An Alternative To Money Market Funds
2014 is turning out to be a remarkable year for the financial markets. Interest rates have remained far lower than many strategists predicted. And after a severe correction in mid- October, both the Dow Jones Industrial Average and S&P 500 have rallied to all time highs. Meanwhile crude oil prices have plunged as Barron’s accurately predicted in its March 29 cover story “Here Comes $75 Oil”.
There has also been a great deal of activity in Mergers and Acquisitions. In fact, on November 17, Actavis agreed to purchase Allergan and Halliburton agreed to purchase Baker Hughes.
The combined value of these two deals was a staggering $100 billion! There are several large deals previously announced and awaiting completion. Among these deals are the Comcast acquisition of Time Warner Cable, the AT&T acquisition of Directv and the Reynolds American acquisition of Lorillard.
Money Managers who focus on the Event Driven sector are undoubtedly pleased with the surge in Mergers and Acquisitions in 2014. On the other hand, employees of the combined firms will see large reductions in staff. One of the compelling motivations for making an acquisition is the opportunity for a large company to greatly reduce expenses while adding significant revenue.
For example, in the November 17 press release announcing the acquisition of Allergan by Actavis was the headline “Projected Synergies of at Least $1.8 billion while Maintaining R&D Commitment of Approximately $1.7 Billion”. For many S&P 500 companies, revenue growth remains difficult to attain. This trend will likely continue a good deal longer both in the US and abroad.
McDonald’s Corporation “MCD” provides another example of a major S&P 500 company struggling to increase revenues. Last month, MCD reported that for the first time in its history, in a 12 month period, it failed to have a single month of increased comp store sales in the US. According to the Associated Press, McDonald’s reported that its global sales fell by one half of one percent in October with weakness notably in the US and China.
As we head into 2015, our stance remains staying focused on quality companies with a history of increasing dividends. With interest rates low and likely to remain low a good deal longer, the energy sector and telecom sector both have several S&P 500 companies yielding over 3%. AT&T will likely announce an increase in its quarterly dividend later this month. This increase will be the 31st consecutive year it has increased its dividend.
I am delighted to announce that on Friday, December 5, I will begin hosting a weekly radio show on WWPR 1490 AM in the Tampa Bay region. The show will air from 2pm - 2.30pm EST every Friday. The show can also be heard live over the web on the station’s website 1490wwpr.com and taped broadcasts of each show will be available on my firm’s website. Enjoy!
If you are unhappy with the returns offered by money market funds, feel free to contact us.