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Business Observer


October 2018

September is behind us and what a month it was!! Historically, September has been the worst month for the stock market. Lest we forget the market meltdown in 2008. But this year was different. Both the S&P 500 and Dow Jones Industrial Average reached record highs during the month. At the end of September, the S&P 500 was up 8.99% for 2018 while the Dow Jones Industrial Average was up 7.04%. If the US, Canada and China are able to resolve their trade disputes, the equity markets could have an explosive rally into the end of 2018.

At the end of September, the yield on the 10 Year US Treasury was 3.06%, 24 basis points above the yield on the 2 Year US Treasury and 15 basis points below the yield on the 30 Year US Treasury. Market strategists remain concerned about an inverted yield curve, as it often leads to a recession. The Federal Reserve Bank of Cleveland reported that an inverted yield curve has preceded the last 7 recessions in the US.

The Federal Reserve met September 25-26 and raised rates a quarter point as expected. Fed Chair Jerome Powell expects the Fed to continue raising rates well into 2019 even though the yield on the 10 Year US Treasury remains dramatically higher than yields offered on several comparable sovereign debt issues. For example, at the end of September, the yield on the 10 Year German Bund was 0.47%, the yield on the 10 Year British Gilt was 1.58%, while the yield on the 10 Year Japanese JGB was 0.12%. The ECB, the Bank of England and the Bank of Japan have made clear they do not expect to raise rates until well into 2019 and beyond.

Tesla settled an SEC probe in late September after its CEO Elon Musk falsely claimed in August that funding was secured to take Tesla private at a cost of $420 per share. Both Tesla and Mr. Musk will each pay a $20 million fine. In addition, Musk agreed to relinquish his position as Board Chairman for at least three years but remain as CEO. Many lawyers view this settlement as mild compared with what could have been imposed.

GE’s downward spiral continues. J.P. Morgan lowered its price target to $10 for the shares late last month, citing issues with GE’s power business. GE ended September @ $11.29 per share, just 8c above its 52 week low. Incredibly, during 2016 and 2017, GE spent over $24 billion on a stock buyback program at an average share price of $30.30 in 2016 and $19.65 in 2017!! Shall we say there were likely better uses of the cash spent than this buyback?

My weekly radio show on WWPR 1490 AM airs at 12.30pm each Friday. The show can also be heard live on the station’s website (www.1490wwpr.com). My prior radio shows and news columns are available on my firm’s 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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