As I mentioned on June 15th (see "Slowing Down as we Approach Dow 11,000"), and reiterated on June 16th (Dow 11,000: Welcome to "No Man's Land") the Dow is staying around the 11,000 mark until it gets further information on the Feds next move.
In recent days there has been speculation that the Fed will raise its key lending rate 50 basis points, and then call it quits (for now anyway). Whether that happens or not remains to be seen.
A fed funds rate of 5.75% would push the key lending rate in the "restrictive" territory for the first time since the 2000-2001 time frame, cash strapped consumers will be paying more for credit lines and adjustable rate mortgages. Currently banks are charging 7.75%-8.00% on prime, and another .25 or.50% would ratchet up the prime rate accordingly.
Needless to say, these higher short term rates will take a lot of steam out of the economy. In 2001, the fed funds rate hit 6.25%-6.50% bringing the economy to a crawl just before the terrorist attacks of September 11th. An already stagnant economy in 2001 had a very difficult time shaking off the damages caused by the New York disaster.
Today, investors woke up to news of a mega-merger after Anadarko Petroleum (APC) announced they were buying, not one but two oil companies, Kerr McGee (KMG) and Western Gas Resources (WGR). Anadarko paid huge premiums for both companies which totaled $21.1 billion. Kerr McGee rocketed $18.21 to $ 68.51, and Western Gas Resources jumped $18.77 to $59.68.
In another deal, Energy Partners announced they were buying Stone Energy for $1.4 billion.
The IA portfolio currently has 3 stocks that could be potential acquisition targets. In this environment anything could happen, but I would think Chesapeake Energy (CHK $30.48 + 1.37), Marathon Oil (MRO $76.72 + 1.84), and Sunoco (SUN $62.67 -.39) are being looked at by a major integrated as we speak.
This being said, I would not rule out someone making a bid for Conoco-Phillips (COP $61.26 +.50) or Valero (VLO $62.12 +1.45).
Next week, after the FOMC meeting, the waiting game will end. It is widely expected that the fed will raise the key lending rate another .25 bps. The real mystery is whether they will go .50bps, and what announcement they make. If you enjoy sitting on the edge of a cliff, you're going to love next week. In preparation, the yield on the 10-year Treasury note rose to a high for the year, settling at 5.20%.
