Three Things (5/1)
May 1, 2023
"I am not responsible for the financial crisis, I hate to tell you." – Jamie Dimon, CEO of JP Morgan Chase
More banking tumult
We were waiting to write this to see if First Republic, one of the top 25 banking institutions in the US, was going to get bought over the weekend. Takeover bids from the likes of JP Morgan and PNC were rumored but nothing has come to fruition (yet). The stock has now fallen more than 97% this year as they are viewed as the weak link in the banking system.
Don’t view this as a conclusion of the story though. It would be hard-pressed to bet against another regional bank or two going through the same circumstance.
Housing hikes
Mortgage rates in the U.S. rose to the highest level since the middle of March with the average 30-year, fixed loan hovering around 6.43%. The mortgage payment needed to buy the median-priced home for sale in the US has moved up to $2,555, a new all-time high. (Redfin)
The housing market has certainly provided an intriguing dynamic: the combination of higher mortgage rates, higher home prices, and low supply has made purchasing a home more difficult than ever before. The number one factor keeping renters from becoming homeowners is affordability and it doesn’t look like it’s getting better anytime soon.
Cash is no longer trash
Buoyed by a flight to safety following the regional banking crisis, once out of favor money market funds are now leading the way. With yields now exceeding 4.5%, nearly $369 billion has flowed into money market funds since mid-March, the largest inflow since 2020.
In a higher rate environment, we think this trend might be here to stay – what it means for riskier assets remains to be seen. Larry Fink, the CEO of Blackrock seems to agree: “We expect the shift from deposits to money market funds to be a longer-term trend. Yields are back after a lost decade of near-zero rates.” (Bloomberg)
Cash Management
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