foxex: The Oracle Speaks

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. Markets Rally as Trade Deadline is Pushed, and Buffett Speaks

Markets Close

Dow
26,091.95 +0.23%

S&P
2,796.11 +0.12%

Nasdaq
7,554.46 +0.36%

VIX
14.83 +9.77%

INV Anxiety Index
102.4 Neutral

US 10-Yr Yield
2.673 +0.68%

Markets Rally in Trade Deadline Extension

Just like that, the March 1st deadline for new tariffs to be imposed on an additional $200 billion worth of Chinese imports was waived by President Trump, who cited meaningful progress on an overall deal with China. That was enough to generate a strong global rally from Shanghai to the South Street Seaport of Manhattan. The threat of a continuing trade war with China is fading by the day as the two sides show increasing willingness to compromise.

Merger Monday

Companies were in deal mode today with two big ones capturing the headlines.

In the gold patch, Barrick Gold (GOLD) made an $18 billion hostile takeover bid for Newmont Mining (NEM).

Separately, GE (GE) announced that it is selling its pharmaceutical business to Danaher (DHR) for $21.4 billion. $21 billion of that is in cash, and $400 million is the assumption of GE debt. GE also announced that it has completed the sale of its transportation business to Wabtech (WAB) for $2.9 billion in cash. Shares of GE traded as much as 10% higher intraday, and eventually settled up 8%.

Why it Matters

Let's tackle GE, first.

Larry Culp, GE's CEO since October 1st, 2018, actually came from Danaher. He reportedly tried to buy GE's pharmaceutical business when he was CEO of that company. Since he took over GE, he has been promising and delivering on shedding non-performing assets from the former blue chip company and slimming down its balance sheet. Guess what? It's working.

After falling below $10 per share last Fall, shares of GE are up 64% since hitting their lows on December 12, 2018. Make no mistake...it's not the same GE a lot of us grew up with. That's the point, though.

What's Next

Culp says GE will provide guidance for 2019 on March 14th. There are a lot of retirees and pensioners who have their whole financial lives wrapped up in this stock, so people will be paying attention.

Gold Mergers

Barrick Gold's hostile takeover bid for Newmont Mining is just the latest potential tie-up in the gold patch as the largest miners try to scale their operations as prices for the precious metal have stalled. Newmont had been trying to acquire rival Goldcorp for $10 billion in an offer it made last month. While Gold prices have been trending upwards, as James noted on Friday, they have been stuck in the $1000 - $1400 per ounce range for the past several years. Blame a rising stock market for that as investors typically favor gold when stocks are under pressure .

Make no mistake about it, the gold mining business is getting more and more difficult. That's why we are seeing a rash of mergers and consolidation in the industry. Margins are tight, exploration is costly, resources are getting harder to find, and regulations can tie up a mining operation for years. Bigger companies are able to drive more economies of scale, and can have more influence over the price of the commodity than smaller companies with just a few mines. Expect this trend to continue, especially if gold prices remain stuck in their current range.

Buffett Speaks
Legendary investor Warren Buffett sent his annual letter to shareholders this Saturday, and, as usual, it was a gem. If you have never read one of his shareholder letters, it is a master class in investing, common sense and capitalist theory. I admit, I had to look up about 20 investing terms on Investopedia while I read the letter, but I am smarter for it.

We summarized some of the key takeaways for you, but if you love investing, take the time to read it yourself.

5 Things We Learned From Buffett's Annual Letter to Shareholders.

Buffett also spent the morning on CNBC answering viewer questions. He was candid, optimistic, and inspiring, as usual.

Chart of the Day: Lots of Benjamins

We gave James a little break today, so the daily chart is courtesy of Deutsche Bank and the Federal Reserve. Deutsche Bank points out that the amount of $100 bills in circulation exceeds the amount of $1 bills. This hasn't happened since the 2008-09 Financial Crisis. There is no official explanation for this, but we do know that the U.S. dollar is very strong right now, there is political uncertainty throughout Europe and South America (See Brexit and Venezuela), cryptocurrency is a shadow of its former self, and the stock market correction drove a lot of investors to cash and money markets.