An Alternative To Money Market Funds
March is behind us and what a month it was!! The Federal Reserve concluded its 2 day meeting March 20 making clear a rate hike is unlikely in 2019. This guidance led to a recent plunge in interest rates with the yield on the 10 Year US Treasury falling to 2.34% on March 28. The yield peaked on October 9 @ 3.26%. Meanwhile the 10 Year German Bund and Japanese JGB had a negative yield at the end of March.
According to the Mortgage Bankers Association, US mortgage applications for the week ended March 29 jumped to their highest level in 2½ years fueled by the big drop in interest rates. As a result, refinancings by homeowners and US corporations should help to push equity prices even higher. Stocks finished the first quarter with the largest rise in over a decade. Trade deal hopes outweighed global economic pessimism during Q1 boosting equity prices with the DJIA climbing 11.15%, the S&P 500 up 13.07% and the NASDAQ up 16.49%.
GE made headlines in late February when it announced an agreement to sell its biopharma unit to Danaher for $21.4 billion. This move is seen as funding the hole its health care insurance arm faced. GE shares are up over 30% through March 31 but many investors remain skeptical. GE is set to report its Q1 results April 30 and holds its annual meeting May 8. GE ended 2018 with $110 billion in debt and 25% of its stated assets were comprised of intangibles and goodwill. As it sells off assets such as its Danaher deal, its revenues available to service its enormous debt load will continue to struggle.
The March Employment Report released April 5 exceeded expectations as 196,000 jobs were added vs the 175,000 forecast. February’s stunning low number of job growth was revised to 33,000. For Q1, job growth averaged over 180,000 monthly signaling a goldilocks scenario with a healthy economy, low inflation and no need for the Fed to raise interest rates.
Recent IPO activity has been strong as high profile listings such as LYFT, Levi Strauss and Tradeweb all advanced well above their initial offering price. LYFT briefly broke issue price in early April before rebounding. LYFT has never been profitable and its near term outlook calls for more losses. Its 180 day lockup expires September 25. Option activity has already been heavy. On April 2 LYFT threatened litigation against Morgan Stanley for marketing products that would help pre-IPO investors bet against the stock. Some other notable IPOs to focus on in the near term are UBER, Airbnb, Palantir, Slack and Pinterest.
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If you are unhappy with the returns now offered by money market funds feel free to contact us.