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An Alternative To Money Market Funds

January 2015

What a year 2014 turned out to be for the financial markets!! Interest rates remained far  lower than many strategists predicted. Remember at this time last year when several noted market strategists predicted that the 10 year US Treasury note would yield 3.50% or more? And after a severe correction in mid October, both the Dow Jones Industrial Average and S&P 500 rallied to all time highs. Crude oil prices plunged as Barron’s accurately predicted in its March 29 cover story “Here Comes $75 Oil”. Should they have called for $45 oil?

Besides low interest rates and the plunge in oil prices, the surge in Mergers and Acquisitions activity was also a huge story in 2014. On November 17th, 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 in 2015. Among these deals are the Comcast acquisition of Time Warner Cable, the AT&T acquisition of Directv and the Reynolds American acquisition of Lorillard.

But for sheer audacity, nothing compares with Bill Ackman’s play for Allergan “AGN”. Ackman’s hedge fund, Pershing Square, acquired a stake in AGN during 2014. Then through a classmate from Harvard, Ackman persuaded Valeant Pharmaceuticals “VRX” to launch a hostile bid for AGN!! How could Ackman lose? If another bidder emerged as ultimately occurred when Actavis won the bidding war, Ackman was able to cash out his stake at a huge profit. And if VRX had prevailed, Ackman would have owned an equity stake in a very valuable property.

Days after the Sochi Winter Olympics ended in February, Vladimir Putin stunned the world  by invading Ukraine and later annexed Crimea. Highly respected New York Times columnist Tom Friedman speculated in a column “A Pump War?” in October that the US and Saudi Arabia were deliberately pushing oil prices lower to punish both Iran and Russia. The plunge in oil prices could lead to debt defaults by countries such as Venezuela, Iran and Nigeria.

By the way, Mr. Putin was named Man of the Year last month by the Russian news agency INTERFAX for the 15th consecutive year.

As for 2015, our stance remains staying focused on quality companies with a history of increasing dividends. AT&T announced last month an increase in its quarterly dividend for the 31st consecutive year. Verizon did so in September. I fully expect oil giants Chevron and ExxonMobil to announce dividend increases in 2015 along with a number of other members of the S&P 500. The plunge in oil prices will lead to large profit increases for many S&P 500 firms.

I now host a weekly radio show on WWPR 1490 AM in the Tampa Bay region. The show airs from 2pm - 2.30pm EST every Friday. The show can also be heard live on the station’s website (1490wwpr.com). Taped broadcasts of each show are also available on my firm’s website (www.amescapmgmt.com). Enjoy!

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

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