Equites and the Economy

U.S. stocks bounced back in a big way yesterday recovering a significant portion of the huge losses experienced Tuesday with the Dow jumping 290 points, 1.82%, ending at 16,351, the S&P 500 climbed 35 points, 1.84%, ending at 1.949 and the more volatile Nasdaq popped a big 2.46% rising 114 points finishing at 4,750. Yesterday’s pop was great and I’ll take it every day, but we’ve got a lot more work to do before a victory can be declared. From an absolute sense, yesterday’s closes for the Dow and S&P 500 were the 5th lowest of the year. Still, I’m a glass is half full kind of guy and green is always better than red.

Yesterday’s move up was supported by some fundamental data including ADP’s private payrolls report as well as stabilization of the Chinese markets, i.e. the Shanghai didn’t get clobbered yesterday. ADP’s report can be taken as “pleasant” and reflective of the “plow horse” nature of the economy. ADP stated the U.S. added 190,000 private sector jobs in August which was 5,000 more than the 185,000 jobs in July. The August number was actually at the low end of the consensus range but the number shows the economy continues to grind forward.

The Fed released its closely followed Beige Book which although is not the be all and end all, it does set the tone for the upcoming FOMCE meeting on the 16th and 17th. The takeaway from the report was the economy is doing modestly better, not materially, since the last Beige Book. The Book also stated that several of the Fed districts reported increasing wage pressure caused by a tightening labor market which is a change from the previous report. Wage pressures, or lack thereof, are one of the key indicators the Fed looks at for changing interest rates and this is fodder for raising them this month.

Another piece of economic data came in positive yesterday and that was factory orders which rose 0.4% in July marking the second month of gains after an inordinately strong June when orders rose a huge and unsustainable 2.2%.

This morning the Dow is up 1139 points which is probably because today we don’t have to deal with Debbie Downer, i.e., the Chinese markets for the Shanghai is closed for a holiday. Folks, our economy is doing well. It’s the Chinese economy that got overheated and is bringing us down. Now to be fair, when we were imploding and in the Great Recession the only major economy in the world that was doing well was China’s so I guess it’s only fair we know carry the yoke. At the time, if China hadn’t been doing well we very likely would have had a global depression.

Our markets are being driven higher on the heels of the European markets which are trading materially higher on comments from ECB President Mario Draghi stating growth on the Continent is anemic requiring a continuation of the current QE program, and maybe a boost. He just sped up the hamster wheel.

Oil

Oil prices continue their erratic ways. After gaining 27.5% over 3 days and 8% losses on Tuesday, oil posted moderate gains yesterday with WTI closing up 84¢ settling at $46.25 and Brent adding 94¢ closing at $50.50. Oil prices of late are taking their cue from equities and with equities up yesterday and the modestly positive news from the Beige Book traders came in as buyers. I was actually a little surprised at oil’s price action yesterday for the DOE’s weekly crude and products report yesterday showed a huge rise in crude inventories. Stocks rose 7.6 million barrels with forecasts of a rise of only 800,000. Now part of this was due to issues associated with a California refinery being down but still, this was a big jump in inventories.

This morning WTI is leaping trading up $1.57 again riding the coattails of equities for before equities started running both WTI and Brent were down marginally.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices gave up all there gains on Tuesday falling 5.4¢ yesterday settling at $2.648. Natty prices continue to waffle around the $2.70ish level. Today the EIA releases its weekly natural gas storage report and the market is looking for an injection of 86 Bcf which is greater than the 5 year average of 60 Bcf but less than last year’s 70 Bcf. Weather forecasts are little changed from yesterday giving traders no cause for action and the market is reflecting that with the October contract meandering up 2.1¢. Chatter.

Elsewhere

We owe a tremendous debt to Alexander Hamilton. As our first Secretary of the Treasurer his ideas were brilliantly successful putting the newly created United States on firm financial footing. If he had been as brilliant with a dueling pistol he might have lived to a ripe old age. The headstrong Hamilton was chosen by President Washington in 1789 to solve a host of financial problems facing the nation and sometimes he had to step on the toes of his political adversaries, but he always did the right thing. That’s why folks gave him at least an even chance when Vice President Aaron Burr challenged Hamilton to a duel. Burr was at the end of his term as Vice President and knowing he would not be reelected, he decided to run for governor of New York. Burr had the backing of most of the Federalists, except Hamilton, who opposed Burr vociferously. Soon criticism led to insults and Burr issued his challenge for satisfaction.

The two men met on July 11, 1804 at Weehawken, NJ across the Hudson River from New York. Armed with pistols they stepped off the required number of steps and turned and fired. Much to everyone’s surprise, Hamilton just stood there with his gun at his side never raising it. He refused to fire while Burr took perfect aim. Burr fired and Hamilton fell, mortally wounded. Within hours he was dead. Today most folks wonder why Hamilton refused to fire having such blatant disregard for self-preservation. The reason he didn’t shoot was because of the memory of his dead son. Just two years earlier, almost to the day, Philip Hamilton, Alexander Hamilton’s eldest son, was killed in a duel on that very spot where his father faced Burr, and from that day forward Hamilton vowed that he would never again fire a gun in anger. His honor required him to show up when Burr challenged him but he didn’t have to shoot. With the image of his slain son haunting him, Alexander Hamilton chose principle over pride, and it cost him his life.

Have a good day.