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Is the 10 year run in the NASDAQ/techs over?  Will such an ending also coincide with the peak in passive/index investing?

In my view the issue at hand is the relentless drive to reduce costs by eliminating the middle man via indexing that it in itself has become a systemic risk.  This prioritization of speed and cost of execution over liquidity and capitalization has created an “imbalanced market,” a view shared by several past and present SEC commissioners.

Little attention was focused when the mega sized companies advanced every day.  If selling continues at current pace, I believe all will become focused on this issue, a focus that in return will generate reform that sows the seeds for the next crisis.

Some are blaming trade as the reason for current selloff.  However such an explanation is not plausible for some of the marquee issues.  For example AAPL which is off over 20% from its early October peak, down because of a cut in production for its next generation of phones.

Facebook is down over 40% from its July apex because of privacy issues.  AMZN is off over 26.5% from early September, the result of possible increased taxation.  Netflix is down about 36% from June because of lower than expected subscriber growth.  GOOG has dropped 20% because of possible tax increases and regulation.

As I opined many times, these issues were priced beyond perfection with past growth rates extrapolated into infinity.  This extrapolation coupled with massive ownership and rising interest rates has created a perfect storm.

Unfortunately values normally exceed both on the upside and downside.

Hypothetically trading should begin to wane as today progresses as many begin to leave early for the Thanksgiving holiday.  Will such occur today?  A concern that I harbor is selling pressure accelerates and because of today’s market dynamics, electronic liquidity will evaporate as many withdrawal from the market at the same trading ranks thin because of the holiday.

Last night the foreign markets were down.  London was down 0.56%, Paris down 0.81% and Frankfurt down 0.90%.  China was down 2.13%, Japan down 1.09% and Hang Sang down 2.20%.

The Dow should open significantly lower as a rout in the technology shares appears to continue today.  The 10-year is up 4/32 to yield 3.05%.

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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.