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Consumer Confidence in November According to the University of Michigan Survey Rose to an Eight Year High.

Consumer confidence in November according to the University of Michigan survey rose to an eight year high.  Reflecting upon the data, one should not be surprised confidence is this high as equity and home prices are rising, gasoline is plunging and job growth is accelerating.

Perhaps most significantly the “expectation indices” rose to levels not seen since late 2006.

I must write that I place little stock in confidence surveys as they only tell us where we have been not where we are going; they are the ultimate feedback indicator.

However with this written, I think today’s confidence data suggests a robust holiday shopping season.

Speaking of retail sales, October’s retail sales in all dimensions were stronger than expected.  At this juncture, the underlying strength suggests real consumption growth will be around 2.5% in the fourth quarter, up from 1.8% registered in the third quarter.

As noted in prior remarks, the decline in oil prices has transferred about 1.5% of global GDP to the oil consumer from the oil producer, a point perhaps validated in the retail sales data.

Could it be argued a combination of stronger retail sales and greater jobs growth amplified by rising housing and stock prices suggest the economy has finally have achieved “escape velocity” or that elusive inflection point where growth is sustainable?

If the holiday shopping season is a robust as some are now suggesting, I would answer yes to the escape velocity question which will than alter the monetary timetable.

Perhaps the biggest surprise of 2014 is interest rates.  Most, including me, thought rates will be considerably higher by this juncture. We are all wrong.

I will reiterate I think the odds favor higher rates in the intermediate future because we are nearing escape velocity.  This is not the consensus view.

But will not higher rates end the bull market?  Immediate volatility will increase but as noted several times, according to Capital Economics the average return for the S & P 500 in the 21 months after the seven tighten cycles that have occurred since 1971 is 11.4%.

What happen this week?  It is a busy data week as several key housing and inflation statistics are released as are numerous regional and national manufacturing indices. Additionally the Minutes from the October FOMC meeting are also published.

Commenting about Friday’s activity, all markets were relatively quiet.

Last night the foreign markets were down.  London was down 0.29%,  Paris down 0.43% and Frankfurt down 0.44%.  Japan was down 2.96% and Hang Sang down 1.21%.

The Dow should open nominally lower as data suggested Japan feel back into a recession following the implementation of a large sales tax increase. The 10-year is up 5/32 to yield 2.30%.

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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.