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The Dow was again quiet yesterday after a three week 1,500 point advance from the post Brexit lows.  As all know, the Dow fell about 1,000 points in three days only to regain all these points plus 500 more on the announcement of yet even more central bank stimulus and from the belief interest rates will remain at current levels forever.

I believe the vast majority of the Brexit decline was the result of cross correlated electronic trading and the subsequent advance was also the result of such.  Greater stimulus equals higher stock prices as go the mantra/models.

As noted many times there is a massive disconnect as to where the markets think interest rates are going (status quo until infinity and beyond) and the view of the central bank (at least one increase in 2016).  Who is right?

All must remember the Federal Reserve holds the proverbial keys but has not yet acted for a myriad of reasons.

I reiterate, the complacency in the bond market is gargantuan hence potentially creating the environment for great volatility.  Treasuries are priced way past perfection.

Equites are vastly over extended with some firms stating the indices, which are dominated by a handful of household names, are valued around 2000 bubble valuations.    Any type of shortfall will be met with selling.

Speaking of which, Netflix missed earnings, the stock dropping over 14% which subsequently dragged the NASDAQ down about 0.50%.  The Dow was essentially unchanged.  How will today’s earnings be interpreted?

Last night the foreign markets were up.   London was up 0.23%, Paris up 1.02% and Frankfurt up 1.32%.  China was up 1.39%,  Japan down 0.25% and Hang Sang up 0.97%.

The Dow should open nominally higher as several mega cap companies exceeded profit expectations hence suggesting corporate health is robust enough to support equity gains. The 10-year is off 5/32 to yield 1.58%.

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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.