Food, Internet retail and steel stocks drove markets higher today despite lower-than-expected US manufacturing data. The Dow steamrolled the May Day anti-capitalism crowd as Monday’s session closed up 117 at 17,891. Trading volume today however was low.
The ISM manufacturing index fell from 51.8 to 50.8 in March coming in below forecasts. The positive takeaway here is that the reading was above 50 which indicates expansion and expansions are good unless you are long on a contraction.
After picking up Plum Creek Timber and with a combined land base of 13 million acres, Weyerhaeuser announced that it had sold its pulp business to International Paper for $2.2 billion so that it could focus more on timberland. The sale included pulp mills in Georgia, North Kakalaki, Mississippi, Alberta, Canada and Poland. The company said it plans to use the bulk of the proceeds from the sale to repay a term loan that was used to fund a share buyback program. What am I missing here? How does selling a pulp business with an estimated ROE of 15% to 30% in order to buy back shares yielding 4% make financial sense? Only CEO Doyle Simmons knows for sure and his hair dresser is not telling. The deal must be approved by gubment regulators and maybe in the course of this review the Department of Common Sense will reject it.
In “non-US” financial news, Puerto Rico missed a $370 million bond payment as people flee the island nation in search of jobs. The new montra in PR goes like this: “To stay is to pay so let’s go away”. Meanwhile a closely watched bank recapitalization effort in Italy fell flat when investors only stepped up to fund 7% of an offering by regional lender Popolare di Vicenza. Maybe they should change their name to “Not Popolare de Vicenza”. Italian banks are sitting on an estimated 360 billion euro backlog of bad loans and the bank rescue fund only has 4.2 billion euros. Banks in Italy fell hard on the news as the prospect of using the “bail in” law seems to have increased.
WTI oil fell 2.2% to 44.91 while gold was up a dollar forty one at $1,291.90 an ounce. Gold is at a 15 month high.