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Equites have retraced the majority of their Brexit loss.  In my view the swift decline and subsequent recovery is the result of algorithmic trading, trading based upon the cross correlation of weighted variables.  It is not investing.  As noted many times algorithmic trading now accounts for about 85% of total volume according to a SEC report.

It is widely accepted the EU does not create a product but rather transfers wealth in an attempt to create certainty.  Hypothetically certainty lowers the possibility of conflict and stress given that the masses have great access to the necessities of life.  However certainty does not create opportunity, increase productivity and growth, killing the entrepreneurial spirit—aka risk taking—via bureaucratic fiat.

Government is the least efficient use and distributor of productive capacity given the lack of a profit motive.  It is the ultimate OPM  (other people’s monies) operation.

Highly bureaucratic societies are less free with a considerable lower growth rate.  The ultimate bureaucratic societies that offer the greatest hypothetical certainty are North Korea, Cuba and Venezuela.

Earlier in the week I stated Brexit was a celebration/victory of democracy and freedom.  Yes freedom does create uncertainty but it also permits advancement.

Can I remotely suggest the above rationale—greater freedom that will increase the probability of growth–is a reason for the quick equity recovery?  Or should I continue to blame the volatility upon HFTs?

Commenting upon market action, equities rallied on speculation that central bankers will counter the impact of Brexit, an advance led by oil stocks.  Crude rallied again yesterday on a greater than expected inventory draw, record gasoline demand and accelerating production declines in the US to 8.62 million barrels a day, considerably lower than the 9.1 million barrels a day forecasted three months ago.

Last night the foreign markets were up.  London was up 0.07%, Paris up 0.46% and Frankfurt down 0.01%.   China was up 1.65%,  Japan up 0.06% and Hang Sang up 1.75%.

The Dow should open quietly higher.  The 10-year is flat at a 1.50% 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.