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Oil Stocks, According to Bloomberg are the Worst Performing Shares in the World.

Oil is around three month lows.  Oil stocks, according to Bloomberg are the worst performing shares in the world.  While I do not know whether or not this is an accurate statement, being long oil it certainly feels like they are indeed the worst performing shares.

Bloomberg writes oil is now beginning to attract interest given that dividend yields are now the highest since the financial crisis of 2008-09.  The yields greatly eclipse that of the S & P, the vast majority of bonds, offering an alternative to most over priced yield alternatives.  Additionally valuations as compared to the S & P are at the greatest discount since at least 1992.

The collapse of crude has hurt oil profits with median income of the 15 largest integrated oil companies down 45% in the first quarter from a year earlier.  The question at hand will dividends of the oils be reduced or will cap expenditure budgets be slashed?

Bloomberg writes in the oil collapse of 1986, oil reduced cap expenditures by 25% but the dividends were largely maintained.  Bloomberg writes that today companies will have to lower costs by 20% to maintain dividend payouts.

The slashing of costs would center upon exploration and development, a reduction that commenced during the first quarter.  Such cuts should lower production and stabilize prices and offer confidence that the dividends are indeed sustainable.

Perhaps the only concrete statement to make about the oil implosion is the negative narrative is bordering as myopically manic.  Typically a bottom or top is made when there is only one intense narrative.

As noted yesterday, most of Wall Street is ignoring that Middle Eastern countries also are affected by the laws of economics.  Is a change at hand, partially predicated by valuations amplified by sentiment?

If history is to serve as a guide, yes.

Last night the foreign markets were mixed.  London was down 0.12%, Paris up 0.10% and Frankfurt down 0.30%.  Japan was up 0.25% and Hang Sang up 1.0%.

The Dow should open flat. The 10-year is unchanged at a 2.35% 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.