• US sells new issue T-Bills at 0% for first time ever
  • Canadian election shocks ruling elites as the "bums are thrown out"
  • US House agrees on debt ceiling extension
Investors in October breathed a sigh of relief as no "Black Friday" event occurred. Instead, stock prices were bid up aggressively, as investors concluded that the Fed would not be raising rates this year after all. A month end budget deal further eased concerns, leaving the question of managing spending to the next Congress and President. Commodities and bonds were slightly positive in October and gold gained a few percentage points:  
Many asset classes are still in the red this year even after October's rally. US markets are back in the lead relative to world equity markets for the last 12 months. A broadly diversified portfolio of the major asset classes shown below would have provided a mixed bag of returns over 5 years with US stocks leading the positive returns and commodities lagging with major losses. Now, as US stocks have almost completed their 6th year of a bull market, many market analysts are taking note of the recent market volatility and weakness in corporate revenue and earnings which may be signs of a coming respite in this extended bull market.
October began with the US Treasury selling three month T-Bills on October 6th at a ZERO yield for the first time in the nation's history. Unrestrained by the zero low bound specified by the auction rules, the Bills quickly traded to -.01%. In fact, while little noticed by the public, many T-Bills have traded at negative yields in the secondary market. This has become a common feature of markets in Europe, with all major issues of debt out to five years trading at NEGATIVE interest rates (in Switzerland even the ten year note has been seen at NEGATIVE rates). It's not a healthy situation, and cannot be sustained without toxic consequences (like a hollowing out of pensions and insurance company reserves), but for now investors have little choice but to pursue "riskier" investments, like stocks.
In mid-month, the Liberal party of Canada, led by Justin Trudeau, son of former Canadian Premier Pierre Trudeau, won a  stunning and decisive come from behind victory in their national elections. Electoral turnout exceeded all expectations, with supporters rallying behind the election elation of "sunny days" while the ruling Conservatives were handed a resounding rejection of the austerity and belt-tightening they had long espoused. This is another great example of the political turmoil that is developing globally. In Europe especially, which is trying to cope with the mass exodus of refugees from the Middle East, a simmering hostility to the political class is likely to boil over.
In other news this month, the US House passed an extension of the debt ceiling that will "kick the can" down the road another two years. A lot will happen between now and then but, in the meantime, most investors and analysts are poring over the details of the deal, and finding some surprises (such as a timeline for ending the popular Social Security claiming strategy of "file and suspend"). The budget debate may have moved to the side of the stage for now, but we're sure it will re-emerge as a star of the show for the 2016 elections.  
As November kicks off, many companies have begun reporting third quarter results. More than a third of S&P 500 companies reported earnings last week with mixed-to-weak results on average. Even so, the market showed a gain of 0.2% for the week to close out October. Much of the discussion by market analysts over the last 6 months has been about the lack of growth, but the stock market has not yet acknowledged the potential weakness in earnings. The chart below illustrates the recent dip in earnings (EPS) with the light blue line moving below 0%. The picture also shows real GDP in purple alongside earnings, which hadn't shown the same hints of weakness until the latest quarter. You can see that when these two lines move down in tandem, a recession often follows (the gray-shaded highlights). We are continuing to monitor these readings closely as weak earnings and a stagnant economy could lead to a more volatile equity market going forward:                
Thank you for reading our October journal and we'll be sending the latest one your way in early December to finish out 2015.
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