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An Alternative To Money Market Funds

October 2022

 

MARKET OVERVIEW
September is behind us and what a difficult month it was!! The major averages declined as the third quarter ended on fears the Federal Reserve will aggressively raise rates to tame inflation. For those who are keeping score, the Dow Jones Industrial Average ended the third quarter down 20.95% year to date, while the S&P 500 has dropped 24.77% and the Nasdaq has declined 32.40% year to date, as of the end of the third quarter.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was strong as 263,000 jobs were added, slightly ahead of the estimate of 250,000 jobs. The U-3 unemployment rate fell to 3.5%. Meanwhile, the U-6 rate fell from 7% to 6.7% this month. The Labor Participation Rate fell slightly from 62.4% last month to 62.3% in September. Average Hourly Earnings fell slightly from the 5.2% level last month to 5.0% in this month’s report, year over year. The next NFP report will be released on November 4.

FEDERAL RESERVE
The Federal Reserve met September 20-21. The Fed raised rates another 75 basis points and made clear it will remain vigilant in fighting inflation. Friday’s strong jobs report left little doubt in traders' minds that the Fed will likely raise rates another 75 basis points when it meets Nov 1-2 and again when it meets for the final time in 2022 on December 13-14. Keep in mind the next Fed meeting will take place one week before the midterm elections.

STOCKS TO WATCH
Last week, Elon Musk announced he would go ahead and complete his purchase of Twitter at the agreed upon price of $54.20 per share in cash. Kathaleen McCormick, the judge hearing the case in Delaware, has agreed to delay the trial from its original Oct 17 date to Oct 28 to enable each side to close the transaction. But, this is where things become interesting.

Under the original agreement, Musk can walk away and pay a $1 billion breakup fee if the financing for the transaction cannot be lined up. Andrew Ross Sorkin of the New York Times reported that the banks could argue that Musk's antics have sufficiently damaged Twitter enough to qualify as a so-called material adverse event, letting the banks walk away. Or Musk could foil his own deal by not signing a required letter certifying that Twitter is solvent!! So, stay tuned as this saga plays out over the coming weeks.

Keep in mind the market for leveraged loans has worsened dramatically during 2022. Just recently, banks financing the Citrix takeover suffered losses of more than $600 million according to Bloomberg. The Twitter deal would see the banks provide $12.5 billion in financing. Among the banks involved in the planned financing are Morgan Stanley, Barclays and Bank of America.

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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