1. Fed prez hints at scary end to stimulus
He's not be chairman, but the regional president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, caused serious commotion Tuesday. In a morning Bloomberg interview, he said the Fed could reduce its current stimulus policies as soon as December. Then later that afternoon he said the exact opposite -- that the Fed's monetary policy should "remain very accommodative" (meaning, keep the stimulus a-flowin'). Investors were confused. And then upset.
Keep in mind that Wall Street is a huge fan of the Fed's third round of "quantitative easing" stimulus policy (aka "QE3"). QE3 sounds like a line from a Bond movie, but it's actually an initiative in which our central bank buys $85 billion in long-term bonds every month to push interest rates down. Low interest rates are meant to encourage borrowing, which should help grow the economy as you and your friends take out a loan to do cool, big things, like finally build an infinity pool.
It sounds counterintuitive, but even though an improving economy is a good thing, investors worry that if the economy starts looking sharp too fast, the Fed will end QE3. So to investors, any sign that the parents are shutting down the stimulus party (like Fed Prez Lockhart's comments Tuesday morning) feels like a Saturday night cut short.
The takeaway is that all eyes are now on Thursday (and not just for the Indianapolis Colts game). That's when the recently nominated new Fed chairwoman, Janet Yellen, is set to be confirmed by Congress, though she wouldn't replace current Chairman Ben Bernanke until 2014, Wall Street is looking for any kind of a sign (a comment, a flinch, a wink, even a tattoo) that indicates what she might do to stimulus.
2. DISH Network earnings look good
The best thing on TV Tuesday (besides Seinfeld reruns) were the corporate earnings of DISH Network (NASDAQ:DISH). America's second largest satellite-TV provider popped 6% after adding 35,000 new subscribers boosted revenues to $3.6 billion last quarter, above analysts' estimates. Just because DISH will ruin your Wednesday night hockey watching plans by breaking down mid-snowstorm doesn't mean it can't deliver for shareholders.
DISH is getting good ratings from investors for how it's dealing with its biggest problem: Blockbuster. DISH owns the once slowly, and now quickly, dying entertainment dinosaur, which incurred a $24 million loss last quarter -- but the execs over at DISH finally realized that Netflix won this battle (better late than never) and have decided to make the breakup official: They're taking Blockbuster out to dinner and a movie and then officially shutting down the business next year.
3. American Airlines and US Airways (finally) reach merger settlement
How do you measure a monopoly? Well, according to the U.S. Justice Department, the $17 billion megamerger of American Airlines and US Airways (NYSE:LCC), which was announced back in February, would have been too big for its own good. The possibility that the merged company could use its jumbo-jet size to abuse consumers with high prices was just too big. So antitrust laws came to the rescue.
The DOJ sued the airlines, but on Tuesday a settlement was reached, and the merger will go on as planned -- minus New York and D.C.'s junior-varsity airports, La Guardia and Reagan National. According to the settlement, the behemoth airline can do its thing so long as it gives up a big chunk of the NYC and D.C. air travel markets, and a gate or two it owns at airports in Boston, Philadelphia, and a few others. It also must maintain its current hubs for three more years, so that the states of those hubs stop worrying and drop their lawsuits.
So a DD-sized airline is too dangerous for consumers, but a 34-single D is OK? Pretty much. The new American will still be the biggest airline in the world, but according to the DOJ, these key divestitures in the seven affected airports diminish the threat of abuse. The newly open gates will allow some lower-cost flyers to grow and compete better.
Shares of the future holding company, AAR, soared 25% on the news. The combined company will save about $1 billion in cost saving and additional revenues as a result of the synergies. Investors, needless to say, were pumped on the news. Clearly, it's time to pop in that Airplane! VHS and celebrate.
As originally published on MarketSnacks.com
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