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2015 is the Best Start on Record for Treasuries.

Four months ago many were commenting about the lack of volatility, pontificating the current conditions could last for a long time given massive cash balances.  Fast forward to today.  The consistency in the comments from the large financials’ earning releases is the “volatile volatility” which is greatly hindering results.

Bloomberg writes Friday was the 37th day since October 7 that the S & P 500 incurred intraday move of more than 1%.  Such frequent spurts of volatility last hit the market in 36 of the 70 days through September 10, 2012 Bloomberg reports.

As noted on Friday, this is the worst start for equities since 2009.  The last time stocks fell for six consecutive days was July 2012.  At one time on Friday stocks were down for the sixth consecutive day.

Conversely 2015 is the best start on record for treasuries.

I think it is very supportable to write the events of the last four months—led by the collapse of oil and the SNB abandoning rate caps–have caught all by surprise.

Many times I have opined it is not what one does but rather why one does it.  In the current environment the most thought out thesis is potentially meaningless as the unexpected has occurred.

What will be the headlines in four months?  US economic growth is at 3.0% to 3.5% as cash is being utilized in a more efficient manner?  The 10-year Treasury is now yielding 3.0% as economic growth unexpectedly accelerated?  Oil is at $75/barrel because of supply disruptions?  S & P is now up 15% YTD?

All of the above is “out there” or is it?  Several Fed officials have stated growth can accelerate to 3.0% to 3.5%.   A three percent 10-year Treasury is the consensus year end yield for the 10-year according to Bloomberg.

There have been five oil shocks since 1990 which has sent oil lower by 48%.  Six months after oil has bottomed crude is up an average of approximately 52%.  According to Mizuho Securities in instances when oil has plunged more than 50%, the S & P is up 29% 250 days later.

As noted above, I am adamant believer in the philosophy of “it is not what one does but rather why one does it.”   A mandated disclaimer line in the investment industry is past performance is not indicative of future performance.

The headlines in four months can be interesting.

This week can be of significance.  Earning reports accelerate.  China releases a ton of economic data.  There is the SOTU address.  The ECB meeting.   The Greek election.  And the hype of leading into next week’s FOMC meeting.

Commenting briefly upon Friday’s market action, stocks staged a strong energy led rally by a forecast from the IEA that energy supplies will drop and OPEC’s statement prices will rally.  The advance was also partially induced by the biggest jump in consumer confidence in 11 years.  Moreover, the cost of living also declined by the most in six years offering hope of no change in Fed policy.

Treasuries fell about a point.

Last night the foreign markets were up.  London was up 0.78%,  Paris up 1.34% and Frankfurt up 0.26%.  Japan was up 2.07% and Hang Seng up 0.90%.

The Dow should open moderately higher following three weeks of decline.  The 10-year is up 2/32 to yield 1.82%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.