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Equities ended moderately higher on earning optimism and a rebound in crude.

As all know, a production cap was not achieved and crude initially traded almost 7% lower only to close almost unchanged.  Why the rebound?

There are several thoughts.  First any production cap would have been symbolic given that OPEC et.al is already pumping at peak capacity.  Iran is lacking western funds to modernize their fields.  The Kurd’s primary oil field is about to default on $550 million owed to the west, a field that needs at least $77 million to maintain production at current levels.

And then there is Kuwait.  Kuwaiti oil workers went on strike.  Production is off 60% for two consecutive days to around 1.1 million barrels a day, down from 2.8 million three days earlier.  This 1.7 million shortfall is more than the 1.3 million daily surplus.

The question at hand is how long will the strike last.  It is my understanding strikes are generally forbidden in Kuwait and the last time there were any labor disruptions was perhaps 1996.  The workers are protesting a cut in pay and benefits as well as a reduction in total subsides and government handouts.

Will this strike be something of significance or just a forgotten footnote?  I don’t know but it is generally regarded Kuwait does not have the social issues that Saudi Arabia et.al. are experiencing.  It is a considerably smaller country than the kingdom and has a similar sovereign wealth fund as its cartel leader neighbor.

Commenting about earnings, approximately 100 S & P 500 companies post results this week.  Profits thus released have exceeded dumbed down expectations.  The next four days could be pivotal.

Last night the foreign markets were up.  London was up 0.31%, Paris up 1.07% and Frankfurt up 2.38%.  China was 0.30%,  Japan up 3.68%and Hang Sang up 1.30%.

The Dow should open moderately higher as consensus believes earning disappointments have been discounted, profit estimates should only improve perhaps the result of a rebounding Chinese and US economy, and a rebound in oil.  I think the rise in the futures is significant given a large miss in a massively over owned momentum growth issue that is down about 8%.

The 10-year is off 2/32 to yield 1.78%.

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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.