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Perhaps suggesting a bottom on both interest rates and oil is the perhaps one of the most missed calls in recent years. I rhetorically ask, are both in the bottoming process, an incredibly dangerous question given the 99.8% error rate of answering this question?
Oil was down over a $1 barrel again yesterday until numerous statements were made that infrastructure outside of OPEC may be cut too dramatically. As written many times, $200 billion in cuts were made in 2015 and at least another $100 billion is planned for 2016. The greatest amount of cuts in history.
There is some suggesting that US oil production will collapse from around 9.4 million barrels/day to 8 million. The IEA is suggesting based upon infrastructure cuts announced to date, US daily production will decline to about 8.5 million by mid-2016. Wow!
Are these cuts to deep given the long lag time??
And then there are interest rates. There is a strong probability monetary policy will be changed next week, the first increase since 2006. Some are pontificating that it may be “one and done.”
What are the odds the narrative six months hence will be a more aggressive monetary policy than currently expected and considerably higher oil prices?
Are these the rantings of a lunatic who is long oil and short the 30-year?
The possible premise for such a scenario is stronger than expected global growth led by the US, the traditional engine of the world economy.
Data is suggesting world trade volumes fell slightly in the twelve months ending September. Global trade is now expected to grow by 1% in 2015, the weakest since 2009.
The downturn has not been broad based as the weakness is focused in the emerging economies. Volume and trade to the more economically advanced countries have grown solidly this year. The shortfalls in the emerging markets appear to be commodity based.
The worst appears to be the us, as imports to emerging economies appear to be picking up. And for what they are worth, survey measures of export orders have risen in most major economies, particularly China.
The markets are not suggesting that the above scenario is materializing as equities fell another 1% yesterday on global growth fears, a decline partially led by oil, on trading that I believe was entirely dominated by HFT.
What will happen today?
Last night the foreign markets were down. London was down 0.12%, Paris down 0.67% and Frankfurt down 0.34%. China was up 0.36%, Japan down 0.98% and Hang Sang down 0.46%.
The Dow should open flat. It has been reported Dow and DuPont are involved in late stage merger talks as the foreign markets traded nominally lower lower on global growth concerns, concerns led by a sharp drop in commodities. Oil is up about $0.60/barrel. The 10-year is unchanged at a 2.23% yield.

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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.