ARTICLES

An Alternative To Money Market Funds

December 2023

MARKET OVERVIEW
November is behind us and what a great month it was!! Year to date as of November 30, the Dow Jones Industrial Average rose by 8.46%, the S&P 500 was up by 18.97% and the Nasdaq has risen by 35.92%%. December has started well for the market as a year end rally has begun.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report was better than expected as 199,000 jobs were added in November, slightly above the estimate of 190,000. The figures for September were revised down by 35,000 jobs. The U-3 unemployment rate declined to  3.7% while the U-6 rate dipped to 7.0%. The closely watched Labor Participation Rate improved slightly to 62.8%. The next jobs report will arrive on January 5

FEDERAL RESERVE
The Fed’s final scheduled meeting of the year will be held Dec 12-13. There is a growing feeling that the Fed is finished raising rates as inflation is quickly declining. In fact, several economists believe the Fed will begin cutting rates during the first half of 2024. It appears that the Fed’s desired “soft landing” will occur as last Friday’s job figures show a resilient  economy.

STOCKS TO WATCH
Last month, the Federal Trade Commission (FTC) announced it was investigating the proposed acquisition of the Subway sandwich chain by Atlanta based private equity firm Roark Capital. In my many years working in Mergers & Acquisitions (M&A), I cannot recall a private equity deal being blocked by the regulators. It really is unheard of!!

Let's take a quick look at the four steps that must be taken in order for a deal to be completed. In no particular order, there must be 1. Board of Director approval; 2. Shareholder approval by the target company; 3. Financing and 4. Regulatory approval. If one or more of these steps has not been completed, there is no deal. It really is that simple.

The FTC’s regulatory approval is needed to complete this deal since all other steps have been completed. The FTC is arguing that the acquisition of Subway by Roark Capital will limit the choice of consumers, thus creating harm. Roark Capital owns numerous well known brands including Arby’s, Buffalo Wild Wings, Dunkin, Jimmy John’s et al.If completed, this deal would give Roark Capital over 40,000 restaurants, sizable to be sure.

What is misleading in the FTC’s argument is the huge number of other sandwich shops/restaurants all over America. According to the website restaurantbusinessonline.com, in the US there are over 80,000 pizza shops, many of which also serve sandwiches. McDonald’s has over 13,000 locations while Burger King has nearly 7,000 and Wendy’s has 6,500. KFC has over 4,300 locations, Popeye’s has nearly 2,800, Starbucks has over 16,000 locations and Panera Bread has over 2,100 locations. Most grocery stores also have a deli counter. Walmart, America’s largest grocer, has over 4.700 stores, Publix has over 1,300 stores, Kroger has over 1,200 stores, while Albertson’s has over 2,200 stores. Then factor in the number of gas stations which also offer convenience stores that serve food. Wawa has  over 1,000 locations, 7-11 has over 13,000 locations, Flying J has over 700 locations and Racetrac has nearly 700. Clearly, the consumer will continue to have ample choices even if the Subway acquisition by Roark Capital is completed.

My weekly radio show is now on holiday and should return soon on WWPR 1490 AM. My prior radio shows and newspaper columns are available here.

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

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