An Alternative To Money Market Funds
January is behind us and what a month it turned out to be! The investment community witnessed the amazing volatility in the markets, Syriza’s landslide victory in the Greek elections, Mario Draghi’s launch of Quantitative Easing in the Eurozone, the continuing slide in the price of crude oil, copper and other commodities, Bitcoin’s collapse, the US Dollar’s continuing strength and the noticeable drop in bond yields since the end of 2014.
Expect more of the same amid fresh signs the global economy is struggling. Given the plunge in crude oil prices, it comes as no surprise that a number of firms in the energy sector have announced job cuts. In the oil services sector Schlumberger, Baker Hughes and Halliburton have announced a combined layoff of 17,000 employees. Schlumberger announced the lion’s share of the cuts with 9,000 jobs or 7.5% of its workforce to be trimmed. Baker Hughes is shedding 7,000 jobs (11.3% of its staff) while Halliburton is shedding 1,000 jobs.
British Petroleum “BP” and Conoco are trimming jobs in the North Sea. Last month, in announcing a major restructuring, BP stated it would cut thousands of jobs globally by the end of 2015 as a result of the slump in oil and natural gas prices. Meanwhile Suncor, Canada’s largest oil company, announced it would cut 1,000 jobs and lower its capital budget by 13% due to the oil price slide.
Significant job cuts have not occurred solely in the energy sector. This sad story has played out in a number of industries by several companies in the S&P 500. J.C. Penney, Coca Cola, GE, McDonald’s, Macy’s, John Deere, EBAY, American Express, Hewlett Packard and EMC have all announced job cuts within the past few months.
The continuing appreciation of the US Dollar against other major currencies is a problem. Both IBM and McDonald’s cited the greenback’s strength in explaining their disappointing results and outlook for 2015. McDonald’s 4th quarter results disappointed investors as it reported a 21% decline in its quarterly profit. Global revenues declined by 7% for McDonald’s due partly to the strong US Dollar. IBM reported similar difficulties.
Despite the plunge in crude oil prices, I fully expect ExxonMobil to increase its quarterly dividend this Spring. ExxonMobil’s dividend payments have grown at an annual average rate of 6.4% over the last 32 years. I also expect Chevron to increase its quarterly dividend this Spring as well. Last year, Chevron increased its quarterly dividend by 7% from $1.00 to $1.07 per share. I fully expect other major firms to announce dividend increases in 2015.
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