Equities and the Economy

Good morning. U.S. equities continued their recent surge higher yesterday this time getting a boost from the minutes from the Federal Reserve’s September meeting which were released yesterday. The Dow gained a very nice 138 points, 0.8%, finishing at 17,051, the S&P 5000 added 18, 0.9%, to 2,013 and the Nasdaq ended the day up 20 points, 0.4%, overcoming a once again slump in the biotech sector that had it weighed down most of the day. Yesterday was the 5th consecutive winning session, the longest this year. There’s no doubt it was the Fed minutes (released at 2 PM EDT) that rallied equities for stocks had been marginally positive prior to the release and then once the minutes were released the flood gates opened and up we went. The Fed said in their minutes that they concerned that “recent global economic and financial developments may have increased downside risks to economic activity.” Can you say China?! So with those concerns and inflation reaming low, below their 2% target now for more than 3 years, the Fed left interest rates unchanged. So with that news plus the great weekly first time unemployment claims number I discussed in yesterday’s blog, it was like Pamplona making for a great day. By the way, it was the energy stocks that once again led the way.

We may be in for a day of consolidation today with Dow futures being 26 as I write. The Asian markets closed higher driven higher on U.S. equities and, more importantly, European equities are materially higher being up between 0.81% and 1.12%. Stealing from the band Kansas “Carry on my wayward QE!”

Oil

As I mentioned above, the energy stocks once again led the way yesterday with WTI rising $1.62, 3.4%. closing at $49.43 and Brent up $1.72, 3.3% to $53.05. WTI has been poking its head above $50 the last couple of days which is the first time it’s been at that level since July. If oil closes higher today, which it looks just do being it’s up 19¢ as I write, it will log a 12% gain for the week. Even with OPEC and Russia increasing supplies and the very strong possibility Iran will increase production, the current low oil prices are really stimulating global demand, especially in the emerging markets. OPEC expects global demand to increase by 1.5 million bpd this year, more than previously forecasts. This may seems like a strange comment but it is a lack of spare production capacity that is the driver of the rising price. Oil and gas exploration companies have cut way back on drilling (rig count down 60%) and it takes a lot more time to get those rigs running than to shut them down. Oh, you can lease a rig quickly but getting the crews to run it and do all the ancillary work takes time to put together. That being said, $50 WTI is still cheap. It was only about 15 months ago we were trading $100.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices got a bump yesterday from the weekly EIA storage report which stated the U.S. injected 95 Bcf last week which was marginally, 3 Bcf, below expectations. That in conjunction with the 6-15 day weather pattern turning cooler, albeit to normal, brought in a few buyers. At day’s end natty had added 2.4¢ settling at $2.498. The weather forecast this morning has only changed slightly from yesterday’s showing temperatures in the upper Midwest and northeast to be normal with the rest of the country above normal. This morning natty is moribund up $0.001

Elsewhere

Every school child knows that Delaware was our first state. In fact, many of them are required to know the order in which the states entered the union. North and South Dakota have an interesting story regarding statehood. In the beginning, there was no North Dakota or South Dakota, only Dakota Territory. Then in 1883 the capital was moved from Yankton to Bismarck, which very much displeased the folks in the south, so much so, they applied for statehood but Congress turned them down. However, the south was not deterred and continued to press for the creation of South Dakota out of the southern half of the territory. Voters in the territory of South Dakota approved a state constitution, elected senators and legislatures and a new state government was formed. But once again, Congress refused to grant statehood.

Finally in 1889, growing political pressure forced the federal government to act. The Dakota Territory was split in two and preparations were made to admit the 39th and 40th states of the Union. However, there was one very sticky point, which state would be admitted first, North or South Dakota. While the politicians fought over the dilemma, President Benjamin Harrison came up with a solution which Solomon would have admired.

At the signing of the proclamation admitting the two states, the president put each document inside identical newspapers. He then shuffled the newspapers back and forth until now one could not tell which paper held which states admission papers. The president left just enough of the statehood documents exposed for him to sign. After shuffling, Harrison signed both documents, once again shuffled the newspapers and then removed the documents. North and South Dakota were now states but due to the president’s ingenious shell game now one will ever know which of the documents was signed first!.

Have a good weekend.