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I think it is safe to write there is a stark difference between the Republican and Democratic candidates for President

I think it is safe to write there is a stark difference between the Republican and Democratic candidates for President. Are the Democrats doubling down on a losing strategy given the massive losses the party has suffered since 2008?
Democrats have lost 900 seats in state legislatures, 70 house seats, 13 senate seats and 12 governor mansions. In many regards this is the greatest transfer of power in at least three generations.
The only office that there has not been a major transition is in the White House.
If the leading democratic or republican candidate enacts the legislation that each are advocating, there can be major change in the financial markets.
Simply speaking, the topic above is centered upon the repeal or the strengthening of Dodd Frank.
In my view Dodd Frank is perhaps one of the most economically restrictive legislation passed. I would like to focus upon one segment of this legislation, a sector that I am involved with on a daily basis.
I think the corporate bond market is extremely illiquid. Bids are virtually nonexistent as most firms do not understand the unwritten or untested rules of Dodd Frank as they relate to capital charges regarding bond trading and inventories. Even with nominal selling, prices are crushed.
Yesterday the Wall Street Journal reported based upon Fed data, large US banks by one measure have negative corporate bond inventories for the first time ever. I believe this is a direct result of Dodd Frank.
There is a strong probability monetary policy will be changed for the first time since 2006, a change coming from levels never yet experienced. How will the bond market respond?
Last week the 2 year treasury—the instrument most sensitive to monetary policy–traded to the highest yield since May 2010. Is this a harbinger of things to come? I can write at length about my experience since the complete implementation of Dodd Frank about 14 months, an experience wrought with a lot of lost sleep and great anxiety.
During 2012 I wrote extensively about the significance of the upcoming election, using words such as tectonic and transformational. And yes I did not think the President was going to be re elected.
In many regards I was correct regarding the potential outcome of 2012. As written above, the President’s party has lost the greatest amount of legislature power in at least three generations. Today’s leading Republican candidates are “outsiders.”
As noted, there is a stark difference between the candidates on the right and left side of the aisle.
Are the Democrats campaigning on a losing platform or vice versa?
I strongly believe in the axiom of “there is no interest like self-interest” thus I hope some of the more draconian tenants of Dodd Frank to be repealed. These tenants are inhibiting the economy given that capital, capital formation, and the trading of this capital is the lifeblood of capitalism and the economy.
Commenting briefly about yesterday’s market action, equities were quietly lower led by energy. Oil fell on inventories and the dollar weakened form near a 10 year high.
Last night the foreign markets were mixed. London was down 0.60%, Paris down 0.93% and Frankfurt down 0.45%. China was down 0.48% Japan up 0.03% and Hang Sang up 2.40%
The Dow should open flat ahead of a busy day of Fed speakers. There was little reaction to the ECB’s statement that it ready to boost stimulus next month as inflation wanes and if economic prospects worsen. The 10-year is flat a 2.32% 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.