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Expect the Unexpected, Where the Velocity of Change is Frightening.

What do I first comment about?  Do I remark about oil’s unrelenting advance spiking to over $62 barrel on a reduction in inventories?  Or do I write about the bond market rout as the 30-year pierced the 3.0% level because of potential inflationary pressures from crude’s advance?  Or maybe an opinion about the decline in the dollar because of weaker than expected economic data?     What about the FRB Chair’s statements stating equity market valuations are “quiet high” and could be a potential source of financial instability?

I would like to focus upon Yellen’s remarks. The FRB Chair’s comments are similar to that of others, including me, have made.  Yellen confirmed the view that equity valuations are over extended in a normal rate environment, further stating “long rate are at very low levels…and we could see a sharp jump in rates after liftoff,” referencing 2013 as evidence

I must write the 30-year Treasury is still 0.50% lower than yields one year ago but have convincingly broke through the 200 day moving average. The carnage in the 10-year is worse As yields are up about 0.44% since April 17.

Then there is the dollar.  The dollar dropped against its 16 major counterparts extending losses that pushed the Bloomberg dollar gauge to its steepest slide since 2011.  What?  Were we all not commenting about the dollar’s strength three weeks ago?

And what about oil, as crude is up over 40% since mid-March?  Generally speaking, commodities have rallied about 12% since March’s 12 year lows.  I must note the Bloomberg commodities index is still down 50% from its 2008 record.

Many times I have opined to expect the unexpected, where the velocity of change is frightening.  I have remarked many times the financial system is awash with stimuli searching for a home, a search that at times is frantic and perhaps irrational.

The simple fact of the matter is when everyone owns something who is left to buy when selling commences?  Vice Versa, when everyone has sold, who is left to sell when selling commences?

What will happen today?  Will treasuries continue their torrid sell off?  What about equities?  As casual glance, it appears the largest capitalized issues were hit the hardest, perhaps under the simple premise of vast over ownership via ETFs.

Or will the averages discount tomorrow’s BLS labor report?  I will tell you at 400 P.M.

Last night the foreign markets were down.  London was down 1.12%, Paris down 0.86% and Frankfurt down 0.34%.  Japan was down 1.23% and Hang Sang down 1.27%.

The Dow should open moderately lower as European debt is getting crushed.  The 10-year is up 3/32 to yield 2.23%

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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.