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The Mid-Term Election is Quickly Approaching.

The mid-term election is quickly approaching.  The narrative is rising the Senate will change hands, the result of poor presidential approval ratings and from steep historical precedence the party of a second term president always loses seats during the mid-term..  Will 2014 be viewed in the same manner as 2006 when the Republicans lost six Senate seats and 30 House seats as well as control of Congress?

I think it is noteworthy President Obama’s and Bush’s approval ratings are/were similar; around 42%?

To remind all in the 2010 midterm elections, the Republicans gained six Senate and 63 House seats with a 49% presidential approval rating.

I will argue if the Senate changes hands, the odds of meaningful congressional tax reform rises exponentially so does serious discussion about the deficit and entitlements.  I will also argue the odds of some regulatory roll back also will rise. According to government studies, the costs of Obamacare, Dodd Frank and other regulations enacted since 2010 cost the economy approximately $350 to $370 billion between 2013 and 2014.

Speaking of regulations, if the Senate does change hands, the energy sector may perhaps be one of the greatest beneficiaries.  Keystone will be passed, a moratorium on EPA regulations may occur, and perhaps most significantly American ban of oil exports may be lifted.

The lifting of this approximate 42 year ban may have great geopolitical implications.  Germany, et. al. is not confronting Russia because of energy fears.  Ifthe US is able to make up this shortfall, will Germany, et.al. be more forceful?  And then there is the Middle East.

Most have recognized oil’s sharp decline.  As written several times, there are generally two reasons why crude declines…a slowing economy or more supply.  I will argue today’s decline is the result of increased supplies, more specifically natural gas.

I don’t think one would have to be a wild eye optimist to envision a scenario where natural gas providers rise exponentially as demand accelerates because of approval of the Keystone pipeline and the lifting of the export ban.

Returning to the here and now, equities gained significantly on light volume narrow based advanced, the result of new home sales which had the biggest one month increase since January 1992 and the possibility of an more accommodative ECB.

Today durable goods orders, a regional manufacturing index and weekly jobless claims are released.  What will this data suggest?

Last night the foreign markets were mixed.  London was down 0.03%, Paris up 0.38% and Frankfurt up 0.52%.  Japan was up 1.28%and Hang Sang down 0.64%.

The Dow should open little changed.  The 10-year is up 3/32 to yield 2.55%.


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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.