A $45 billion megawatt merger could light up at least a few stocks this week.
The guarded stock market will otherwise focus on rising oil prices, housing numbers, a batch of economic data, Fed speakers, and the drama surrounding Iran. The oracle of Omaha will issue his latest words of wisdom after the bell Thursday and a few big earnings will make news. Of course, everyone will be watching the Oscars.
Our David Faber, in a major scoop late Friday, was the first to report that private equity buyers were close to announcing a mega buyout for Texas utility TXU.
The buyout by KKR and Texas Group Partners would be the largest buyout of all time, topping the $39 billion buyout of Equity Office Properties from earlier this month.
That should help set the market's tone Monday. It is also likely to be seen as just the latest in a new string of monster buyouts, Faber says.
NAG, NAG, NAG The nagging woes of the sub prime mortgage market have been trickling into the broader consciousness of financial markets as traders watch to see if the troubles will spread. Many pundits say the problems appear contained, but fears that it is not launched a flight to quality into the Treasury market Friday.
Barron's quotes Bank of America analyst Michael Hecht on the residual exposure of Wall Street firms to the sub prime market. (Faber reported on concerns about the firms in his Faber Report Thursday. He's been busy)
For Wall Street, if the value of sub prime loans drop sharply, firms could take a hit. For instance, Hecht painted the absolute worst case scenario for Bear Stearns to be a 5% earnings hit and a 4% hit for Lehman. Of course, he is not saying that will happen. Hecht says sub prime as a percent of tangible equity is about 9% for Bear and Lehman, and about 3% for other big Wall Street players. We'll be watching the impact on lenders, banks, brokers and markets carefully.
Bob Pisani says the stock market took the sub prime and other worries in stride. "There were four major problems: housing, sub prime mortgages, Iran and the commodities rally. This was the first week where we've seen all these problems converging. Considering that, the market held up," Pisani said. The Dow finished the week off 0.94, its worst week since August 11. The Dow Jones Utilities closed up 1.3% at a record. The S&P 500 was off 0.3%, and Nasdaq was the bright spot, up 0.8% for the week.
Gold ended the week 2.1% higher at $683.10 an ounce, while silver climbed 4.4% and copper jumped 7.5%.
OIL PRESSURE Crude finished last week at $61.14, up 2.1% at the highest level of the year. Oil is now up 0.1% for the year. Gasoline, meanwhile, closed up 7.2% at $1.76 per gallon, its highest close since September 1. Heating oil rose 4.6% for the week to $1.75 per gallon. Meanwhile, Prince Turki al-Faisal, Saudi Arabia's former envoy to Washington, told a forum in Jeddah in his first public statement since leaving the US that the White House's goal to break away from dependence on foreign oil is a myth and merely a political statement. Winter weather could be a factor in markets as traders start Monday by digging out from under a blanket of snow in New York City.
DATA WATCH It's a very big week for data with existing home sales and new home sales, Tuesday and Wednesday respectively. Durable goods and consumer confidence are released Tuesday; Q4 GDP, Chicago purchasing managers and oil inventories are issued Wednesday; January personal income and consumption, construction spending, and the ISM are reported Thursday, and Michigan consumer sentiment is out on Friday. Our Steve Liesman says investors will be watching very closely when the PCE deflator is reported Thursday, as any signs of inflation will send jitters into the markets.
Auto sales are reported Thursday, and our Phil Lebeau will report on how the car makers fared in February.
FED-A-RAMA Fed Chairman Ben Bernanke gets to spend another day before Congress this week, as he testifies before the House Budget committee on long term fiscal challenges Wednesday. The Fed's Susan Bies gives what's likely an uneventful speech in New York on Monday on Basel II. But Bies will also answer questions and reporters will no doubt surround her, looking for comment on such things as the sub prime market. New York Fed President Timothy Geitner speaks Wednesday on liquidity and financial markets in New York. Vice Chairman Donald Kohn testifies that day before the Senate Special Committee on Aging on the aging workforce. On Thursday, Dennis Lockhart begins his tenure as president of the Atlanta Fed. He'll be a non voting member of the FOMC. Dallas Fed President Richard Fisher speaks Thursday on the Texas economy, and St. Louis Fed President William Poole speaks on energy prices and the U.S. business cycle in Santiago, Chile Friday. That evening Bernanke speaks at Stanford before the Stanford Institute for Economic Policy Research's Economic Summit on Globalization and Monetary Policy. He will take questions from the audience.
We will also be watching Treasury Secretary Hank Paulson Thursday when he speaks at 1245 p.m. to the Economic Club of Washington on the importance of free trade flows to U.S. economic growth.
WHEN HE SPEAKS, WE ALL LISTEN Warren Buffett will release his annual letter to Berkshire Hathaway shareholders after the bell Thursday, breaking with the tradition of issuing it Saturday morning. Reuters reports Buffett must report Thursday because of the rule requiring companies to file annual reports with regulators within 60 days of the end of their fiscal year. That day is March 1. Buffett uses his letter to share his thoughts on markets and the economy and it is closely watched.
MERGER MANIA The House Judiciary Committee is asking Sirius Chairman Mel Karmazin to appear Wednesday as it reviews the XM and Sirius merger for antitrust concerns.
Reports that the private equity buyers for TXU reached out to environmental groups before sealing their deal is an interesting turn. As a result, so says the New York Times, TXU will drop plans to build eight coal power plants and take other measures. If the deal is approved, it would agree to work on reducing carbon emissions. Apparently Goldman, Sachs bartered for the buyers with environmental groups, showing how seriously business is taking climate change and weighing future repercussions.
EARNINGS CENTRAL Dell and Gap both report earnings Thursday and both should have interesting calls. This will be Michael Dell's first earnings call since the ousting of Kevin Rollins and Gap hopefully will discuss its strategy.
AROUND THE WORLD Iran will stay top of mind with energy and financial markets this week as the UN Security Council consider sanctions against it Monday.
