An Alternative To Money Market Funds
May is behind us and June is off to a disappointing start. The May Nonfarm Payroll Report once again showed the US economy is soft and stagnant. The unemployment rate drifted lower to 4.30%, near historic lows. But, only 138,000 jobs were added in May, well below the 180,000 forecast. The April and March figures were revised lower as well.
Nearly 95 million adult Americans were reported as not in the labor force, a number that exceeds the entire German population by about 13 million people. Germany is the most popu- lous country in the European Union. More disturbing is the Labor Participation Rate, reported as 62.7%, very close to the 38 year low of 62.4% reached in September of 2015.
All three major indices of the stock market have again reached all time highs even though not a single item of the Trump legislative agenda has been passed by Congress. One can only wonder where the stock market will go if President Trump is able to obtain Congressional approval for his tax cut proposal and the repeal of Obamacare.
One of the surprising developments of 2017 has been the drop in interest rates. The yield curve has flattened dramatically as the yield on the 10 Year US Treasury dipped below the 2.20% level. For several years, the yield on the 10 year US Treasury exceeded the yield on Germany’s 10 Year Bund by more than 200 basis points. Earlier this year, this trend reversed. The premium has been reduced to about 190 basis points. Should this trend continue, it is very likely the yield on the 10 Year US Treasury would drop below the 2% level. This would be a boon for corporate borrowers and homeowners seeking to refinance their mortgages.
The Federal Reserve will meet on June 13-14. It will be interesting to see if the Federal Reserve tempers its outlook on interest rates in light of the disappointing May Nonfarm Payroll Report. After the June meeting concludes, the Fed will next meet on July 25-26. Keep in mind that Fed Chair Janet Yellen’s term is set to expire next February, unless President Trump nominates her for another four-year term.
As investors come to grips with the realization that interest rates will remain low for a good deal longer, they need to embrace investments that generate consistent income such as divi- dend paying stocks. The municipal bond market has been shaken by the bankruptcy of Puerto Rico. Sadly, there will likely be more bankruptcy filings by a number of our cities and local communities as their pension obligations have created a burden that cannot be financed over the long term. Our firm continues to focus on S&P 500 companies with a history of both paying and increasing their dividends. These companies do so thanks to their financial strength.
My weekly radio show on WWPR 1490 AM is now on Summer holiday and will return on Friday September 8 at 12.30pm. My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).
If you are unhappy with the returns now offered by money market funds feel free to contact us.