Equities and the Economy

Good morning. Although it was a sleepy Friday, U.S. stocks managed to post a third consecutive week of gains with the Dow adding 74 points, 0.43%, to 17,216, the S&P 500 up 9, 0.45%, to 2,033 and the Nasdaq rising 17, 0.35%, to 4,887. It was so sedate the S&P traded within a 10 point range all day. Actually, the indexes were all flat for the day until the last hour when some buying came in. Looks like folks wanted to be long going into the weekend. For the year the Dow is down 3.4%, the S&P is off 1.3% and the Nasdaq is up 3.2%.

The economic data was mixed with the University of Consumer Sentiment Index increasing to 92.1 in the preliminary in October nicely beating expectations of 88.4. The Current Conditions Index increased to 106.7 on October from 101.2 in September while the Expectations Index increased to 87.2. That was the good news. Disappointing news came from manufacturing with industrial production declining 0.2% in September from August. Positive news came in the form that August’s industrial production improved from -0.4% to -0.1%. More evidence of the current “plow horse” economy we’re in currently.

Let’s move on to this morning. Equites around the world have no direction with the Asian markets closing mixed with no big moves and the European markets doing pretty much the same although the latter is fading as we go into the final couple hours of trading. Here in the U.S. equity futures are marginally lower with the Dow down 66. Nothing to get too excited about. .

Oil

Oil prices on Friday got a little bit of a boost from global equities with WTI gaining 88¢ to $47.26. Brent rose 73¢ to $50.16. That being said, it was a rough week for oil with the Monday through Thursday sessions all closing lower and chalking up a loss of almost 5% for the week. The U.S rig count continues to fall as evidenced by the Barker Hughes weekly report noting a drop of 8 total rigs and 10 oil rigs. The total rig count now stands at 968 which is the lowest since mid-2010. This reinforces the credence in the Saudi-led strategy of maintaining. high levels of output to drive down prices and suffocate the U.S. shale oil producers.

OPEC holds a “technical meeting” with non-OPEC producers this Wednesday in Vienna which traders will be looking to for price direction. The question is always what will Saudi Arabia do, or not do, for not only are they the largest OPEC producer, they are the only OPEC producer who would curtail production to support prices. The bulls are looking for some rhetoric of a curtailment. OPEC holds its official summit meeting in December.

Oil prices are starting the week in the red on a Chinese government report today that Q3 GDP “fell” to 6.9%. While the number is only slightly lower than Beijing’s year-end growth target of about 7%, investors are concerned this number can be achieved. China consumes 12% of the world’s oil, second only to the U.S., and a slowdown in that economy will weigh on oil prices, especially if every country in the world is producing everything they got. This morning WTI is down $1.15 on the bearish Chinese GDP data.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices finished the week on a weak note with the November contract falling 2.3¢ closing at $2.430 on the hangover of Thursday’s EIA storage report data which was decidedly bearish. It was downright chilly in the upper Midwest and northeast this past week and weekend which will impact this week’s and next’s storage report. I seriously doubt we’ll see a triple digit injection again for the rest of the injection season.

This morning the Carolina’s are still experiencing the remnants of the cold front but the rest of the country is shifting to normal to above temperatures over the next couple of weeks. Natty is up 3.5¢ this morning on strength in the cash market. Due to the cold weather over the weekend some physical users came in a little short and need to buy some gas to catch up/balance out.

Elsewhere

Washington D.C. is an awe inspiring place. So much history. So many life changing decisions made in those buildings. However, we could be saying the same thig about another city. It all began the morning of July 20,1790. Secretary of State had come upon a dejected Secretary of the Treasury Alexander Hamilton waiting to see the president. Hamilton was despondent because he couldn’t persuade Congress to pass his plan for the newly created United States on firm financial footing. The obstacle was James Madison, a leader in the House of Representatives. Hamilton was so frustrated he was about to tender his resignation to President Washington.

Although not an ally of Hamilton, Jefferson was astute enough to recognize the need for a sound national financial policy so he offered to mediate the deadlock between Hamilton and Madison. Jefferson thought this might best be done in private so he hosted a private dinner party where the two antagonists could meet alone and work out their differences under more benign, and wine, circumstances.

Jefferson broached the subject and Madison responded. He objected to the federal government taking over the Revolutionary War Debt of the individual states. His home state of Virginia had already paid off its debt and most of the northern states hadn’t even paid a penny. At that point Jefferson unleashed a stroke of genius. He asked Madison if the assumption of the states’ debts would be more palatable to the South if the permanent capital of the nation was placed in Virginia. Madison loved the idea! Madison withdrew his adamant opposition to Hamilton’s funding bill and it passed. In the next legislative breath, Congress passed the Residency Bill which placed the nation’s capital at its present location on the Potomac.

Thus, it was that both the financial fate of the United States and the site of the seat of our government were settled at a simple dinner party. As a result, we now send our representatives to Washington D.C. instead of Philadelphia or New York.

Have a good day.