An Alternative To Money Market Funds

March 2018

February is behind us and what a month it was!! Volatility returned in force in early February with the Dow Jones Industrial Average (DJIA) suffering its largest point decline in history. The index lost 1,175 points on Monday, February 5 and at one point was down nearly 1,600 points. Rising bond yields and fears of inflation helped trigger the plunge in the global equity markets. Since bottoming on February 9, the DJIA has rallied more than 2,000 points.

Fears of rising interest rates may be overblown. Keep in mind that ECB President Mario Draghi made clear at the ECB’s January meeting he did not anticipate a rate increase during 2018. On February 23, the Federal Reserve released its semiannual monetary policy report that also helped ease fears of rising interest rates. The Fed signaled it sees inflation remaining at or below its 2% target for 2018. Let’s see what the Fed does at its meeting March 20-
21. This will be the first meeting for Jerome Powell serving as Federal Reserve Chairman, succeeding Janet Yellen.

Both Brent and West Texas Intermediate (WTI) crude oil recovered last month after sliding along with the stock market. WTI briefly traded below the $60 level before rallying in tandem with the slide in the US Dollar against other major currencies. As the greenback weakens, it softens the impact of rising commodity prices for consumers overseas. Major commodities such as oil are priced in US Dollars. So, a drop in the value of the US Dollar helps stimulate overseas demand, thus boosting the price of oil and other commodities priced in US Dollars.

Amazon’s (AMZN) amazing run has continued into 2018, surging about 30% year to date after its enormous rally in 2017. AMZN traded above $1,500 last month for the first time in its history. As a result, it eclipsed Microsoft as the third largest company by market capitalization in the world. Jeff Bezos, AMZN’s Founder, Chairman and CEO, is now the world’s richest man.

It is no secret that AMZN’s stock valuation is highly inflated, trading with a Price Earnings ratio of about 250x its 2017 earnings. AMZN faces stiff competition in the retail sector as Walmart (WMT) has expanded its e-commerce presence in a major way. WMT is the world’s largest retailer and is enormously profitable. WMT’s revenues are nearly triple the revenues of AMZN. As these two behemoths of retail become even more competitive, one has to wonder how AMZN can continue to trade at the inflated valuation it currently does.

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


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Ames Capital Management Inc.
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