An Alternative To Money Market Funds
June is behind us and both the Dow Jones Industrial Average and S&P 500 remained close to their all time highs while the Nasdaq Composite and Russell 2000 reached new all time highs. Interest rates in the US and Europe retreated from their amazingly low yields during the Spring, but remain at very low levels based on their historical average.
The Federal Reserve met June 16-17 and chose to not raise rates at this meeting due to the continued weakness in the economy. With little fanfare, the Fed cut its growth outlook for 2015 at this meeting. The Fed now sees growth for 2015 in the range of 1.8% to 2.0%, down from the previous 2.3% to 2.7% rate predicted at the March meeting.
Frankly, the cut in the growth forecast is not really a surprise. The first quarter GDP contracted at a revised rate of 0.2%. Economic data for the just concluded second quarter provided a mixed message rather than a strong rebound from the first quarter. The Dow Jones Transportation Index reached its 2015 low during June. Job growth remains sluggish and will likely remain so for the rest of the Obama Presidency as the US Supreme Court upheld key provisions of Obamacare in its 6-3 decision last month.
Inflation shows no signs of accelerating and remains below the Fed’s targeted inflation rate of 2%. In fact, the Fed now sees inflation staying below the 2% level until the end of 2017. For this reason, Warren Buffett and Jeffrey Gundlach do not see the Fed raising rates this year.
Regulators recently blocked the acquisition of Time Warner Cable by Comcast and the acquisition of US Foods by Sysco due to market share concerns. Many arbitrageurs fear the FTC will now seek to block the Staples Office Depot deal on similar grounds. It is no secret that the Obama Administration views mergers and acquisitions with disdain as job losses frequently result when companies combine.
Maintaining a defensive stance continues to be our focus as we employ our conservative dividend capture strategy. The major oil companies such as Chevron, Conoco and ExxonMobil offer generous dividend yields and are now trading near their 2015 lows. This is so even though crude oil prices have rallied about 40% from their low point earlier this year.
S&P 500 companies in the utility sector should also be considered as several of these companies yield over 4.50% with stable earnings. I encourage our readers to meet with me to discuss how they can obtain greater current income and capital appreciation. The current low rate environment will likely be here a good deal longer.
My weekly radio show on WWPR 1490 AM is on vacation. We will return on Friday, September 11. My newspaper column will continue to run on the first Monday of each month in this paper and on the following Friday in the Business Observer.
If you are unhappy with the returns now offered by money market funds feel free to contact us.