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An Alternative To Money Market Funds

September 2022

MARKET OVERVIEW
August is behind us and what a difficult month it was!! The major averages declined on fears the Federal Reserve will aggressively raise rates to tame inflation. This past month was the weakest performance for the month of August in 7 years. Last month, the Dow Jones Industrial Average fell 4.06%, while the S&P 500 lost 4.24% and the Nasdaq fell 4.64%.

ECONOMIC SUMMARY
Last Friday’s Nonfarm Payroll Report (NFP) was strong as 315,000 jobs were added, just shy of the estimate of 318,000 jobs. The U-3 unemployment rate rose to 3.7%. Meanwhile, the U-6 rate rose to 7% from 6.7% in the prior month.. The Labor Participation Rate rose slightly from 62.1% last month to 62.4% in August. Average Hourly Earnings rose 0.3% and are up 5.2% year over year. The next NFP report will be released October 7.

FEDERAL RESERVE
Federal Reserve Chairman Jerome Powell spoke at the annual Jackson Hole conference on August 26. He made clear the Federal Reserve will remain vigilant in its quest to bring the inflation rate  down to the desired 2% level. The next meeting of the Federal Reserve will take place September 21-22.

STOCKS TO WATCH
Last month, President Joe Biden announced plans to enable students to instantly write off up to $20,000 in debt. The plan has received substantial criticism and will likely face a legal challenge too. Former Treasury Secretary Larry Summers, a Democrat, said “the student debt relief is highly regressive as higher income families are more likely to borrow….Adults with student loans have much higher lifetime incomes than those without.” This plan, according to a study by the Wharton School, will likely cost taxpayers $1 trillion. Just last year, House Speaker Nancy Pelosi slammed a rumored debt forgiveness plan saying only an act of Congress could do so.

One truly troubling part of the Biden plan is limiting future payments on debt to 5% of income, but only after a borrower’s income rises above $30,000 per year. So, if a borrower makes $50,000 in a year, then regardless of the amount borrowed, the maximum payment would be $1,000 (5% of the added $20,000). And after 20 years, the student’s debt would disappear!!

Universities around the country will have little incentive to limit enrollment. And even if a student is unprepared for college, schools could charge large sums knowing that eventually a big check will eventually be written by the federal government thanks to the plan’s debt forgiveness.

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

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

Disclaimer

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