Equities and the Economy

Schizophrenic. That’s the only way to describe the action in the U.S. equity markets. On Thursday we had the worst day in 3 months with the Dow losing 252 points, 1.42%, and on Friday we have the best day in 3 months with the Dow posting a gain of a whopping 370 points, 2.12%. On Friday the Labor Department released a very strong jobs report, and investors celebrated by buying equities despite the fact that the jobs report virtually guarantees the Fed will raise interest rates at its meeting next week. It’s been a “buy dip” market and investors saw Thursday as the dip to buy. Also helping equities was the ECB’s president, Mario Draghi, stating Friday with reference to the central bank’s strategy for stimulating the western European economy “There is no particular limit to how we can deploy any or our tools.” The reason I mention this is because it was the ECB’s announcement on Thursday of the actions it would take in the future which disappointed investors and sent stocks tanking that day.

The S&P 500 on Friday gained 42 points, 2.05%, to 2,092 and the Nasdaq ended up a huge 105 points, 2.1%, at 5,142. For the week the major indexes finished flat or marginally higher.

This morning U.S. equities are waffling around unchanged, which is how the Asian markets closed. The European markets are trading higher but that is really primarily a catch-up from Friday’s U.S. price action.

Oil

Oil prices fell Friday with WTI falling $1.11 and closing below $40 at $39.97 and Brent fell 87¢ settling at an even $43. Oil prices got no help from OPEC who concluded their bi-annual meeting on Friday and as expected continued their one year old policy of choosing not to limit production. To refresh your memory, this new policy follows a 40 year old policy of manipulating production to influence price. Their decision in conjunction with rising global stockpiles, which are nearly 3 billion barrels per the IEA, have driven WTI and Brent prices to a near 6 year low. Oil prices have fallen by over 60% since 2014. One of these days oil prices will rise. The oil rig continues to decline with Baker Hughes reporting Friday in its rig count report that the number of rigs looking for oil decreased another 10 to 545 last week compared to last year at this time when 1,575 rigs were active. There’s always a lag between a decline in rig count and production declines but this time the U.S. shale producer, who OPEC clearly has in their crosshairs, has proven resilient. The rig count has dropped 60% in the past year but production has only declined 3%. By the way, Iran is chomping at the bit to increase production, which is estimated to be 1 million bpd over the first 6 months, once sanctions are lifted.

It’s a melancholy morning for oil producers with WTI trading down a very material $1.29. Not helping their cause is a rebound of the U.S. dollar over the past couple of days and continuing this morning. By the way, support comes in at $37.74 which was the low set in late August of this year.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices did nothing on Friday with all the contracts closing close to Thursday’s settle. The January contract closed up a half cent at $2.186. The El Nino and its consequential warm weather are seriously pushing prices lower. The Texans played the Bills yesterday and the announcer stated that Buffalo just got its first snow where it actually didn’t melt. 1886 was the last time Buffalo got snow this late. The weather forecast for the next 10 days is so red it looks like its bleeding and the 11-15 term continues the warm pattern, albeit not quite as warm. Traders are wailing on it this morning with the December contract trading down 6.1¢ at $2.125. $2.125 gas in January! Holy Toledo!

Elsewhere

Today is the anniversary of Pearl Harbor, “A date that will live in infamy.”

It was the late 1930’s and America was at a crossroad. In Europe, a paper-hanging corporal by the name of Adolf Hitler was mesmerizing Germany. The Nazi dictator was the grandson of a wandering miller named Johann Hitler who piled his trade from village to village in lower Austria. The elder Hitler lived a bohemian existence and in late 1836 took up with a peasant woman named Maria Anna who lived in the village of Strones. On June 7th of the following year and without the benefit of clergy, Maria gave birth to a son she named Alois. Being the deadbeat he was, Johann promptly left town. Alois was subsequently baptized with his mother’s name and raised by his father’s brother.

After an absence of 39 years, Johann Hitler reappeared to claim a piece of a small estate his brother left after his death. However, he could only make his claim if he could prove he was a Hitler. At the prospect of sharing the inheritance Johann, in the presence of three witnesses and a notary, testified that he was the father of Alois. The parish priest scratched out the last name on the baptismal record and inserted the name Hitler.

From that day forward Alois would never use his mother’s name again. In due time Alois married and gave birth to a son he named Adolf. You know the rest. But what if Johann had never come forward? What would the surname of Alois and his son be? Well I’ll tell you. Schicklgruber. The grandson of Johann Hitler would have been Adolf Schicklgruber. This raises and interesting question. Could Adolf Schicklgruber have galvanized the mases like Adolf Hitler did? How does “Heil Schicklgruber” sound?

Have a good day.