Another quarter is nearly in the books… and mergers and acquisitions (M&A) are still on fire.
What’s it to you? Maybe tripling your money in a matter of weeks or months… as you’ll soon see. There’s a $1.4 trillion pile of cash out there… and no reason you can’t grab a share of it. But we’re getting ahead of ourselves…
Preliminary data from Thomson Reuters reveals 8,669 deals during the first quarter of this year — totaling $811.8 billion. That’s the biggest first quarter since 2007.
“The deal activity in the first quarter was driven by continuing cash accumulation at companies, CEO confidence, inexpensive debt financing and pressure from activist shareholders,” says Kenton King. He’s a partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP.
Let’s key in on that “continuing cash accumulation.”
“Corporate America has so much cash sitting in the bank,” says a recent CNN Money report, “that it could purchase the Dallas Cowboys 437 times without borrowing a dime.”
At the end of last year, a FactSet analysis of S&P 500 firms revealed a corporate cash hoard of $1.4 trillion — a record.
(Whether Jerry Jones would be willing to part with the Cowboys for 1/437th of that figure we’ll leave for others to debate.)
When last we visited the M&A boom five months ago, we pointed out that large piles of corporate cash make shareholders itchy. They demand boards do something with the money…
- … either give it back to them in the form of dividends or buybacks
- … or grow the business. And if management isn’t confident enough to invest in new equipment, new research and new personnel — a common story… then M&A offers instant growth.
Case in point — a company we spotlighted a few weeks ago as “the next North Face.”
Fifteen years ago, The North Face was a struggling maker of outdoor gear. It was bought out by VF Corp. — which retooled The North Face’s product line. Fewer tents and such, more apparel. Apparel delivers fat profit margins. Result: Sales exploding 750% the last 15 years. Shares of VF Corp. grew 800% — not including dividends.
Late last year, our microcap specialist Thompson Clark identified a company he was sure would become, as we said, the next North Face.
Two weeks ago, the company announced plans to pursue “strategic alternatives.” In other words, the firm is shopping itself. It hired not one but two investment banks to help find a buyer. Shares leaped 36% on the day. Thompson is urging his readers to hold on tight for even more gains.
[Ed. note: We’d love nothing more than to tell you the name and ticker of the firm. And with this much of a gain already in the books, we ordinarily would. But even with its recent success, the firm’s market cap remains a mighty small $315 million. We can’t risk having thousands of readers of The 5 pile into it and artificially juice the share price. We hope you understand.]
“I’m always keeping an eye out for potential buyout targets,” says Thompson.
“The greatest thing about microcap stocks is that they can blast off like a rocket at any time. All they need is one good catalyst — a piece of good news about the company, an earnings report exceeding expectations — or, in many cases, a buyout.”
And because the companies are so small — a market cap as little as $50 million — buyout news can make the move even more explosive than with bigger firms. It’s not outrageous to expect to triple your money in weeks or months.
Thompson recently pinpointed 10 tiny companies as microcap buyout bait — including the three he thinks are the most likely candidates. Access to this research is strictly limited, owing to the size of these companies… so if you’re interested, we urge you to check this out right away.
The major U.S. stock indexes are giving back a bit of the monster gains they notched yesterday. They’re all in the red, but by no more than a third of a percent. The S&P 500 sits at 2,082.
The commodity complex is quiet — gold at $1,187, crude a few pennies above $48. That’s despite a strengthening greenback — the dollar index is up nearly half a percent at 98.4.
Today’s the deadline for governments to sign up for China’s new competitor to the World Bank… and there’s a last-minute rush.
Australia has confirmed that it’s in, following up on murmurings a few days ago. Russia made its announcement only today. Britain, Germany, France and Italy are on board, as we mentioned earlier this month. Even Taiwan and South Korea are in. The only major holdouts now are Japan and the United States.
The rush to join “is a grand validation of China’s One Belt/One Road vision for infrastructure upgrades across the whole Eurasian landmass,” writes economist David Goldman, best known for his “Spengler” columns in Asia Times. “China’s President Xi Jinping envisions $2.5 trillion of trade between his country and the ‘Silk Road’ nations over the next decade.”
The news also spotlights the “de-dollarization” trend. The Russians first used that word last May, describing a conscious effort along with China to curb transactions in dollars. Even the International Monetary Fund says it’s what emerging Asian economies should do.
“The mainstream media are starting to catch on to the Russia comeback story,” says our Jim Rickards.
Two weeks ago, Jim called the Russian ETFs “a classic contrarian investment opportunity.”
Now comes a Bloomberg story that says investors are “starting to favor Russia in 2015… Putin’s Ukraine adventure has led to instability in the region and frayed relations with the West; what it hasn’t destroyed is confidence in corporate Russia.”
The two big Russian ETFs — RSX and RBL — are both up 5% in the last two weeks. The S&P 500? Barely 1%.
