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An Alternative To Money Market Funds

January 2019

2018 is behind us and what a volatile year it was!! Crude oil prices rose dramatically and then declined along with the yield on the 10 Year US Treasury. Microsoft eclipsed Apple to become the world’s largest company by market capitalization. Bitcoin plunged from its all time high of nearly $20,000 per unit in December 2017 to less than $4,000 per unit at the end of 2018. Tesla nearly collapsed during 2018. Yet, Tesla finished the year above $300 per share despite the fact it has never reported an annual profit in its history!!

Merger & Acquisition activity was fairly muted during 2018. Surprisingly, Private Equity firms had few deals to announce. A big advantage Private Equity firms have as financial buyers is their ability to close deals quickly. Typically, they have financing in place and the regulatory reviews are usually brief.

Corporate buyers often face a much longer regulatory review. As an example, look at the long regulatory reviews required for the AT&T - Time Warner, CVS - Aetna and the Cigna - Express Scripts deals. 2019 has begun with a bang as Bristol Myers has agreed to buy Celgene for $95 billion including the assumption of debt. It will be the largest deal ever in the health care sector if completed.

2018 was the strongest year for IPOs since 2014. 2019 looks like it could also be a big year as firms including Uber, Lyft, Airbnb, Pinterest, Slack and Palantir are expected to go public during the year. Chinese companies dominated 2018 IPO activity. SoftBank, China Tower, Xiaomi and Tencent Music were among the notable Chinese firms to go public last year.

The Federal Reserve raised rates four times in 2018. Fears of a rising interest rate environment led to a plunge in equity markets during the 4th Quarter. The Dow Jones Industrial Average was down 5.63% and the S&P 500 declined by 6.24% last year while Ames Capital Management outperformed both indices by several percentage points.

I expect 2019 to be a very strong year for the equity markets. Interest rates are low and likely moving lower. Jerome Powell, the Federal Reserve Chairman, stated at a conference last Friday that the Fed will be patient in raising rates and sensitive to risk in the markets. Unemployment is at historic low levels in the US and wages are rising as last Friday’s Nonfarm Payroll Report demonstrated. Last month, the US added 312,000 jobs vs the estimate of 184,000 jobs. Let’s see how the Federal Reserve responds to this strong jobs report when it meets January 29-30.

My weekly radio show on WWPR 1490 AM airs at 12.30pm each Friday. My prior radio shows and newspaper columns are available on our website (www.amescapmgmt.com).

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

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