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In eleven days the election will be over.  Will the results be tectonic?  Will the people speak or will the establishment reign?  The people have yelled since early 2015, evidenced by the incredible rise of Bernie Sanders and Donald Trump, which in my view hold similar views that the establishment has rigged the system.  This is not a political statement but rather an observation.

Similar to the markets where the big get bigger and the small get smaller, the result of the vast proliferation of ETFs which base their passive investment criteria on only factor—size, the current election is also all about size.

One side is championing bigger government and business is better.  Some will argue with the latter part of the preceding sentence.

Politicians want large voting groups and if only a few mega corporations exist, it is easier for government to control such entities.  Yes the corporate chieftains of these largest entities will support greater policies for it is in the best interest.

The largest companies will and have made it difficult for the smaller firms to compete via increased regulatory burdens, regulatory burdens the smaller entities don’t have the resources to fight.  Less completion increases the probability of greater market share.   Get in bed with the rule makers to ensure the survival and growth of your kingdom.

Some might suggest this is an outlandish statement but I ask why according to Bloomberg there is not a single CEO of a S & P 100 company endorsing Trump?  Trump represents the anti-establishment, the rejection of the status quo, championing the people, the same rallying cry of Bernie Sanders.

Small business and property rights have created the richest country that has yet existed.  Will this group arise and reject the establishment?  Will the enemy of my enemy now be my friend, a question that has not been answered, regarding will Sanders supporters abandon Clinton via not voting?

Life is stranger than fiction.  We will know on November 9.  If the People win, how will the markets respond?  Probably negatively for the status quo has been rejected.

For what is worth department and perhaps validating the mantra “life is stranger than fiction” and increasing the odds of a People’s win, according to a CNBC poll the only fear today that is greater than clowns is a corrupt government.  Wow!  This is too outlandish to makeup.

The preliminary estimate of third quarter GDP is released today.  Growth is expected to rebound to a 2.5% annual rate up from the second quarter pace of 1.4%.  Consumption is forecasted to rise by 2.5%, down considerably from the previous quarter of 4.3%.  The core PCE is expected to rise by 1.60%.

How will this data be interpreted?

Commenting upon yesterday’s market, Treasuries fell in price amid speculation that major central banks may be moving closer to scaling back their extraordinary stimulus measures.  According to Bloomberg, Treasuries are set to have their worst month since 2014.  There is now a 73% chance of an interest rate increase in December.

Utilities are now down over 9% in three months because of interest fears.  As noted several weeks ago, utilities would have to decline another 40% to reach its long term average dividend yield.  Wow.  This would be ugly.

The dollar rallied to a seven month high and oil advanced on news that the Saudi’s and the Gulf compatriots are willing to cut output by 4%.

The Dow was essentially unchanged but the NADSAQ fell about 0.65%.  Since earning season commenced about 3 weeks ago, the S & P 500 has not budged notching its smallest move over the comparable period since the first quarter 2015 even as profit reports have exceed expectations by 6% according to Bloomberg.  It is now likely earnings for the period will be finish slightly positive, ending five quarters of decline, the longest stretch of declines since the financial crisis.

The S & P is on its way to a third monthly decline and the worst since January

Last night the foreign markets were mixed. London was up 0.07%, Paris up 0.36%  and Frankfurt down 0.22%.  China was down 0.26%, Japan up 0.63% and Hang Sang down 0.77%.

The Dow should open quiet on mixed earning reports. The 10-year is unchanged at 1.86%.

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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.