[Ed. note: If you haven’t gotten your “de-dollarization” guide yet, time’s running out. The Big Drop: How to Grow Your Wealth During the Coming Collapse is Jim Rickards’ third book — a practical, hands-on follow-up to his two New York Times best-sellers. And this one’s available only through Agora Financial. Claim your copy at this link.]
It never gets old: The Bay Area’s latest entry in our occasional “crack shack or mansion” guessing game is this…
Hint: It’s a 1907 Craftsman home — four bedrooms, two baths…Yup, it’s a mansion. It listed recently for $799,000 and sold last week for $1.2 million.
Admittedly, the location is hard to beat. Unobstructed Pacific Ocean view, a short walk across Great Highway to the beach, five blocks from Golden Gate Park. Oh, and off-street parking.
But still… The place went for $935,000 in June 2008… and that was before it was stripped of most of the fixtures, including stained glass and Tiffany-style lamps. To say nothing of an outdoor hot tub included in the listing seven years ago but absent this time. The deck has gone to seed, too.
But hey… San Francisco’s median home price is now $1 million.
[Credit where it’s due: The original “Crack Shack or Mansion?” website was devoted to real estate in Vancouver. We borrowed it last year and applied it to the Bay Area for the first time. Obviously, it’s not the last…]
“I’ve got to wonder about the value of the income-and-spend report,” a reader writes after reading yesterday’s episode.
“Are interest income and dividends and carried interest part of the data? Is it that millionaires got big income boosts or that minimum wage earners got a nickel raise? I see lots of jobs being advertised with zero base wages and only straight commission. Here in Florida, car sales, insurance sales, mortgage sales and many more get paid zilch unless they produce. Wait staff gets $2.75 per hour plus tips.
“So do the tips and commissions go into the figure along with the other voodoo additives? Got to wonder if any of these data are based on reality.”
Excellent point. The report says personal income grew $58.6 billion last month. Only $23.9 billion was wages and salaries… while $19.7 billion was “personal income receipts on assets.” That latter figure excludes real estate, by the way — rental incomes were another $3.9 billion.
Don’t forget “personal current transfer receipts,” a catchall for everything from Social Security checks to food stamps — which added $15.9 billion.
“I am an emergency physician,” a reader writes — weighing in on our “Tax Freedom Day” issue last week — in which the average American labors until April 21 to satisfy all the tax authorities with a hand in his or her pocket.
“There is a federal law called EMTALA that states I must see everyone who comes to the ER or I am a criminal. So I am federally mandated to see everyone regardless of whether or not they pay me. I am currently paid 40% of what I bill. My total tax burden is over 50%. So I get 20% of what I bill. My tax-free day is Oct. 18.”
“I own a good amount of commercial properties, fully paid, no mortgages,” a reader adds to our ongoing property tax thread.
“The rental income is my retirement money, and I can tell you that my property taxes are a lot higher than the income taxes, and every year they always try to see if they can increase the value of some of my properties.
“What I hate about these taxes is that they include taxes for school districts, transportation, etc. I never used any of those services, because my kids went to private schools and we drive our cars.
“What I have problems with are the outrageous and highly variable assessments.
“One property was much larger than the rest of the blighted neighborhood, so they said it was comparable to homes on mansion row, a few blocks away. This while the house next door needed to be demolished and mine was far from a mansion.
“Another, a modular, was assessed the same as a stick-built (even though they sell for about half a much), as is now the state policy, according to the assessor.
“And a third, a single-family rental, when compared with a 12 plex 50 yards away assessed at half the value, while its income is about 1/10th and square footage about one-eighth. Their answer was for me to raise the rent by 50%. Good luck with that.
“If you have the time, energy and knowledge, you MAY win an appeal. Otherwise, you are screwed.”
“Taxation without representation,” reads an email responding to the Canadian who owns property in Colorado featured yesterday.
“In fairness to the regimes we both toil under, as a U.S. citizen owning ski property in British Columbia, I am taxed handsomely without any hope of voting locally or nationally in Canada.”
“This is from the ‘I don’t make this up, I only report it’ department,” writes a Canadian reader with a cautionary tale not pertaining to property taxes. Well, not directly.
“The province of Alberta government just introduced a new budget. They announced a reduction in the money going to our universal medicare system of a couple hundred million dollars. They also announced a new medicare tax of a couple of hundred million dollars that will go to general revenue and not to medicare. They have assured us that this will save medicare. (I’m merely a professional engineer, so I am not smart enough to figure out this exercise in easy, logical political thinking)
“They also increased traffic fines by 50%. They stated that they did not expect any reduction in traffic offenses — only an increase in the amount of money they collect.
“Hopefully, this will allow them to hire more police to generate more traffic offenses.
“Both of these remind me of a (cleaned-up) Canadian expression: ‘Chocolate-coated crap is still crap!'”
The 5: Zounds. Guess that’s what happens when oil revenue starts to crater…
Best regards,
Dave Gonigam
The 5 Min. Forecast
