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Cash Will Cost You Extra

There was a substantial amount of news released this week, having a modestly positive effect on markets.  From announcements regarding acquisitions, to economic data including the jobs report, it feels like a lot is going on.  And yet, markets finished only slightly higher with the Nasdaq once again winning the prize.  I’m ready for the summer slowdown in news and activity. Anyone else?

One trend I’ve noticed recently is the uptick in activity surrounding mergers and acquisitions.  Typically, we don’t see much in this regard when the markets are at or near all-time highs.  Yet we learned, just this week, that Becton Dickinson is purchasing Edward Lifesciences for $4.2B, Waste Management is buying Stericycle for $7.2B, Honeywell is buying Carrier Global’s security business for $4.95B, Brazil’s Suzano is negotiating with International Paper for a $7.4B deal, and Skydance continues to look for a way to buy Paramount for $8B.  It is worth noting that all these deals are at a premium to the current price of the company being acquired.  I’m not casting judgement of the rationality of these deals, but I do wonder at the number of them we’ve seen lately.

Along the same lines, there have been a deluge of announcements regarding expansions overseas lately.  Isn’t it odd that many of the following companies find it difficult to expand in the United States, and often require taxpayer dollars in the form of subsidies, but seem to have billions to expand abroad?  Here are a few of the companies that made announcements this week: Google is spending $5B on a data center in Singapore, Microsoft is expanding its cloud and AI infrastructure business in Sweden to the tune of $3.2B, and Intel is teaming with Apollo in an $11B deal to build a chip fabrication plant in Ireland.  Hmm.  Didn’t Intel take billions in dollars from the CHIPS act to build a plant in Ohio whose construction has been delayed and will now reportedly come online sometime in 2028?  I guess if I were running one of these companies, I’d do the same if I were offered free or essentially free money.

As for the economy, the big news this week was that the nonfarm payroll report came in hotter than expected.  272,000 jobs were created in May, which came in well above the 182K consensus number and 165K in April.  This put some pressure on the markets since it signals once again that the economy remains too robust and likely pushes back the Federal Reserve’s first rate cut.  In a similar light, job openings fell more than expected in April, which admittedly doesn’t feel relevant in June.  However, it does speak to the continued tightness in the job market.  In other economic news, we learned that the central banks of Canada and the ECB cut rates this week by 0.25%.  These actions speak to the slowing dynamic abroad which we have yet to see domestically.  

Among the many stories I came across this week, perhaps the most interesting was the proposal being floated to open a new stock exchange in Texas.  However, before you get too excited that competition is coming for the more liberally located New York State Exchange (NYSE), know that the proposal is being funded and backed by BlackRock and Citadel Securities.  I know more than a handful of you aren’t fans of BlackRock.  Nonetheless, it is intriguing as one of the purported reasons for this move is to create more reliable listing standards.  For example, the Nasdaq has come under criticism for imposing targets for board diversity.  In addition, both Nasdaq and the NYSE have added more rules and increased compliance costs annoying corporations.  This isn’t the first time a new exchange has been proposed and given the complexity of the industry and its regulatory regime, it has not worked in the past.

In closing, I came across a story that has me wondering about the future of cash.  The article in the Wall Street journal is “Want to Pay Cash? That’ll Cost You Extra.”  Many of us have experienced the occasional retailer that asks if we have another card when presented with an American Express credit card.  Apparently, its fees are higher than those of Visa and Mastercard.  But now a new trend has emerged with retailers requiring payment by credit card.  For example, vendors at Yankee Stadium will direct you to a kiosk that converts your cash into a debit card for a $3.50 fee.  Reverse ATMs are popping up around the country as retailers move toward a cashless society.  While I’m not a legal scholar, I was always under the impression U.S. currency is legal tender and required to be accepted as payment for goods and services.  Apparently, that is not the case and may become more commonplace in the years ahead.  Now you know. 

Bruce J. Mason, MBA