AN ALTERNATIVE TO MONEY MARKET FUNDS
By Don Ames, Sarasota Family Office Association
August is behind us and what a month it was! Both the S&P 500 and Nasdaq traded at record highs while the Dow Jones Industrial Average briefly traded into positive territory for 2020. These moves are remarkable considering where the markets were at their lows in March. The shortest bear market in history is now in our rearview mirror as the Dow Jones Industrial Average had its best August since 1984.
Last Friday’s Nonfarm Payroll Report showed the economy continues its strong recovery as nearly 1.4 million jobs were created in August. This was better than the estimate of 1.35 million jobs. The U-3 unemployment rate fell to 8.4%, down from 10.2% in July. The U-6 rate, a broader measure of the employment picture widely followed by economists, fell to 14.2%, down from 16.5% a month ago. Meanwhile, the closely watched labor participation rate rose to 61.7% from 61.4% in July. The next unemployment report is scheduled for October 2.
Some major events occurred on Monday, August 31. Both Tesla’s 5-1 stock split and Apple’s 4-1 stock split became effective August 31. Incredibly, Tesla’s market capitalization briefly exceeded the market capitalization of Walmart!! In addition, on August 31 the Dow Jones Industrial Average welcomed Salesforce, Amgen and Honeywell to the index replacing Exxon, Pfizer and Raytheon.
The Federal Reserve will meet next week on September 15-16. It is widely expected the Fed will stand pat again at this meeting. The short interest on the 30 Year US Treasury reached an all time high in August. As the Fed continues with its quantitative easing program, a short squeeze could result pushing interest rates dramatically lower.
Last November, LVMH agreed to acquire Tiffany for $135 per share in an all cash deal. On August 24, Tiffany announced it was exercising its option to extend the closing date of the deal to November 24.
Under the terms of the merger agreement, Tiffany could walk away from the deal by paying a break up fee of $575 million to LVMH. Clearly. Tiffany is not going to do this now. LVMH does not have the option to pay a break up fee to walk away from this deal. Note that Tiffany is a Delaware corporation so LVMH would have to battle Tiffany in court to get out of the deal as per legal opinions by several prominent law firms. The question is what happens if LVMH and Tiffany do not receive all of the needed regulatory approvals by the November 24 date. Both Tiffany and LVMH would both need to mutually agree to extend the deadline again.