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Markets were quiet yesterday leading into the three day weekend and an anticipated speech by FRB Chair Yellen.  Crude surpassed $50 yesterday for the first time since October and is now up over 80% from its early winter lows.  The reason—strong demand, greater than expected growth, supply disruptions and massive infrastructure reductions.

Some have erroneously pontificated capacity will now return because oil is over $50.  I ask how?  The regulatory officials have demanded banks to reduce their energy exposure between 15% and 20%.  The capital markets are closed for debt offerings given the large number of bankruptcies.  Large upstream projects have been shelved and cannot be revived in short order.

Speaking of which, the amount of oil “discovered” is at the lowest level since 1952, replacing only 63% of the oil used in 2015 versus the historical average amount of 110%.  Excess capacity is approaching record low levels.

Against this backdrop I think the odds are over 50% oil will reach $60 by winter, eclipsing the recovery that occurred following the last major oil implosion of 1998-99.

Today is the first revision of first quarter growth statistics.  I think the release will be a nonevent given that the data is over 2 months old, a view written with the caveat the markets will be sensitive to a considerable upside surprise.  Analysts are expecting growth to be revised to 0.9% from 0.5%.

As noted above, Janet Yellen speaks today around 115.  I think it will be a non-event but I will also write any speech by a Federal Reserve official is an event given their importance to the financial system.

Trading is expected to slow throughout the day given unofficial commencement of summer marked by the Memorial Day holiday.

Speaking of which please remember all those in your thoughts and prayers who gave the ultimate sacrifice so we can live the life that we are today living.  THANK YOU!!  WE CAN NEVER REPAY YOU OR YOUR LOVED ONES.

Last night the foreign markets were mixed.  London was down 0.03%, Paris down 0.02% and Frankfurt up 0.16%.  China was down 0.05%, Japan up 0.37%and Hang Sang up 0.88%.

The Dow should open quiet.  The 10-year is unchanged at 1.83%.

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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.