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Amram Capital End of Year Review 2018

Dec 31, 2018

End of Year Review


2018 has been a volatile year for most asset classes. The European markets are down about 20% year-on-year while US equity and bonds markets have fallen about 10% over the same period. Emerging markets have performed even worse and that is true for equities, bonds and their currencies. We started the year with US 10-year interest rates climbing steadily from 2.75% to 3.25%, only to end the year at 2.75% again. In our own portfolios, and this is also what we hear from other asset managers, the only asset class that has performed strongly is private debt in general, and bridge financing in particular, with positive returns of about 10%.

2018 has brought to a halt a bull market run that has lasted for almost 10 years and is one of the longest cycles of economic expansion (in particular in the US) since the end of the second world war. There are many factors that have brought this economic cycle to a halt:

1.       Interest rates have been at historic lows globally. Central banks everywhere have been pumping cash into markets via the expansionary monetary policy of quantitative easing. This has led to huge amounts of liquidity although the trend has now started reversing; the US Fed has started raising rates and European central banks are in the process of finishing their quantitative easing programs

2.       Valuations for most asset classes appeared to be stretched, especially in light of the economic slowdown

3.       Political risks in the UK with Brexit, in the US with President Trump now having to face a House of Representatives where Democrats hold a majority and also in China where the trade war with the US is seen as a big risk to the carefully planned centralized economy.

There are many banks, asset managers etc. that will try and predict where markets are headed in 2019, we will not attempt to predict the future as we simply don’t know it!

What we do know is the following:

1.       Interest rates are likely to continue to rise (negative for markets)

2.       Brexit will be resolved one way or the other at some point during 2019

3.       It is likely that President Trump will compromise with the Democrats and work together to re-open government and approve the budget

4.       The economy is certainly slowing down in most developed economies but is still growing healthily, with low unemployment and solid economic activity

On the positive side, 2018 was probably the best year ever for the world in general. Worldwide poverty has fallen, the global economy as measured by GDP is the largest it has ever been and more people receive an education today than ever before.

All of the above leads us to believe that 2019 will once again be a year characterized by significant volatility and this is why we at Amram Capital have decided to increase allocation to our bridge finance fund (Whitehall Capital). We do not foresee any other asset class that is projected to have a double-digit return with low volatility, low risk and bearing little exposure to the economic cycle.

Please contact us if you would like to receive more information about our bridge finance fund Whitehall Capital.