Buffett Buys the Market

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Money talks and big money screams. Wall Street saw the flurry of mergers and acquisitions activity continue. Legendary value investor Warren Buffett and Brazilian investment firm 3G Capital partnered to buy H.J. Heinz today. They paid a 19% premium for the iconic company. The total cost of the acquisition was $28 billion. Buffett stepped in to buy the stock at an all-time high and after reporting 30 consecutive quarters of organic sales growth. Berkshire Hathaway also announced new positions today in Verisign and Archer Daniels Midland.

Airlines sold off as the merger of US Airways and AMR was approved. There has been $180 billion dollars of M&A deals announced this year versus $58 billion at this time last year. These deals are a sign that corporate risk appetites are increasing.

Transports were split today. Airlines saw profit taking on the completion of the US air and AMR merger. Rails continue to move to all-time highs. Increased volumes from the Bakken oil fields have had a dramatic impact on both the traditional and short haul rails. Increased shipments of equipment through the area have allowed the rails to increase pricing.

Energy was an area of strength with crude trading higher by 0.50% and natural gas down sharply. Energy service companies, drillers and refiners were all aggressively bought today. Many refiners are up over 50% in the past several months. They have benefited from cheap oil coming in from the Bakken fields. This oil is being refined here and sold into foreign markets for large gains.

Materials stocks were weak today as chemical and precious metals stocks sold off. Steel stocks were up as were base metals stocks.

Financials were in line with the market. Investors have favored the banks with more capital market exposure rather than the traditional banks with heavy mortgage exposure. Capital market names like Morgan Stanley and Goldman Sachs continue to work higher. Asset managers have also performed extremely well in calendar 2013. They moved higher again today.

There will be more fireworks tomorrow in the battle of the hedge fund titans. Legendary investor Carl Icahn announced a major stake in Herbalife after the close today. His stake is in direct contrast to the large short position of activist investor and Pershing Share CEO Bill Ackman. The two rivals are head to head on opposite sides, with billions of dollars at stake, when it comes to Herbalife. The stock has soared by close to 20% in afterhours trading on the Icahn disclosure.

Source: PFS Group

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