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An Alternative To Money Market Funds

April 2017

March is behind us and what a month it was! The bond market had a strong rally since the Fed raised rates by 25 basis points March 15. The yield on the 10 Year US Treasury may be headed lower as the bond market awaits the results of the elections in France on April 23. If there is no clear winner, there will be a runoff election on May 7. Anti-Euro and anti-immigrant candidate Marine Le Pen currently leads in the polls. This election could be another Brexit vote in Europe.

One of the reasons cited for the rally in the bond market is the political uncertainty in Europe. The yield spread between the 10 year German Bund and 10 Year US Treasury briefly dipped below 200 basis points last month. This spread could narrow dramatically as summer winds down. Keep in mind that Germany will hold its election September 24 as Angela Merkel seeks another term as German Chancellor.

Across the Pacific, investors are keeping a close eye on developments in China as President Trump’s new policies take hold. Highly respected economist Ed Hyman of Evercore Partners Inc. has noted the surge in debt outstanding by China. According to Mr. Hyman, China’s debt is now 264% of China’s GDP. Clearly, this debt growth is unsustainable as it is growing at a far faster rate than its economy. Its corrupt political system is also not likely to change any time soon.

The US auto sector has made many observers shake their head in disbelief. Tesla, currently unprofitable, now has a market capitalization that exceeds Ford. Ford is profitable, pays a generous dividend and yields above 5% while Tesla does not currently pay a dividend. Do people still believe the electric car has a bright future?

Meanwhile, the most anticipated IPO in 2017 took place in March as Snap Inc. went public @ $17 per share. It briefly traded above $29 before retreating as March came to a close. Snap, like Tesla, is currently unprofitable. Nevertheless, analysts from 9 of the 10 investment banks that took Snap public recently issued BUY ratings on the shares.

The US is now officially more than $20 trillion in debt. In order to finance this enormous sum, the US has no choice but to keep interest rates quite low. For this reason, I continue to encourage investors to focus on companies with a history of both paying and increasing their quarterly dividend. Exxon has raised its dividend 34 straight years and is expected to do so again later this month. Utility giant Southern Co. has raised its dividend 15 straight years and is also expected to increase its quarterly payout later this month as well.

My weekly radio show on WWPR 1490 AM airs at 12.30pm each Friday. The show can also be heard live on the station’s website (www.1490wwpr.com).

My prior radio shows and news columns are available on my firm’s website  here.

The show can also be heard live on the station’s website (1490wwpr.com).

If you are unhappy with the returns offered by money market funds, feel free to contact us.

 

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