Blackrock: Political Polarization Creating Lack of Consumer Confidence

Pretty regularly here at the CC Capital Advisors blog, we ask the question: "Why have the markets failed to rebound as fundamentals improve, equity markets rally and an abundance of capital sits idle in a low income environment?" As we wrote previously, healthcare had a tough time in 2013 due to the Affordable Care Act casting a shadow of uncertainty over the market. Russ Koesterich, Chief Investment Strategist at Blackrock recently released a paper that postulates that political uncertainty extends beyond healthcare to tax code, regulatory issues and more. Russ explains that the budget deal has removed the risk of another government shutdown, but continued uncertainty about the ACA and partisan gridlock are making consumers and businesses alike uneasy. According to the figure below, party polarization is at its worst point in fifty years. This graph measures the difference in voting patterns between the Democrat and Republican members of Congress. As you can see, the gap is widening, not narrowing.   So, what does this mean for the wider deal market? First, the uncertainty of the political situation is most likely impacting more than just the health care industry. When a government is unable to govern properly, there is a resulting lack of confidence in that market. This is generally seen in emerging markets, where a sovereign government may make investment difficult or risky, but can also take place in developed countries. Secondly, it will be interesting to see just how good the fundamentals and market opportunities need to be to overcome this lack of faith in the political system. At some point, one would expect deal makers to take advantage of opportunities even if they lack faith in the broader political situation; this will only happen when the reward outweighs the associated risk. Finally, Russ concludes that if there are any sort of "surprises" of the positive sort from Washington, we could see pent up deal demand released into the market place. Of course, that would require a miracle in the form of Congress getting their act together. Read the entire report from Blackrock here.

Justice Department Clears Merger of AA and US Airways

November 14, 2013 09:57 by Clayton Reeves in Capital Markets, M&A, Regulation  //  Tags: , , , , ,   //   Comments (0)
As reported in Deal Book, the Justice Department has cleared the $11 billion merger of American Airlines and US Airways. This paves the path towards creating the world's largest airline. The merger comes at the end of a tough period for airlines, which has seen high fuel prices, bankruptcies and labor issues. This is a new step in the industry's deregulation, and leaves only a few airlines that control the bulk of domestic and international flights. The remaining giants are American, Delta, United and United States domestic flight behemoth Southwest. The Justice Department claims that this merger will foster competition among market operators, but not everyone agrees. Transportation economics professor George Hoffer, from the University of Richmond, stated that the merger effectively removed one competitor from the market. He added that this could result in fare increases in many markets and fewer flights.  Investors, on the other hand, were obviously in favor of the deal, which creates a more formidable airline in the combined entity. All airline stocks were higher Tuesday, indicating that the market may agree with Dr. Hoffer on who wins from this deal. Read the full article here.

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