Equities and the Economy

Good morning. Whoo-hoo and whoo again! And again! Financial markets around the world surged on Friday after Greece tabled a fresh package of reforms to creditors with investors taking the developments that the new plan could finally spell the end of the dramatic stand-off that shut the Greek financial system down for almost two weeks. The developments surrounding Greece really helped propel the European markets pushing them around 3% higher. But Greece wasn’t the only thing markets had to celebrate. Asian stocks also ended materially higher with China’s Shanghai up 4.6% and chalking up a second consecutive day of gains. The euphoria spread to the U.S. with the Dow gaining 211 points (1.20%) ending at 17,760, the S&P 500 climbing 26 (1.25%) to 2,077 and the Nasdaq adding 76 (1.54%) closing almost back above 5,000 at 4,998. Although the S&P was flat for the week Friday’s gains pushed the S&P back into positive territory for the year, up 0.9%. The Dow gained 0.2% for the week and is down 0.4% for the year and the Nasdaq climbed 0.2% on the week and is up a nice 5.5% for the year.

Completing my summary of events on Friday, our Fed Chair, Jane Yellen, spoke in Cleveland stating she expects interest rates to begin to be raised later this year but did add the caveat she was concerned about lingering weakness in the labor market and new potential threat overseas. No doubt she was thinking Greece. The market is betting the first interest rate hike will be in September, assuming a Greek deal gets done. And it does appear a deal between Greece and its creditors has been reached. Over the weekend the meetings surrounding Greece were non-stop and late yesterday European Ministers approved a deal 9 hours past the Sunday midnight deadline. The deal includes commitments from Greece for a drastic austerity program including pension, market and privatization reforms in return, the 18 other eurozone leaders committed to start talks on a new bailout program. The deal, which will be the country’s third bailout in 5 years, still needs approval from Greece’s parliament. Greek debt stands at a staggering 180% of the country’s GDP and few economists think the debt will ever be repaid. The can has been kicked down the road.

Overnight Asian shares closed higher with China’s Shanghai closing up “only” 2.4%. I say “only” because that index has recently had numerous days of gaining or losing 5%. Be careful. The Chinese government has still halted trading on 303 companies and not allowed selling of many stocks. Yes, you can’t sell. Investors in Europe are taking the Greek deal as good news with Germany’s DAX and France’s CAC up 1.29% and 1.83%, respectively. All this “positiveness” is hitting our markets this morning with Dow futures up a very healthy 141 points.

Oil

Friday morning oil was looking like it was going to have another bad day after a bad week but recouped its morning losses to close basically flat to Friday with WTI losing 4¢ to $52.74 and Brent up 12¢ at $58.73. Chatter. Baker Hughes released its weekly rig count report showing and a net increase of 5 rigs with the Permian basin climbing by 8 rigs.

The IEA, not our EIA, released a report on Friday forecasting global oil demand to slow to 1.2 million bpd in 2016, down from 1.4 million bpd this year. The report said crude supply from OPEC rose in June to 31.7 million bpd, a 3 year high, led by record high production from Iraq, Saudi Arabia and the United Arab Emirates. OPEC “is not slowing down” and is “pumping at record rates.” Oil inventories held by the 34 nation Organization for Economic Co-operation and Development, which includes the U.S., also reached a record high in May. Certainly not bullish data.

This morning oil prices are being pressured, WTI down 84¢, with word that Iran and six world powers, led by the U.S., are on the brink of a nuclear deal that would bring sanction relief in exchange for curbs on Tehran’s nuclear program. Oil prices were even lower overnight but got a boost from the Greek deal.

Bank of America and Commerzbank joined Goldman Sachs on their negative view of oil prices with both stating U.S. crude prices could drop well below $50 per bbl in Q3 2015.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices extended their recent rally Friday adding 4.4¢ settling at $2.770. Weather forecasts continue to slowly migrate warmer and we are entering into statistically the hottest time of the year. U.S. dry natural gas production has been flat the last month or so and demand, especially in the electric generation sector, has been strong. There’s been a lot of pipeline maintenance the last couple of months, typical for the summer, which is somewhat curtailing production. But in my mind the 50% drop in rig count from last summer is starting to impact production.

Today’s forecast is coming in warmer from last Friday’s and the bulls are out in force with natty up 7.8¢ as I write.

Elsewhere

Hundreds of graves are strung out along the Oregon Trail. Death respected no one and men, women and children were laid to rest along the road. Some of their stones still mark graves and they are all sad monuments, including Old Thornburgh’s. When he wasn’t running with his mountain-men buddies in the Rockies, Old Thornburgh lived at Fort Bridger in what is now southwestern Wyoming. Although he wasn’t in the army all the soldiers at the fort respected and valued his friendship. Someone as impervious to danger as he was could always be counted on. Thornburgh first showed his mettle when he joined a company of soldiers that had to escort a wagon train through Indian territory. When it appeared the wagon train was out of danger all the soldiers returned to the fort except the company commander and Thornburgh. After an hour or two passed without incident the major and Thornburgh left the safety of the wagon train and headed back to the fort. Then tragedy struck. The Indians were there all the time but were hiding and now that they saw only the major and Thornburgh they attacked. It was a quick attack and although Old Thornburgh came through it unscathed, the major was killed. Old Thornburgh had a dilemma. If he left the major’s body the Indians might return and mutilate it. If he stayed it might cost him his life. He stayed, remaining there until soldiers from the fort came and found them.

That was not the only time Thornburgh proved his worth. He saved a child from drowning in a nearby creek, and on another occasion he stopped a drunken brawl between two trappers by attacking the one who had pulled a knife. Then came the fateful day in 1887. Old Thornburgh got too close to an ornery mule and with one powerful kick killed him. A gloomy pale settled over the fort and in gratitude for Old Thornburgh’s loyalty the soldiers buried him in a marked grave with not only a headstone but also a footstone and a white picket fence.

Today travelling the Oregon Trail by auto one can visit Old Thornburgh’s grave. There’s no trace of the major’s final resting place but Old Thornburgh’s has been preserved for posterity. If you visit the grave you’ll find that Old Thornburgh, the loyal friend to all at Fort Bridger, was not a human, but a faithful collie. If only more humans had Old Thornburgh’s traits.

Have a good day.