Private Business Moves Ahead, while Washington Sits on Sidelines

The complete lack of effort by politicians in Washington to find a solution to sequestration is sure to have some effect on the U.S. economy, but it’s not being felt just yet.

Private businesses seem to be going full speed ahead with mergers, acquisitions and other plans, instead of waiting for the sequestration that is due to take place March 1.

The stock market, which ended Tuesday’s session at near record levels for the Dow Jones Industrials and Standard & Poor’s 500 Index, slid back some Wednesday, but not enough to set off any alarm bells. Google, the behemoth of the search engine industry, passed $800 a share for the first time to highlight an otherwise dull day on Wall Street.

Meanwhile, major corporations, many of them sitting on enormous piles of cash that either needs to be reinvested or used to improve the business, continued movements in those directions.

Here is a summary of some of the action in the business community, while Congress and President Obama sit on the sidelines bickering over how to deal with a $110 billion cut to the budget.

A Bigger ‘Office’

Office Depot agreed to buy OfficeMax in a $1.2 billion all-stock deal that shareholders hope will make for one big, happy Office that can put some pressure on Staples, the industry leader. Combining the two Offices will give Office Depot a 35 percent share of the market, still 5 percent behind Staples. Office Depot and OfficeMax combined for $18 billion in sales in sales in 2012, while Staples brought in $25 billion.

The two Offices were hurt by competition from newcomers like Amazon.com, Walmart and Target. The online service and discount stores offered lower prices and sometimes more convenience. It is likely that many of the “big box” stores operated by Office Depot and OfficeMax will be closed, a move that would save the company about $600 million the first year.

The deal will be reviewed by the Federal Trade Commission, which nixed an attempted buyout of Office Depot by Staples in 1997. The FTC said consumers would suffer because of a lack of competition. That may not be the case 16 years later with sales of office supplies and furniture soaring online and in the discount stores.

FBI Plays Catch Up With Heinz Deal

The FBI is hooking up with the Securities and Exchange Commission on possible “insider” trading on Feb. 13, the day before H.J. Heinz Co. was sold. The inside trader supposedly purchased options for $90,000 that were worth $1.7 million a day later when American investor Warren Buffett and Brazilian financier Jorge Paulo Lemann teamed up to buy Heinz.

Neither Buffett nor Lemann is said to be a target of the investigation – both are reportedly cooperating with the FBI and SEC – but the option purchase looks very suspicious. According to reports, the option trader had not been involved with the Heinz stock in the six months preceding the deal. The investigation deflects speculation that the sale of Heinz is the first in what could be the start of a few mergers in the food industry, possibly involving Campbell Soup and General Mills.

Housing is Up … and Down

A bundle of statistics announced this week indicates the housing market continues to rebound, though at a painfully slow pace. The Commerce Department said that the number of permits to build homes was up 1.8 percent in January, though the number of new homes actually started that month was down 8.5 percent. Also, the National Association of Homebuilders confidence index fell  to 47, one point off the December reading that was the highest since April 2006.

This good news/bad news revelation is an indication that the industry is catching its breath after suddenly coming to life in 2012. Housing starts jumped for 10 straight months, peaking in December 2012 as home starts hit 779,900 for the year. That is a 28 percent increase over 2011, though far short of the peak year of 2.07 million homes built in 2005.

The industry enjoyed significant job growth throughout the period, including adding more than 50,000 jobs in December and January. Stock prices for home builders also soared in 2012, with Pulte going up 124 percent, Hovnanian up 90 percent, DR Horton up 64 percent and Toll Brothers up 59 percent. On the downside, builders are seeing higher prices for materials and labor shortages in markets in the South and West.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

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    Sources:

    1. Rooney, B. (2013, February 20). Stocks: Bulls get gut checked. CNN.com. Retrieved from http://money.cnn.com/2013/02/20/investing/stocks-markets/
    2. Bartz, D. and Skariachan, D. (2013, February 19). No U.S. antitrust guarantees for Office Depot, OfficeMax merger. Reuters. Retrieved from http://www.reuters.com/article/2013/02/19/us-officemax-officedepot-antitrust-idUSBRE91I1CY20130219
    3. Quirk, M. (2013, February 19). OfficeMax & Office Depot May Finally Stop Resisting The Attraction And Settle Down. Consumerist.com. Retrieved from http://consumerist.com/2013/02/19/officemax-office-depot-may-finally-stop-resisting-the-attraction-and-settle-down/
    4. Berkowitz, B. and Geller, M. (2013, February 14). Buffett, Brazil’s 3G team up for $23 billion Heinz buyout. Reuters. Retrieved from http://www.reuters.com/article/2013/02/15/us-berkshire-heinz-idUSBRE91D0PY20130215
    5. Chandra, S. (2013, February 20). U.S. Single-Family Home Starts Rise to Four-Year High. Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-02-20/work-begins-on-most-u-s-single-family-homes-in-four-years.html
    6. Goodkind, N. (2013, February 20). Housing ‘Taking a Breath’ as Starts and Confidence Decline. Yahoo. Retrieved from http://finance.yahoo.com/blogs/daily-ticker/housing-market-improving-despite-decline-housing-starts-confidence-134748661.html