Today was M&A (mergers and acquisitions) Monday. That means that the companies that have extra cash are using that money to acquire other companies. The big one today was Sprint acquiring US Wireless for $1.3 billion in order to muzzle them because they were suing Sprint over a breach of contract. Corporations are flush with cash right now. They had a couple of good years and they are now using that money to buy back their own stock and make foolish decisions like buying other companies, for example, Ameritrade just bought TD Waterhouse. Why? TD doesn't add anything to Ameritrade's offering, it just eliminates a competitor. Companies are acting like people (big surprise). Money is easy right now and if the money is easy then it's easy to get rid of it. The other reason that M&A's are happening is that firms like Goldman Sachs make money on them. Goldman will encourage companies to acquire other companies and say that it is in their best interest. But when money is easy people don't use their heads. Abby Cohen from Goldman thinks that we are in the "summer rally" right now. She thinks the S&P is going to rise this summer 10% to 1325. It's in Goldman's best interest to say things like this. If they say the S&P is going to tank then their clients aren't going to be in an M&A mood. Here's my prediction. If the S&P 500 goes higher it'll only hit 1,250 (it's at 1219). After that, expect it to go to 1,130. Don't expect it to stay there long. The price will drop lower.
Dear Bil, how was Jost?
