ARTICLES

An Alternative To Money Market Funds

December 2018

November is behind us and what a month it was!! Crude oil prices declined along with the yield on the 10 Year US Treasury. Microsoft eclipsed Apple to become the world’s largest company by market capitalization. November’s final week ended with a major rally as the US equity markets enjoyed their best week in years. Finally, President Trump and Chinese President Xi Jinping met
in Buenos Aires at the G20 meeting and agreed to halt the imposition of further tariffs that were to start on on January 1.

The yield on the 10 Year US Treasury ended November below 3% (2.995%) as the bond market saw signs the Federal Reserve would lessen the pace of rate increases in 2019. Fed Chairman Jerome Powell stated on November 28 that rates were “just below” the level that would be neutral for the economy. This statement was in contrast to his statement in October when he said interest rates were a “long way” from the Fed’s desired level. The Fed will meet Dec 18-19 and a quarter point increase is expected at this meeting.

Both Brent and West Texas Intermediate crude oil saw prices drop over 20% during November on fears of a supply glut. This was the largest percentage loss in a decade. OPEC and Russia are to meet in Vienna Dec 6-7 amid hope of a production cut by the major oil producers.

The woes at General Electric continue as its more than $110 billion of debt currently trades just above junk status. GE now faces a Federal probe of its Long Term Care “LTC” unit of GE Capital. This inquiry  began after GE disclosed a shortfall in funding of over $15 billion for the insurance reserves of the LTC policies. Several class action lawsuits alleging accounting fraud have also been filed. Some savvy hedge funds have been selling short GE’s $5.5 billion of preferred shares on the belief that GE may suspend payment of the preferred dividends besides the dividends on its common shares. Incredibly, GE spent $40 billion on stock buybacks from 2015 to 2017!!

Meanwhile, General Motors “GM” stunned Wall Street in late November when it announced a major restructuring. GM plans to cut 15,000 jobs and close eight plants. Investors became a bit concerned last April when GM announced it would no longer report monthly car sales. Now we know why. Two GM models will also be scrapped in the restructuring. These are the Volt electric car and the gas powered Chevy Cruze as neither achieved expected sales. Note that GM spent $13.9 billion on stock buybacks over the past 4 years!!

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).

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