More proof that congressional Republicans are bad for the stock market
Also: Warren Buffett's Berkshire Hathaway has built up a $600 million position in Suncor. What's next?
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
American markets are deep in the red this morning, and while there are a number of plausible theories for the sell-off – a bad quarter from bellwether companies like Cisco, anxieties about Federal Reserve policy changes or just a good old-fashioned taking of profits – there’s one that isn’t getting as much attention as it deserves. Reports out of Washington indicate that the latest (and last-ditch) strategy by Congressional Republicans to kill Obamacare involves threatening to breach the national debt ceiling this fall unless Obama repeals his healthcare plan. And a breach of the debt ceiling – indeed, even the threat of it – would be just cause for a major sell-off on the markets.
Slate’s Matt Yglesias doesn’t think it’ll actually come to that, noting that Obama could exploit the platinum coin loophole and put the issue of the debt ceiling (and the leverage it gives truculent Congressional members) to an end once and for all. Failing that, he thinks a few House Republicans will defect at the last minute and support an increase in the ceiling. “House GOP leadership will denounce the Democrats’ spendthrift ways and job-killing Obamacare, and life will go on,” he writes. “That’s far and away the most likely scenario. But you shouldn’t totally dismiss the possibility of something totally crazy happening. An Obamacare-or-shutdown scenario could have led to a three or four day shutdown that didn’t make a big difference to anyone’s life followed by a resolution. The debt ceiling is a more dangerous and unpredictable weapon, and even a very small chance of it blowing up should give people pause.”
Closer to home – and about as far away from the irrational brinksmanship of Congressional Republicans as you can get – Warren Buffett’s Berkshire Hathaway disclosed a substantial position in Suncor Energy (TSE:SU) in its quarterly filings. It’s built up a $600 million stake in the company (during a quarter in which it spent more on stocks than it has since 2011), and while that makes it only the company’s 18th largest shareholder it still represents a significant departure for Buffett, who, as BNN’s Jameson Berkow noted, has previously stated that investing in oil sands companies requires one to believe that oil can get to $120 a barrel – and stay there. “As one analyst said, this may be his attempt at saying it may be getting there at some point in the near future, and staying there for a very long time.” Berkow noted that most analysts in Calgary see Berkshire Hathaway’s stake in Suncor as unambiguously bullish, with one – AltaCorp’s Dirk Lever – suggesting that it may be a call on the Keystone XL pipeline getting approved.
If that happens, it’ll obviously be good news for companies like Baytex Energy (TSE:BTE), which just reported its second quarter results. But as FirstEnergy’s Katrina Karkkainen said in a note, it doesn’t necessarily need a macroeconomic catalyst to deliver returns for its investors. “Operationally, Baytex is on track advancing both its cold production drilling inventory, as well as its CCS and SAGD projects. Financially, the company con¬tinues to have a strong balance sheet with significant financial flexibility and has aggressively guarded against downside risk by layering in additional hedges for the back half of the year. With a better hold on production performance to date, management has tightened annual 2013e production guidance to 57,000-58,000 boe/d, which is at the high end of the previous guidance range. Aligning our production estimates with management’s new guidance, adjusting some of our cost inputs, and layering in the new hedges, our 2013e and 2014e cash flow projections are up 6 per cent and 5 per cent, respectively. As such, we have maintained our outperform ranking, although have raised our target price to $51.00 per share (previously $50.00 per share).”