When Up Is Down

“Imagination is the only weapon in the war against reality.”
― Lewis Carroll, Alice in Wonderland

A funny thing happened this week.  The EU went deeper into negative territory yet the Euro strengthened against the US dollar.  The Fed issued dovish comments and oil prices rose.  Last week’s expectation of Euro / Dollar parity is in tatters.  Alas, a world only Lewis Carroll could love – one in which reality defies the norms.

With the tear the market has been on, combined with the number of companies in my portfolio merging, being acquired, spinning off divisions, being privatized or subject to rumors thereof (17%), my watch list has been as meager as I can remember.  Perhaps some of the mergers completing – or a market pullback – will result in improved valuations.  But I see little downside to cash accumulation as dividends roll in while waiting for the market to oblige.

Perhaps the oil market is breathing a sigh of relief with the spring redeterminations.  With oil at $40 per barrel both lenders and borrowers may have dodged a bullet – essentially kicking the can down the road until fall.  The weak  producers will still fail, the marginal ones live to see another day (much to the chagrin of OPEC) and the savvy get themselves acquired, e.g., CPGX by TRP.

A note of caution to the 20 or so DGI’s investing in T Rowe Price (TROW).  The Dividend Diplomats recently posted a good review.  What was unsaid – and perhaps unknown – is the impact of Valeant (VRX) that  Fortune recently reported on – particularly the negative impact to some funds.  One of TROW’s funds– Health Sciences – is the third largest shareholder in Valeant with about a 6.5% stake.  I wouldn’t expect a significant impact to earnings but the possibility of lawsuits and increased outflows could be a distraction and/or headwind as we go through 2016.  An issue worth keeping an eye on.

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