A BRIEF HISTORY LESSON

Fake news is not a new phenomenon.  It has been around since the dawn of mankind using any delivery method to influence the populace.  It is often written those who control the media can greatly influence society’s perceptions and opinions.  It is also written if society recognizes that the headlines are at best disingenuous, society becomes very cynically increasing the odds of social unrest.

The financial media is obsessed with the yield curve and trade, stating in absolute terms a recession is imminent.  For a myriad of reasons there is now over $16 trillion in negative yielding sovereign debt.  The 30-year US Treasury broached the 2% level for the first time ever and for the first time in many years the S & P 500 yields more than this pivotal benchmark.

Negative yields are not possible according to every known economic textbook.

I will continue to argue growth will continue to surprise on the upside.  Based upon last week’s data, third quarter growth is now forecasted to increase between 2.1% and 2.4%.  How will the bond market respond?

Last week I referenced an article in Barrons stating the obvious—the technology concerns have the greatest risk in the trade war.  It is widely accepted news now emanates in Silicon Valley.

Since we are in a trade war with China I would like to digress about 120 years ago and briefly discuss the “Boxer Rebellion.”  Based upon my political science degree I earned about 35 years ago, the Boxer Rebellion may have started by accident in America.  According to some reports, “influential reporters” were complaining about the lack of publicity of their current headlines with the editors demanding news that will sell papers.

Being good reporters who were afraid of losing their jobs, they made up a story.  These reporters stated wealthy Americans and Europeans were planning to buy, dismantle and transport the Great Wall of China.  It sold papers and the news reached China.

To write the obvious, China was incensed hence the Boxer Rebellion.

What does this have to with today?  I am firm believer it is not what one says but rather why one says it. What is the motivation?

As stated above, the technology sector has the most to lose in a trade war.  News now emanates in Silicon Valley.   Is this too conspiratory?

The markets are entirely dictated by five word headlines that technology and algorithmic models trade from.  The SEC states that such trading is now 90% of volume.  Momentum is the only parameter utilized.  Value is not even considered.

I think history will regard today’s era of negative interest rates as the ultimate of Black Swan events.  It is scary to think many believe today’s extremely abnormal environment is normal. The question is when will reality return?

How will this week’s economic calendar influence outlooks?  Little is on the calendar bur releases include a sentiment indicator, housing data and the Minutes from the recent FOMC meeting.

Last night the foreign markets were up. London was up 0.98%, Paris up 1.04% and Frankfurt up 1.24%.  China was up 2.10%, Japan up 0.71% and Hang Sang up 2.17%.

The Dow should open moderately higher on trade, economic and interest rate optimism. The 10-year is off 18/32 to yield 1.62%. The 30-year is off 1 24/32 to yield 2.12%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. 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. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.