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Approximately 15-16 Years Ago the Prevailing View on Wall Street is That the Business Cycle was Dead.

Approximately 15-16 years ago the prevailing view on Wall Street is that the business cycle was dead.  The global economies had entered into a New Paradigm where this newly created multipolar interdependent world would make war and conflict prohibitly expensive under the simple guise that economics is the primary motivation of behavior.  The purse is more powerful than the gun.  Valuations skyrocketed partially upon this view.

In many aspects those who did not accept this view were treated in the same manner as those who today don’t ascribe to climate change…excoriated and belittled, viewed as ignorant or uneducated.

Then came 2000 and the approximate 78% NASDAQ 30 month decline. A decline partially predicated upon the immorality of mankind, where narcissism, nationalism and fanaticism proved greater than national economics.  In other words, human nature took its normal path.

Fast forward to today.  As noted many times approximately 47% of the S & P 500 revenues and 49% of its profits are from international trade.   Trade is about 27% of the US GDP.

About a year ago the US publically abdicated its 70 year unspoken role of the global policeman, a role whose primary function was to foster US economic and political interests.

In my view, this abdication will impact the economy, impact all whether living in Des Moines or New York, Main Street or Wall Street, as our economy is interdependent upon others.  The multipolarity is great.

At this juncture, the continuing collapse of regional global order is just great headlines, a collapse that has not yet overly impacted global economic activity, a view supported by the performance of the world’s equity indices.

But in my view, the longer global leadership is absent, the greater the odds of a global power vacuum will occur, a vacuum that will have a global economic impact.

Did the President act “Presidential” when he ordered very limited bombing in Iraq?  Is the Administration finally exhibiting global leadership?

I will let the pundits answer this question and will write equities rallied substantially Friday as there appeared to be some easing tensions in the Ukraine and action finally taken to perhaps slow the jihadists.  Equities were also buoyed from better than expected earnings.

Treasuries closed almost unchanged after an earlier “flight to safety” rally.

This week’s economic calendar is busy.  Data released includes retail sales, business inventories, inflation and manufacturing data as well as confidence surveys.  How will these statistics be interpreted?

Last night the foreign markets were up.  London was up 0.70%, Paris up 0.82% and Frankfurt up 1.50%.  Japan was up 2.38%and Hang Sang up 1.29%.

The Dow should open moderately higher on Ukrainian optimism and US action in Iraq which some are saying the US is finally showing some global leadership.  The 10-year is off 3/32 to yield 2.44%.


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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.