Wednesday, December 15, 2004


Merger and acquisition profits are zooming. Deals are getting done in every market segment. One day it is two very large phone companies doing a deal and on another it is two big health care companies or oil companies or software companies; the list goes on and on.

Ed Yardeni and others have pointed out that there are two good ways to play mergers. One is to buy good stocks before someone else does and the other is to buy the deal makers. GS will make a ton of money making deals work. Stocks are so cheap that it makes far more sense to buy out a big business than to build a big business.

Yardeni points out that many companies are being bought out by themselves. Share buybacks are at record levels. Why? Because companies whose shares are selling cheap can increase their earnings all the more by borrowing money at low rates to buy shares that are yielding high rates. BUY STOCKS BEFORE SOMEONE ELSE BUYS THEM!

Discount brokerages are making their money from trading. Schwab reports that trading recently increased 25%. Going all the way back to before the stock bubble, AMTD has increase 150% in value, E-Trade is up 5% and Schwab is down 40%. In the past year, E-Trade is up 15%, Schwab is down 3% and AMTD is off 7%. Very recently E-Trade has started trading up. E-Trade must appreciate 300% to get back to its all time bubble high but I believe it will do it before the decade is out.