What gives?  It was almost universally believed Brexit would usher in something worse than September 2008.  While I must write no one knows the ultimate outcome and bad stuff may still happen, that is point that no one knows the outcome of Brexit.

Is Brexit the proverbial black swan event, which negatively impacts the Establishment and benefits all others?  Wow, this is radical, along the same lines that the lunar landings were filmed in Arizona.

Can I suggest the recovery is the result of naked shorts covering, naked shorts that have not worked out as expected, the result of the massive influence of HFTs that have potentially created “an imbalanced market that benefit only few,” quoting the SEC?  Wow!  This is almost equivalent to stating that Elvis is alive in Argentina with Jim Morrison.

One of my consistent comments is to always expect the unexpected.  Several days ago I wrote Brexit may be viewed as a victory for democracy and freedom as it was the first major defection from unelected bureaucrats who do not produce wealth but rather transfers wealth under the guise of increasing certainty for the masses.  The tradeoff of such certainty is reduced entrepreneurship—aka risk taking—for lower growth rates and higher taxes.

The accepted reason for the continuing equity recovery is Brexit will occur in a rational manner and central banks will maintain its accommodative stance, but I cynically ask how much accommodation can central banks offer?

What will happen today?  Trading is expected to wane throughout the day ahead of the three day Fourth of July weekend.

Last night the foreign markets were up.   London was up 0.68%, Paris up 0.72% and Frankfurt up 0.65%.  China was down 0.18%,  Japan up 0.68% and Hang Sang up 1.75%.

The Dow should open flat as the markets are heading for their biggest weekly gains since November as the central banks pledged more liquidity to ease the ramifications of Brexit.  I cynically ask how much more liquidity can be injected into a system that is already flush with liquidity?  Is there not the law of diminishing returns?  Writing cynically again, not in the land of cross correlated HFTs where increased liquidity equals higher stock prices.

The 10-year is up 13/32 to yield 1.43%.


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.
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