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An Alternative To Money Market Funds

June 2018

May is behind us and what a month it was!! The yield on the 10 Year US Treasury appeared to peak @ 3.13% on May 18. Since then the yield dipped below the 3% level and actually cracked the 2.80% level in late May. Fed Governors Bullard and Kashkari both expressed concern last month that the Federal Reserve may be too aggressive in raising interest rates. The Fed next meets June 12-13 so we shall see if their recommendation has been followed.

The sizable gap in yield between the 10 Year US Treasury and other widely followed sovereign debt issues has continued into 2018. At the end of May, the yield premium over the 10 Year German Bund was over 250 basis points, over 160 basis points above the yield on the 10 Year British Gilt and over 290 basis points above the yield on the 10 Year Japanese JGB. As a result, there continues to be strong demand for US Treasury debt around the world.

The AT&T - Time Warner takeover battle may reach its conclusion this month. US District Court Judge Richard Leon informed the Department of Justice and AT&T that he expects to reach a decision in this case by June 12. Many anti-trust experts believe the Department of Justice failed to prove why AT&T’s acquisition of Time Warner should be blocked.

Under the terms of the merger agreement, AT&T has agreed to pay $53.75 in cash and up to $53.75 per share in AT&T shares for each share of Time Warner. The stock component calls for 1.437 shares of AT&T to be transferred, if at the time of closing AT&T’s shares are trading @ $37.41 or below. Due to the significant arbitrage activity related to this cash and stock proposal, AT&T’s short interest of 193.9 million shares is the 2nd largest short position on the New York Stock Exchange, as of the May 24 report. The short to cover ratio of 6 trading days is very high.

If AT&T receives the Court’s blessing, it could trigger a wave of acquisition activity in media. Disney previously agreed to acquire a substantial portion of the media properties owned by FOX. Comcast has made clear it is willing  to top the Disney offer with a superior bid of its own, largely in cash.

Crude oil continued to make headlines in May. Russia and Saudi Arabia are finalizing the details to jointly increase oil production after Brent crude oil traded above $80 per barrel, a multi year high. Political turmoil in Venezuela has led to a collapse in its oil production. Russia and OPEC will meet in Vienna June 22-23 to set policy for the remainder of 2018.

My weekly radio show on WWPR is now on holiday and will return September 7. 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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