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Equities closed essentially unchanged as crude rallied about 1.7% to close over the psychological $40 mark.  There were no major headlines for yesterday’s rise except a reiteration of next week’s OPEC/Russia meeting to cap production. The dollar fell to a nine month low.

What I found of great significance, escaping the attention of most, was the spike in Saudi Arabian deposit rates.  The loan to deposit rate is about 112% thus suggesting a possible liquidity crisis in the desert kingdom, the result of plunging oil prices, fighting several wars amplified by massive transfer payments to quell their restless and unemployed youth.

Students of the financial markets know that any spike in deposit rates is negative, suggesting anything from issues that could be quickly tweaked to the precipice of a full blown financial crisis…think the Thai Bot and Long Term Capital Management.

Many times I have opined the current collapse in prices is threatening the existence of various oil producing nation states not just western corporations.  According to the IMF 7 of the 13 OPEC members is on the edge of the fiscal abyss.  Russia—who is not a member of OPEC—is also teetering.

I am not suggesting Saudi Arabia is on the verge of insolvency as 7 of its fellow OPEC countries, I am stating the kingdom’s banks are fully loaned and must go outside of its traditional sources to fund its deficit.

First quarter earnings season commenced last night.  The bar is set very low as the market is prepared for the worst quarter since the financial crisis.  At this juncture analysts are expecting results to decline about 9%.  I am certain the interpretation and the analysis of reports will change throughout the reporting period.

Last night the foreign markets were up.  London was up 0.01%, Paris up 0.23% and Frankfurt up 0.60%.  China was off 0.34%,  Japan up 1.13% and Hang Sang up 0.31%.

The Dow should open nominally higher as crude is up another 1%.  I am certain the earnings’ banter will begin to rise a deafening crescendo as Alcoa exceeded on EPS but missed on revenues.  Shares are off about 1% in premarket.   The 10-year is off 9/32 to yield 1.76%.

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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.