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Perhaps “the Dog Days of Summer” is an Accurate Description of Yesterday’s Trading Until a Late Afternoon Geopolitical Inspired Rally That Pushed Equities Higher.

Perhaps “the dog days of summer” is an accurate description of yesterday’s trading until a late afternoon geopolitical inspired rally that pushed equities higher.  All markets were quiet, volume subdued, an environment perhaps amplified by the lack of any significant headlines until the 3:00 P.M headlines.

Was yesterday’s trading a harbinger of things to come for the remainder of the summer?

As noted many times, I think the greatest risk to the economy/markets is the dysfunctionalism of Washington.  While I will not write today’s environment is the most polarized in history, a statement most historians will agree, Washington is a major hindrance.

Senators Cruz and Warren are perhaps proxies of the extremes of their respective bases, are poster children of this dysfunctionalism, and by definition neither are leaders.

A leader is defined as someone who is able to bring all sides together for the greater good.  To make all believe the impossible is achievable.

Under this definition, neither is the President.  The President continues to excoriate the large minority (about 49%) of the population who does not share his vision.

Democracy is about championing the rights of the minority.  Perhaps 49% is too large to define as a minority.

About 12-14 years ago I had the privilege to serve on a committee to assist in reforming the central bank of Armenia.  I must write my role was very minimal; my greatest take away from this experience is the importance of the rule of law and “spirit of agreement.”

The US has extremely strong property rights and “law of rule” where agreements are made verbally and then legislated.  If the “spirit of the agreement” is violated as it becomes legislated or if the terms of the law are ignored, trust is broken and the legislation process becomes paralyzed.

Regardless if one is a Cruz or Warren supporter, I think most will agree the legislation process is broken where trust is virtually absent.

I think society is tired of the status quo.  Government approval ratings are plunging.

I am beginning to think true leaders will soon evolve, leaders that are able to unite the country instead of divide.  Who are these potential leaders—I don’t know.

Many have commented that the leadership in Washington never changes.  This statement is far from reality.  The 2010 midterm election had the greatest turnover in the House of Representatives in over 100 years.  Two thirds of the Senate was elected since 2006.


In my congressional district, the third most powerful person in the House lost in a primary by underfunded no name, the first defeat of any national leader in a primary.

As noted above, I think the country is demanding leadership, not dysfunctional partisanship where the rule of law is not violated and the “spirit of the agreement” is not ignored.

What does this political diatribe have to do with the markets?

As stated, I believe Washington is the greatest hindrance to the economy. The proverbial economic sprung has been wound, a spring that is ready to explode once confidence returns.  This economic spring is cash, cash that is generating near record low real negative rates of returns.

In my view recent data suggests the potential influence of this cash.  Second quarter S & P 500 revenue growth of over 4% is the greatest in many quarters.  Not only did this revenue increase enable the strongest earning gains since 3Q11, second quarter GDP had a “four handle” and job growth is continuing.

While the rate of growth for both GDP and jobs is anemic as compared to past recoveries, an argument can be made momentum is building for stronger gains as towhen confidence/leadership returns.

Moreover I think these gargantuan cash hordes are preventing a “market correction.”

Wishful thinking?  It was once said a poor leader can make a great team bad and a good leader could make a mediocre team unstoppable.

What will happen today?  Will the ISM non-manufacturing index impact trading?

Last night the foreign markets were up.  London was up 0.33%, Paris up 0.50% and Frankfurt up 0.45%.  Japan was down 1.0% and Hang Seng up 0.20%.

The Dow should open moderately lower.  The 10-year is off 2/32 to yield 2.49%.


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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.