Equities and the Economy
U.S. equities closed modestly lower yesterday with the Dow falling 79 points, 0.4%, to 17,720, the S&P 500 losing 10 points, 0.5%, and the Nasdaq closing down 19, 0.4%, at 5,209. The consumer discretionary sector, which includes companies like Macy’s, Kohl’s, Wal-Mart and Target, were the big losers on the day. Initial sales data from the weekend showed shoppers weren’t going to stores as much as last year. Preliminary data shows sales on Thanksgiving and Black Friday were $12.1 billion down from last year’s $12.3 billion. The good news is that on-line sales are way up, but you miss the impulse buying you get in the brick and mortar stores. For management of retail companies the Black Friday experience has gone from one of excitement to one of anguish!
After years of debate a very significant event occurred yesterday. The IMF voted to include the Chinese currency, the Renminbi, into the Fund’s Special Drawing Rights (SDR) in September of 2016. This had been a topic of debate within the Fund for the past several years with the Fund making it clear to Beijing that certain changes had to take place within the monetary policies of China including the Renminbi to more freely float and made available to the world at large for transactional purposes. For those of you not familiar with the SDR, it was created by the IMF in 1969 as a supplementary international reserve asset. The SDR plays a critical role in providing liquidity to the global economic system and supplements member countries official reserves amid global financial crisis. Remember Greece? (which, by the way, has not been in the news the last few months, and as Martha Stewart would say. “That’s a good thing.”) This is an example of how China’s importance in global affairs has grown.
This morning Dow futures are up a very nice 139 points with Asian markets all closing materially higher although the European markets are chopping around unchanged. Investors got some data out of China overnight that Chinese factory activity, while although lower, came in less than expectations fueling hopes the economy may be getting a boost from the various government support programs (QE).
Oil
Oil prices began yesterday a little stronger with equities higher in the morning but got weighed down as stocks fell. WTI fell 6¢ to $41.65 and Brent lost 25¢ closing at $44.61. It was not a good November for oil and gas producers. Oil prices fell 10% during the month. Oil prices have been sliding for over a year since OPEC, i.e., Saudi Arabia, opted for market share vs cutting production to achieve a higher price. The objective of the strategy was to squeeze shale oil producers out of the market. Bottom line, the strategy to date has failed. While the oil rig count has dropped 60% over the past 12 months, U.S. production is down only 3%.
OPEC meets Friday for its regular bi-annual meeting and it’s unlikely Saudi Arabia will change course. That being said, pressure is building on Saudi Arabia from within OPEC and last week its oil minister said they will “cooperate” with OPEC and non-OPEC countries regarding pricing. Everyone is wondering if Saudi Arabia have a change of heart?
This morning WTI is up 29¢.
Courtesy of MDA Information Systems LLC
Natural Gas
Natural gas prices rose 2.3¢ yesterday closing at $2.235. This followed Friday’s 7¢ decline. The weather forecast continues to feed the bears showing a complete lack of any cold weather for the next 2 weeks in the eastern half of the country. In fact, it looks to be downright balmy! Not really much more to say here. Natty is cheap, and it’s being burned in the electric generation sector in record amounts. This morning natty is basically flat up 0.2¢
Elsewhere
In 1946, the people of Georgia went to the polls to elect their governor. It was a forgone conclusion the Democratic nominee would win, since the Republicans didn’t even field a candidate. Eugene Talmadge easily won the election. Of note, that year Georgia amended its constitution allowing people to elect a lieutenant governor. So although Talmadge won the top spot, the people elected Melvin Thompson, an anti-Talmadge man, to be their first lieutenant governor. Now Talmadge was not in the best of health at the time of the election and he died in January 1947, before inauguration day. Talmadge’s supporters immediately went to work and convinced the state legislature to pass a bill allowing that body to elect the governor in case the office fell vacant. It came as no surprise to anyone they chose Eugene Talmadge’s son, Herman, to take his father’s place.
Melvin Thompson went ballistic calling foul saying he was the duly elected lieutenant governor and stepped forth to claim the governor’s office. If Eugene Talmadge had died after he was sworn in, there would have been no question; Thompson would have taken his place. However, since Talmadge died before the inauguration, legal ambiguity created a political vacuum, which was filled by the legislature.
The situation then took a strange turn. The outgoing governor, Ellis Arnall, announce that until the situation was cleared up, he would not relinquish his office. Georgia now had three governors! While Governor Thompson turned to the courts for support, Governor Herman Talmadge and Governor Ellis conducted a comic opera in the capitol building.
Governor Talmadge ordered state troopers to eject Governor Arnall from his office. Once Arnall was escorted out of the office, Talmadge seized control. Not to be deterred, Arnall returned setting up his own governor’s office in exile in a kiosk in the capitol. During the next three months all three governor’s began appointing officials, and as you can image, it was total chaos! Finally, in March 1947, the Georgia Supreme Court weighed in and ruled Melvin Thompson was the rightful governor, but even that didn’t last long for the courts also ordered a special election, which Herman Talmadge won. So, for three months Georgia voters were treated to a circus befit Barnum and Bailey!
Have a good day.