- Headlines remain dour, with bond insurers offered up as the concern du jour.
- The market is functioning normally, hosting a flurry of recent M&A deals and what will likely be the largest IPO in U.S. history.
- It's unlikely we'd be seeing this level of activity if things were really so bad.
- Insurers still enjoy top-shelf credit ratings.
(Editor's Note: MarketMinder does NOT recommend individual securities; the below are simply examples of broader themes we wish to highlight.)
We know it doesn't seem like wine and roses out there. Investors continue fretting recession, inflation (or even worse, stagflation) and a credit crisis (fears we've covered in this space as misplaced or overwrought). The latest feared domino is the endangered credit ratings of bond insurers. But if investors can look past scary headlines they'll see something encouraging—the stock market is still open for business as usual.
No Downgrade for MBIA
By Colin Barr, Fortune
Getty Images Agrees to $2.1B Buyout
By Jessica Mintz, Washington Post
Take-Two Gains after Electronic Arts' $2 Billion Bid
By Nancy Kercheval and Eric Martin, Bloomberg
Visa IPO May Be Largest in US History
By Madlen Read, Washington Post
We're not saying there aren't some concerns for the economy and the stock market—there always are! As humans, we have faulty memories—we don't remember fears we had back in the 1990s—all we remember was the booming stock market. We don't remember that in 2003, investors were convinced the bear market would only continue—forever. We just remember global stocks were up 33% and it was easy! We don't remember in every year since, headlines predicted this was the year the bull market must end—we just remember it didn't. But if things were as bad as today's headlines suggest, shouldn't markets cease functioning? Yet, they're doing anything but.
Mergers and acquisitions are bounding along nicely, with several deals announced last week and today. Despite all the fears surrounding the credit crisis, 2007 was still a huge year for cash-based and debt-funded mergers. And stock buy-backs haven't slowed at all. Credit markets are still functioning nicely for average and above average firms. In fact, it's cheaper for most large, publicly-traded firms to borrow to buy back stocks or buy a competitor than it was a year ago. Need more evidence the world hasn't ground to a halt? Visa Inc. today announced what should become the largest IPO in U.S. history. Would these transactions be likely if things were really so bad? Answer: No.
It seems if you were going to offer up what's likely to be the largest IPO in U.S. history you wouldn't want to do it in the middle of a tempest. But that's apparently not on Visa's mind, who today announced a deal nearly the size of the biggest previous two combined. This from a credit card issuer—presumably afflicted with all the maladies of the "credit crisis." You would think, if a crisis on the scale being broadcasted actually exists, this would be the wrong time for a credit card issuer to make a public offering. Maybe they've noticed rival MasterCard, undoubtedly similarly afflicted by the crisis, has seen its share price quintuple since its initial offering less than two years ago, and wants to get in on the game.
As a side note, the much trumpeted fear bond insurers Ambac and MBIA would lose their AAA credit ratings seems to have been for nothing. First, these companies are a long way from delinquency or bankruptcy. Second, today Standard and Poor's upheld its rating for Ambac Financial and removed MBIA from its credit watch list. So much for that. As it turns out, it frequently does no good to fear what everyone's fearing. Either they're wrong, or the fear is too widely-held to have much market-moving power.
It's hard to know whether this last bit of news will turn out to be the catalyst the bull market needs to shrug off what appears to be the first normal correction—in magnitude and duration—of this bull market. But one thing we know for sure: When investors are ready to buy, the market will be open for business.