Good morning. It was looking like it was going to be a bad day yesterday driven by a report from the Commerce Department stating consumer spending fell in December 0.3% which was worse than the 0.2% economists were forecasting. Additionally, November’s number was revised downward from a 0.6% increase to 0.5%. That’s a big swing negative from November to December. In fact, is was the biggest monthly decline since late 2009 and that was when we were in the Great Recession. Consumer spending is always followed closely for it accounts for 2/3rds of U.S. economic activity. So you probably, or should, be thinking (I was) “Oil and gasoline prices have plummeted. This should put extra change in consumer’s pockets. What’s going on?” Well it appears from the data that instead of spending consumers are actually exercising some fiscal responsibility opting to pay down debt and boost savings. The data showed the savings rate rose to 4.9% in December from 4.3% in November and which is the highest rate since midsummer. While this doesn’t help equities immediately it does improve the consumer’s balance sheet which is good in the long term. It reminds me of the challenging lesson I’m trying to teach my teenage daughters, delayed gratification.

On the Commerce Department’s news stocks sunk, but then a funny thing happened. Begging almost exactly one hour before the close two things happened. First, the Greek Finance Minister, Yanis Varoufakis, told the Financial Times Greece is proposing ending the standoff with its international creditors by swapping outstanding debt for new growth-linked bonds. Now this hasn’t yet been discussed with the ECB or EU officials, but it is progress. The other thing that happened is late in the day oil prices rallied giving investors some confidence in energy sector stocks. Those two positive event gave investors and traders and excuse to buy equities and the Dow finished 196 points (1.14%) higher at 17,361, the S&P 500 jumped 26 (1.3%) to 2,021 and the Nasdaq added 42 (0.90%) to 4,677.

This morning we’re getting some great follow through with the Dow up 146. While the Asian markets closed mixed, the European markets are all trading nicely positive on the Greek news which is translating into a positive morning here. Helping the global markets was a surprise move by the Reserve Bank of Australia which cut interest rates to a record low driving Australian stocks to a 7 year high. It’s yet another central bank cutting rates, which is supportive of equities. Folks, what we have here is a race to zero by central bankers around the world to drive their currencies lower and making their exports cheaper.

Oil

Oil continues to climb with WTI adding $1.33 (2.6%) closing at $49.57 and Brent jumping $1.76 (3.1%) to $54.75. WTI has now rebounded $6.01 (14%) from the $43.56 low it put in on January 29th and is at its highest price in a month. After falling about 60% from last summer oil prices had been trading pretty much sideways for the last 2 weeks. Additionally, the market was egregiously oversold as indicated by data released just yesterday. The Commodity Futures Trading Commission released its positions report for the week ending January 27th (it’s always a week delayed) showing hedge funds increased their short positions in WTI 11% that week to 104,763. That’s the most short positions since 2010. The rubber band was stretched way too far and the Baker Hughes rig count report last Friday showing a precipitous drop in the rig count was the catalyst for buyers to come in which started a stampede.

This morning WTI is continuing to find buyer with it up $1.06, which is actually off from the $1.50 when I came into the office. In addition to the fundamental reason for buying the technicians are buying this bounce. Initial resistance is coming in at $55 so watch that level. WTI’s contango is high and widening with crude rushing to Cushing. A few months ago total supplies at and around Cushing were just under 600 million barrels. Today, they are just over 1.1 million barrels. The most we’ve ever seen is about 1.5 million barrels in mid-2013. My bet is we see that again. But you traders out there be careful, it’s a future. Everybody already knows this.

Natural gas

Natty have been quite quiet the last couple of days with it closing down 1.1¢ yesterday at $2.680 with the low of the day just above a 2 year low. Cheap, cheap, cheap. Yes we’ve been lower, but only coming out of the warmest winter in 30 years! Now I’m not picking bottoms because all that will get you is stinky fingers but on a longer time horizon, it is cheap. Every penny we drop is going to bring on more gas fired generation displacing coal. About 45% to 50% of this country’s electricity is still generated by coal so that’s a huge amount of potential demand. When natty springs back it’s going to do it fast and hard.

Courtesy of MDA Information Systems LLC

The jet stream has settled into a stable pattern with a ridge in the west and a trough in the east producing below normal temperatures for the eastern 1/3rd of the country for the next 2 weeks and the major gas consuming regions of the country. We are statistically right in the middle of the coldest time of the year so those below normal temperatures are going to keep those furnaces running around the clock. This morning natty is just floundering being pretty much unchanged from yesterday (down 0.9¢) and the natural gas fired generators sucking it up.

Have a good day.