Advisor Login Contact Us

Stocks Staged a Strong Advance on Speculation of European Central Bank Bond Buying, Strong Earnings and Speculation the Federal Reserve will Boost Stimulus if Growth Slows.

Stocks staged a strong advance on speculation of European central bank bond buying, strong earnings and speculation the Federal Reserve will boost stimulus if growth slows.

Will growth slow?  Many times I have referenced monetary velocity, or the turnover of money.  Such velocity is at record low levels, partially the function of the massive amount of liquidity the Federal Reserve has provided via the expansion of its balance sheet to $4.3 trillion up $3.8 trillion from 2008.

Recent Federal Reserve data indicates the level of bank loans outstanding is now at a six year high, back above its pre-crisis peak.  The past five months there has been a robust pick up of nearly every category of loans thus suggesting third quarter nominal GDP should be strong.  Initial estimates of third quarter GDP is released next week following the FOMC meeting.

I rhetorically ask at what rate would the economy expand if monetary velocity moved from its record low pace of 4.4x to its historical average of 17.2x?  Wow!  Talk about an economic boom that would cause exceedingly strong demand pull inflationary pressures.

Cash levels are an indicator of confidence.  The Fed could hypothetically provide more stimuli that would increase liquidity, but without confidence this liquidity will produce little economic benefit.  Unfortunately the FOMC cannot increase confidence levels. Such levels can only increase if all feel more optimistic about tomorrow, optimism inspired by unifying leadership.

Will such an environment arise in two weeks?

Today the CPI is released and such is expected to be benign.  There are also a host of earnings announcements.  Similar to earnings, will revenues continue to exceed expectations?

Last night the foreign markets were up.  London was up 0.17%,  Paris up 0.21%  and Frankfurt up 0.32%.  Japan was up 2.64% and Hang Sang up 1.37%.

The Dow should open quietly lower as many are pondering last week’s mantra of a weakening global economy and its impact upon earnings.  The 10-year is up 10/32 to yield 2.19%.


Return To Index Page
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.