An Irma/North Korean Inspired Advance

By: Kent Engelke | Capitol Securities

Equities rose and bonds fell after Irma wreaked less damage than expected and North Korea failed to exacerbate tensions. Market direction and volume was dominated by electronic and technology based trading.

As noted the other day, three mega-sized firms have forecasted steep declines in the immediate future given the breakdown of cross-correlated trades, perhaps the result of the massive influence of high speed traders (aka algorithmic) who have programmed trading decisions predicated upon eight word headlines.

This is not investing, but rather short term momentum speculation.

Such strategies create market imbalances and benefit “only a few” according to the SEC.

However, I think the above strategy has created many opportunities for those who utilize a geopolitical and macroeconomic thesis to develop investment ideas. To write the incredibly obvious, depending upon the source/benchmark, this philosophy has greatly underperformed during the last 4-10 years.

I reiterate, if growth is maintained at a 3% pace and if there is tax reform, the odds of security research returning back in vogue rises exponentially for such is the shattering of current assumptions. What are the odds? I think over 60%.

What will happen today? As noted above, yesterday was a light volume advance.

The Dow should open nominally higher on the absence of bad news rather than positive catalysts. President Trump is planning to aggressively promote tax reform, a key ingredient for greater than forecasted growth. The 10-year is off 6/32 to yield 2.16%.


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