It's all about self-help. I think self-help may have more to do with this run up to S&P 2000 than the Fed.
Sorry, I know, the Fed's fun to kick around as a reason for everything, but self-help deserves much more credit.
This morning we heard about the gigantic acquisition of InterMune (ITMN) by Roche. That's how a company like Roche keeps up with the Joneses (Joneses like Celgene (CELG), Gilead (GILD) and Regeneron (REGN), the true market leaders at this moment).
But Exhibit A of today's S&P-driving self-help is the remarkable tie-up between Tim Hortons (THI), the terrific Canadian coffee and doughnut shop, with Burger King (BKW), the growth challenged junk food house. This deal exemplifies the moment, but not for what you have heard all day. This is not a tax savings play. Burger King, which will move its headquarters to Canada from Florida, is not cutting its tax bill. Canada has low rates, but this is no Ireland deal. You probably didn't hear this anywhere else, but Burger King currently pays almost the exact same tax rate in Canada that it does in the U.S.
No, this deal is motivated by growth, pure and simple. It's mainly the need for growth in the fast casual sector, growth which has become almost impossible to get unless you are pure, natural and organic, which is hardly a description of either company. The King has no clothes when it comes to purveying food that's good for your health, which is why it has such anemic numbers. BKW struggles to grow at 1%. Tim Hortons is putting up a surprisingly strong 5% comparable sales number. You put them together and you have a chain that's got some growth. That's why both stocks rallied today. Two plus two equals five with these kinds of growth-inspired deals.
Not only that, but we have seen time and again that these stocks just keep rallying, although I will say that the jump in the stock of Tim Hortons after its last good quarter now seems suspicious considering that Burger King contacted them not that long ago.
This deal makes a ton of sense as the very global Burger King can help grow the very parochial Tim Hortons internationally. Who doesn't want to be the next Starbucks (SBUX), although that's a little like being the next Chipotle (CMG), not easily mimicked. You can put a Horton's right next to or even inside a Burger King to get morning dollars from a place known for lunch and dinner. And, best of all, it takes out a player in the already-crowded fast food group, where there are way too many players already. Many of the mergers and acquisitions we see these days, whether they be in media, retail or rental cars or airlines, or industrials in general are driven by the need to have fewer players. We have way too many of everything and that means too much price competition, which is very bad for margins and often leads to the intolerable downside surprises.
Which brings me to the second part of the self-help message. Companies, unlike the Fed, report to shareholders and one of the more remarkable developments of the last 1,000 S&P points is that some shareholders have become very noisy and -- in a shocking development -- boards are listening. Burger King, for example, is basically run for and by some hedge fund managers that demand regular performance. It can't stand still because its directors won't let it stand still.
It doesn't matter how big or insulated you think you are from these noisy shareholders. Almost no one is immune, as we know from the positive responses of both Microsoft (MSFT) and Apple (AAPL) to the prodding of Value Act and Carl Icahn. As I pored over the companies that have been most aggressive in self-help or have disappeared entirely to takeovers, driving the S&P higher with their terminal takeouts, I am astonished at how often the whole process starts with a couple of quarters of underperformance or the need to feed the growth beast.
Now, I don't mean to slight the gang of companies that have shed divisions or broken themselves up, again, often at the behest of noisy activists. And it's certainly true that low rates have kept lots of stock with big dividends from going down. That's right, many of the food and drug stocks would be lower if they didn't offer a stable yield that exceeds Treasuries.
But as we trump S&P 2000 we have much more than Janet Yellen and Ben Bernanke to thank for this fabulous bounty. We have CEOs, often goaded by activists, trying to keep their jobs by taking their stocks up themselves to thank for much of the gain. And if the Fed were to stop its largesse? I think the companies would just keep rewarding shareholders with their inventiveness, their smarts and their use of cash and stock to make deals that rationalize sectors and cause ever-higher profits than anyone would have expected 1,000 S&P 500 points ago.