An Alternative To Money Market Funds
May is behind us and both the Dow Jones Industrial Average and S&P 500 reached new all time highs last month. Interest rates in the US and Europe rose from their amazingly low yields but remain at very low levels based on their historical average. The Federal Reserve has remained neutral on any rate increase so far. The Fed’s next meeting is set for June 16 - 17 and few expect the Fed to raise rates at this meeting due to the continued weakness in the economy.
For example, China’s Central Bank cut interest rates in May for the third time in six months. Major retailers such as Walmart, Lowe’s, Whole Foods and Kohl’s reported disappointing quarterly results in May. Revenue growth continues to be elusive for most S&P 500 firms.
As a result, several large corporate acquisitions have recently been announced such as Verizon’s buy of AOL, the CVS purchase of Omnicare and the H. J. Heinz merger with Kraft Foods. There is no guarantee these deals will ultimately be completed, though. The regulatory agencies of the Obama Administration have made lengthy reviews of proposed deals as the norm.
Case in point is the recently blocked acquisition of Time Warner Cable by Comcast. The FCC and Justice Department reviewed this deal for well over a year before finally rejecting it. Note that the Chairman and Chief Executive Officer of Comcast, Brian Roberts, helped raise large sums of money for President Obama’s campaigns in 2008 and 2012. It is no secret that the Obama Administration views mergers and acquisitions with disdain due to the large number of job losses that frequently result when companies combine.
The Obama Administration should be concerned about the sluggish growth and unemployment picture in the US. Despite running record budget deficits and doubling the nation’s debt outstanding since taking office, a record 93 million Americans are out of the work force. This coming Friday’s Nonfarm Payroll Report will likely show scant improvement in the Labor Participation Rate. It is now at the lows not seen since the darkest days of the Jimmy Carter Presidency. As Bloomberg.com reported on May 20 “... For many American states, it’s like the recession never ended.”
Maintaining a defensive stance continues to be our focus as we employ our conservative dividend capture strategy. Thanks to the dividends collected in early June from Southern Co. and ConocoPhillips, our clients are up over 18% year to date. I encourage our readers to meet with me to discuss how they can obtain greater current income and capital appreciation.
My weekly radio show on WWPR 1490 AM will go on vacation after the June 12 show. 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.