ARTICLES

An Alternative To Money Market Funds

May 2017

April is behind us and May is off to an exciting start. Many companies in the S&P 500 reported strong quarterly results. Investors remain optimistic that President Trump’s proposed tax cuts will be enacted by Congress. In addition, there is hope Congress will finally pass the full repeal and replacement of Obamacare.

There was a stunning development in the municipal bond market recently. On May 3rd, Puerto Rico officially filed for protection from its creditors in what amounts to the largest bankruptcy filing ever in municipal finance history. Puerto Rico has about $75 billion in debt.

Under the PROMESA legislation enacted last year, Puerto Rico was given the opportunity to effectively file for bankruptcy in federal court rather than in bankruptcy court. But, under current law, no US state or territory can file for bankruptcy. For this reason, the PROMESA legislation will likely be fought in court on constitutional grounds under both the Due Process and Equal Protection clauses of our Constitution. As a lawyer myself, it is clear to see how states that have issued a mountain of debt will seek to have the same opportunity as Puerto Rico now has, in an attempt to discharge a large amount of their debt outstanding. Litigation will take years for sure.

The Federal Reserve chose to hold rates steady at its May meeting. With the Presidential election in France now behind us, bond market strategists are now pondering how the ECB, the European Central Bank, will react at its meeting June 8th. Our Federal Reserve will meet days later on June 13-14. If the May Nonfarm Payroll Report, to be issued on June 2nd is strong, the Fed may decide to approve another rate increase at its June meeting.

Crude Oil prices suffered a rapid decline from late March into early May as Brent Crude and West Texas Intermediate Crude both traded below the $50 per barrel level. There has been concern that the production cuts agreed to last year by OPEC and the major non-OPEC nations may not be continued upon expiration. We will have a much better idea once the OPEC meeting in Vienna on May 25th concludes. REUTERS reported on May 5th that Russia is ready to agree to extend the OPEC production cuts at the May 25th meeting, a positive sign.

Last month, Costco, Exxon and utility giant Southern Co. announced dividend increases. Costco also announced it would also pay a special dividend of $7/share to its shareholders. Exxon has raised its dividend 35 straight years while Southern Co. has raised its dividend 16 straight years. Our firm continues to focus on S&P 500 companies with a history of both paying and increasing their dividend. These companies do so thanks to their financial strength.

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 (1490wwpr.com). My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).

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

Archived broadcasts of each show are also available on my firm’s website here. Enjoy!

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