David Fry's Daily Market Outlook

January 29, 2007

The major markets moved up slightly on the strength of M&A activity given all the liquidity sloshing about the globe. The litany includes Friday's late announcement by Bank of America Corp. (BAC) exploring acquisition of Country Wide, and today Citigroup Inc. (C) buying a British online bank [Egg], Merrill Lynch & Co. Inc. (MER) buying First Republic Bancorp Inc. (FRC), perhaps a large Bristol-Myers Squibb Co. (BMY) acquisition by sanofi-aventis (SNY), and a combination of newsprint companies Abitibi-Consolidated Inc. (ABY) and Bowater Inc. (BOW). Need a score card?

Along those lines I watched with interest a Bloomberg interview with notorious LBO whiz Carl Icahn who, while discussing his views about splitting-up Time Warner Inc. (TWX), also noted that he felt 20% of the S&P 500 were ripe for either LBO's or private equity deals. And, you know something? There's enough liquidity chasing deals nowadays maybe it could be done! Last year alone it's reported that through stock buybacks and deals there is $600 billion less shares in float than the previous year.

An interesting muse here by 24/7 Wall St. that ponders the breakup value of several dozen companies with market caps of $10-100 billion. It's just speculation of course, but you get the idea as to the M&A fever.

We're on earnings, Fed and deal watch. Today was a fairly quiet day, but commodity markets had a pretty rough day.

Base metals were weak including Aluminum and Copper [which appears to want to test the $2.50 area "again"].

And grains were weaker with profit-taking in corn, wheat and the soybean complex.

An important story which may be having some psychological impact on crude oil markets is contained in this NY Times article that outlines the argument we mentioned last week that the Saudis may be driving the price of oil back toward $50 for a variety of reasons that the report outlines in a convincing manner.

What is it about homebuilder bulls that make them buy every piece of crummy news? Today the news couldn't have been any worse as the number of vacant homes for sale rose at the fastest rate ever recorded!

Market moving issues today were interesting, since there wasn't much news to account for their behavior -- at least from Asia.

Many Latin American markets were weaker perhaps on news of low commodity prices and higher U.S. interest rates.

It was relatively quiet today featuring weakness in some Emerging Markets, commodities and deal makers. There will be more to discuss as the week unfolds, more earnings are announced, deals are made and the Fed chimes in. Now, just for fun, what does this headline from MarketWatch mean??

MATTEL -- Better Barbie give a performance boost

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains positions in: streetTRACKS KBW Capital markets (KCE), streetTRACKS Gold Trust ETF (GLD), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI) and iShares S&P Latin America 40 Index Fund (ILF).