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Will Tension Continue to Rise Between the East and the West, Tensions That Will Increase the Scope and Degree of Economic Sanctions Against Russia?

Will tension continue to rise between the East and the West, tensions that will increase the scope and degree of economic sanctions against Russia?  If sanctions are increased, what impact will these sanctions have upon global growth?

If one was a geopolitical historian, one would recognize the significance of the first 10 days of August.  WWI commenced on August 4, 1914 when England declared war on Germany. August 6, 1945 was the day the atomic bomb was dropped on Hiroshima.   August 9, 1864 was the date Sherman massively bombarded Atlanta and is regarded as the day Atlanta’s sprit was broken. August 9 and 10, 1940 civilian bombing by Germans and British alike commenced.

The point of the above history lesson is that in order to win any wars, the war must be taken to the populace.  Targeting a select group or military target traditionally does not change the “hearts of minds” of one’s adversary.

I am not remotely suggesting NATO or the US begin bombing Russia.  The point I am making is that any war effort—including sanctions—must impact the civilian population or such actions will be ineffective.

Errant national leaders will continue to be errant until their bases implode.

Will the US and the European community levy sanctions in the coming days that will really cripple the Russian economy, forcing a change in Putin’s behavior?

At this juncture I think the national and international will is lacking.  I will argue if the markets really believed the will is present, all equity averages would be down 30% not 3%, fearing the unknown.

At this juncture, The Ukraine et. al. are just disturbing headlines, headlines that are not yet overly impacting economic activity as evidenced by the performance of the world’s equity markets.

Speaking of economic activity, weekly jobless claims fell to the lowest number in eight years.  Companies are holding on to more workers in an effort to keep up with increased orders and stronger consumer demand, contributing to a virtuous cycle of growth as the economy accelerates.  Fewer layoffs and more jobs would support further gains in income and household spending.

Commenting on yesterday’s market action, equities ended lower by 0.50% while the ten year was up 16/32.  The reason—geopolitical tensions.

Productivity and whole sale inventories are released today.  Will the productivity data confirm weekly jobless claims?  As noted many times, the economy is considerably past the proverbial productivity inflection hiring point.

Last night the foreign markets were down.  London was down 0.57%, Paris down 0.33%  and Frankfurt down 0.91%.  Japan was down 2.98% and Hang Seng down 0.23%.

The Dow should open nominally lower as President Obama authorized air strikes in Iraq and the ending of the tenuous cease fire in Gaza.  All must remember we live in a multipolar interdependent world where international events does and will continue to impact markets.  It is how the global economies have evolved.    The 10-year is up 6/32 to yield 2.39%.


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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.