fed will have in hand before making their rate decision. On the podcast, Larry McDonald said the Fed is going to be cutting rates into one of the highest inflation environments ever. It’s the main reason he is so bullish on hard assets and gold in particular.
Takeover Tuesday: Teck Resources is soaring 17% in the pre-market after agreeing to a takeover by Anglo American in an all-stock deal to become the sixth largest copper producer globally while maintaining headquarters in Canada. While the deal is technically a premium, Anglo will be paying a special dividend to shareholders before the combination which will reduce the value of its shares ahead of the transaction. It is being billed as a “no premium” deal. “Given the transaction is a merger of equals, we believe some investors may be disappointed with the lack of premium,” wrote TD’s Craig Hutchison on the deal, “We would not rule out a potential interloper. That said, breaking a friendly deal with significant protection in Canada would be challenging, in our view.” The deal was set in motion a few years ago when Glencore tried to buy Teck Resources. Instead, Teck sold their coal business to Glencore and became a pure play on copper. Anglo American, for its part, rejected a takeover attempt by BHP last year and has been streamlining its portfolio. Novartis is buying Tourmaline Bio in a $1.4 billion deal to boost it’s drug pipeline. Tourmaline Bio shareholders will get $48/share which is a 60% premium to yesterday’s close. The deal gives Novartis access to possible treatments for systemic inflammation which is driver of heart disease. Novartis has been a notable outperformer in biotech with the stock near a record high. No small feat considering biotech is a bit of a wasteland right now with shares of everything from Pfizer and Merck to Eli Lilly and Novo Nordisk all underperforming.
Downstream deal: Shares of Cenovus are up 1% in the pre-market after inking a deal to sell their interest in a refinery to Phillips 66 for $1.4 billion. Cenovus says it plans to use the proceeds to reduce debt and accelerate its buybacks. Interesting to get a windfall while it is right in the middle of a bidding war for MEG Energy. Don’t miss our interview with Adam Waterous of Strathcona coming out on Thursday about why he thinks his offer is superior to the one put forth by Cenovus.
Succession: It took more than four seasons for this dynastic plot to play out but battle for control over Rupert Murdoch’s media empire is over. Lachlan Murdoch secured broad control becoming the sole beneficiary of the trust that controls Fox and News Corp. Three of the other Murdoch children will cede their stake apparently receiving $1.1 billion each. Shares of each are under pressure as the proceeds will have to come from selling stock. Lachlan is believed to hold the same conservative views as his father and the deal likely insures a more conservative bent to the media platforms which have served them well particularly under US President Donald Trump.
Health check: UnitedHealth is popping 3% in the pre-market after reiterating its financial targets for this year and saying it will be receiving bonus payments for its Medicare Advantage program. It’s a system that will be foreign to Canadian readers, but basically if an insurer which administers Medicare Advantage has highly rated plans (rated by stars) they get bonus payments. UnitedHealth said preliminary data shows that 78% of their members will be on plans with at least four stars. Investors are closely watching their ability to get their house back in order after a stunning collapse in shares this year. As a sucker for stocks at a 52-week lows, I’m in this one acknowledging that it is a long road back home.
