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Some can make the argument the markets believe Trump will deliver on his economic agenda given the sharp increase in Treasury yields and the advance in the beaten down and unowned value and small cap stocks, entities that do best in a growing economy.

An argument can also be made there is little concern about today’s geopolitical risks.  The reaction to both the assassination of the Russian ambassador and the Berlin truck massacre was muted at best.

Is today’s complacency misplaced?

I believe growth will exceed on the upside not because of any stimulus measures but just from a moratorium of additional regulations.  Government has paralyzed business and capital formation.  This is not a political statement but rather an observation.

About 15-16 months ago for the first time since inception, sentiment survey after sentiment survey routinely stated government is the biggest fear of business not economics.  Wow!  This is huge.

The sense of relief that there will be at least a moratorium on regulations is being treated with great glee.  What happens if there is an actual roll back?

As noted many times, monetary velocity is virtually nonexistent.  Excess banks reserves are around $2.5 trillion versus the historical level of $1 billion.  Reiterating a dated Chicago Fed study, if monetary velocity accelerated to 50% of its norm, growth would be around 6% and inflation around 10%.

I am not suggesting this will be the case but only commenting that there is great liquidity where there is the potential of growth exceeding expectations, the result of greater capital, the lifeblood of capitalism, economic and job growth.

Last night the foreign markets were mixed. London was down 0.14%, Paris down 0.521% and Frankfurt down 0.08%.  China was up 1.11%,  Japan down 0.26% and Hang Sang up 0.37%.

The Dow should open little changed.  The 10-year is unchanged at 2.55%.

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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.