Our accounts turned in exceptional performance this year with positive returns while the market indexes were all down for the year. Our largest holding, Amazon, was up 28.4% and contributed substantially to those gains. The merger of our second largest holding Oclaro, was a 24% gain for the year and was completed in December with a cash payout together with Lumenthum stock. Consequently we are starting this year with large cash balances in a tumultuous market environment.

As you are likely aware, there are several important issues (shutdown, Brexit, tariff trade disputes, etc.) that all could significantly affect the economy. Thankfully, further increases in interest rates by the Federal Reserve do not appear to be among those concerns. Chairman Powell has announced that future interest rate increases are now on hold pending future data on the economy. In other words, there will be no further rate increases unless the economy begins to outpace the Fed’s projections for economic growth. Our view is that the Fed’s recent program of raising interest rates has overshot what our economy could tolerate. The Fed was trying to “normalize” interest rate levels, but after a decade of zero interest rates with no inflation, obviously, they had no means of determining what “normal” rate levels should be now. Many Fed watchers suggest that the Fed’s next move may be monetary easing with a possible rate decrease. Of note, longer-term interest rates as determined by the bond market, ended the year exactly where they began the year.

On a positive note, the Administration and the new Congress have both expressed an interest pursuing full scale infrastructure legislation. If agreement is reached, it would provide further economic stimulus to overcome the headwinds mentioned above. Congress is also suggesting a do-over of the recent ideologically driven tax cuts towards economically driven tax cuts that would be more efficient and of greater benefit to the economy.

We remain cautious and vigilant. We are on the lookout for new and emerging growth technologies. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

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