Equities and the Economy

Happy first day of Spring! It just seems we can’t get any momentum in stocks. Literally it’s one day up and the next day down. After the big Fed induced rally on Wednesday U.S. stocks retreated on Thursday with the Dow falling 117 points (0.65%) and back below 18,000 to 17,959 and the S&P 500 dropped 11 (0.50%) to 2,089. However, the tech heavy Nasdaq bucked the trend closing up 9 (0.18%) to 4,992 and encroaching again on the psychologically important 5,000 level. Once again it was energy stocks that pulled down the Dow and S&P indexes with crude oil prices falling (amazing how correlated those are). Remember, two of the 30 Dow stocks (6.7%) are direct energy plays: Chevron and Exxon Mobil. Not the case in the Nasdaq.

Fundamental news yesterday came in the form of weekly jobless claims which came in right at economists’ expectations. Also, the Conference Board reported its Leading Economic Index rose 0.2% in February to 121.4 also meeting expectations. Per the Board’s economist “…indicators continue to point to short term growth. However, ….weakness in the industrial sector and business investment is holding economic growth back despite improvements in the labor markets and consumer confidence.”

This morning it’s the “up” day’s turn (which I’ll take) with the Dow up a very nice 127 points. The Asian markets didn’t help us closing mixed but the European markets are all trading well into the green with Germany’s DAX up 1.33% and helping stocks here in the U.S. If there’s one thing we should have learned over the last 5 years it’s to “follow the money,” more specifically, QE, and the ECB is “QE’ing” right now, and into at least September 2016. Also helping the DAX were Greek officials’ comments they are drawing up another plan for economic reforms. So why is this helping Germany’s DAX? Because basically it is Germany who is funding Greece. But do we really expect anything material out of the Greeks? It’ll be more “pretend and extend” in order to get bailout money. So why doesn’t the European Union just boot out the Greeks? Because Germany knows that if Greece leaves the euro will skyrocket seriously damaging their export dependent economy.

Oil

As mentioned above and similar to the Dow and S&P, oil retreated yesterday after making gains on Wednesday with WTI falling 70¢ settling at $43.96. Brent lost twice that, $1.48, closing at $54.43. All the talk around the world is of inventories and all I can say is that crude continues to bid for storage, particularly here in the U.S., widening the contango. Remember, it is illegal to export crude oil out of the U.S. You can export refined products (gasoline, diesel, etc.), but not crude, which puts price disproportionate downward price pressure on WTI relative to Brent.

There are new reports that Iran has resorted to using tankers to stockpile perhaps 30 million barrels of crude in ships that could be immediately released in the market if sanctions were eased. Bloomberg is reporting there maybe 14 ships or more moored off Iran full of oil. That’ll saw a bull’s horns off. The WTI Nymex contract expires today and WTI is rallying on equities up $1.17¢.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its always much anticipated weekly storage report yesterday noting the country withdrew 45 Bcf last week which was less than expectations of a 50 Bcf withdraw and natty immediately sold off and closed 10.7¢ down at $2.813. For most of the week the bulls were pushing natty higher on the stubbornly cool forecast for the east but yesterday’s report broadsided them. Technically it’s the first day of spring but you folks in the northeast aren’t going to taste any of it for at least a couple of weeks with the entrenched jet steam pattern continuing to allow arctic air to dump into that region of the country. In fact, the 1-15 day forecast moved a little colder today which has brought in the bulls and natty is up 6.5¢ as I write.

Elsewhere

Oil prices began falling last summer and then plummeted in November after Saudi Arabia’s announcement it would not cut production in order to maintain market share. The ramification are beginning to be felt. No less than three companies have declared bankruptcy: Cal Dive International, BPZ Resources and Dune Energy. And those are just in Houston! Not Midland, not North Dakota. Not Ohio. Not Pennsylvania. The industry over the last few years has had money thrown like housing 10 to 15 years ago and a lot of it came from non-traditional sources, i.e., private equity funds, with some companies now having debt to equity rations of 50% or more and with the low oil prices they now can’t service their debt. This has only begun.

On the lighter side, there are more dead people on Facebook than there are living in Australia. It is estimated that over 33 million Facebook profiles belong to the deceased with many of the pages still operating as memorials. Have a good weekend.