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I Think the World is on the Verge of Anarchy, a Major Consequence of America Abandoning its 70 Year Unspoken Role of the Global Policeman.

It is generally accepted the SOTU can be seen as a an opportunity to pull the country and Congress towards policies that the President believes will help the nation or be seen as a divisive, partisan and small in its scope to inspire action and push Congress away.

Last night’s speech, the President’s sixth SOTU address, was perhaps one of the most defiant on record.  The White House is calling this the “fourth quarter” of his presidency.  Keeping with the football analogy, is the President attempting a proverbial “Hail Mary?”

In my view many of his proposals fell on deaf years for the simple reason of costs.  Secondly there was a group of at least 70 bi partisan legislatures wearing lapel pins that is encouraging compromise, not taking the country further to the left and into “Robin Hood” territory.  The President had the opportunity to change taxes not to create division over income but to create unity for growth.  He did not.

I think the world is on the verge of anarchy, a major consequence of America abandoning its 70 year unspoken role of the global policeman.  The headlines are frightening.  ISIS.  Ukraine.  Iran.  Israel.  Iraq.  Syria.  Yemen.  Libya.  Boko Harem.  These issues were not directly addressed and I fear in six months they can be the primary narrative that potentially makes the Administration’s agenda even more feckless.

Yesterday equities came under pressure for the vast majority of the day only to erase the loss during the last hour of trading. The accepted reason was falling energy prices, concerns about global growth even though Chinese GDP surprised on the upside, and several disappointing high profile earning results.

I will add a fourth.  The vast majority of the SOTU was leaked.  As noted several weeks ago, for the first time since its 1935 inception, Gallup reports America believes the greatest threat to their well-being and their greatest concern is government.  In my view, last night’s speech inflamed this attitude.

I will also argue a weak or disabled Executive Branch is dangerous.  Did the President further weaken his power by the tone of the Address?

Rarely can questions be declaratively answered.  In this case I think I can.  If he is able to rally the electorate and Congress to support his agenda, his “Hail Mary” was a great success.  If he is unable to pursue his agenda, the President risks being viewed as immaterial, desperately lashing out at Congress in an attempt to obtain any legislative goal.  This is the path that he has taken over the last two years and is regarded as major reason as to why his party has lost so many seats in Congress, the most seats in over two generations.

Only history can answer this question.

Last night the foreign markets were mixed. London was up 0.69%, Paris down 0.34% and Frankfurt down 0.28%.  Japan was down 0.49% and Hang Seng up 1.68%.

The Dow should open little changed as investors considered earnings reports to gauge equity valuations. The next major event on the calendar is the ECB and then the 1/25 Greek election. The 10-year is off 3/32 to yield 1.60%.

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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.