Equities and the Economy

Friday was the second consecutive sedate day for U.S. equities with the Dow closing down 21 at 16,392 while the S&P 500 finished exactly at its Thursday close of 1,918 and the Nasdaq managing a gain of 16 to 4,504.  That being said, because Tuesday and Wednesday were such great days (the market was closed on Monday), the Dow and S&P posted their best week since the one ending November 30^th being up 2.62% and 2.84%, respectively.  The Nasdaq did even better up 3.85% for the week, its best performance since the week ending July 17^th.

On Friday Producer Price data for January was released by the government and although the “top” number showed prices were unchanged from December, prices excluding food and energy, aka “core” inflation, was up 0.2%, or 2.2% at an annualized rate. The significance here is that this is the highest reading in 4 ½ years, and more importantly, above the Fed’s 2.0% target. The number definitely caught investors off guard and moved the odds of an interest rate hike by year’s end from 25% to 40%. Now in full disclosure this index is not the Fed’s favorite piece of inflation data which is personal consumption expenditures which comes out Friday. Needless to say, this date will get extra attention.

The week is starting out very well for our 401K’s with Dow futures up a sweet 198 points. Globally it’s a sea of green with the major Asian indexes all closing higher and the European bourses trading nicely positive up 1.73% to 1.89% which is boosting U.S. equities. Investors are continuing to take their que from oil prices, which are higher this morning.

Keep an eye on the 1,950 level basis the S&P 500. That’s technical resistance. This morning it’s trading 1,943.

Oil

Oil prices retreated on Friday with WTI closing down $1.13, 3.7%, at $29.64. Brent lost $1.27, also 3.7%, settling at $33.01. Oil prices were pressured by comments from Iran’s oil minister stating that he fully supported the proposal by OPEC (that’s really big daddy Saudi Arabia) and Russia to limit production to January’s levels, but that Iran would not abide to the restriction. All these talks over the past decades always come down to one thing, what is Saudi Arabia going to do because no other country ever cuts production.

Baker Hughes released its weekly rig count report and the number of rigs looking for oil and gas continues to plummet. The company reported that the number of oil rigs fell last week for the 9th consecutive week by 26 to 413. That’s the lowest number since 2009! The total rig count, oil and gas, fell by 27 rigs to 514. This was the third straight week of a sizeable drop in the rig count. Each week the rig count has dropped by at least 26 which is the biggest 3 week drop in a year. A year ago the oil rig count was 795. The oil and gas exploration sector is experiencing some very, very hard times. On the rig count data WTI is popping today being up $2.17 this morning. I’m not sure if the following is also boosting prices this morning but Russia said today that the talks to freeze production would be concluded by March 1st.

Here’s some interesting data. According to Wood Mackenzie and Citi Research the cost of to produce oil from onshore production is:

Iran: $3.00/bbl
Saudi Arabia: $8.00
Russia: $10.00
U.S. shale producers: $13.00
Canada oil sands: $15.00
Brazil: $20.00

Note, this is not the cost to drill a well. This is the cost of production of existing wells.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continued to erode closing down 4.8¢ on Friday at $1.804. A dollar eighty cents folks! We’re closing in on December’s 15 year low of $1.755. Cheap, cheap, cheap! This morning natty is up 2.0¢ The weather forecast hasn’t changed much from last week with normal to below normal temperatures in the 6-15 day forecast for Ohio, the MidAtlantic and northeast states, but nothing too severe. The above normal temperatures in the south in the 11-15 day time frame will even kick on some air conditioners. Bye-bye winter!

Solar energy had a record year in 2015. The industry installed 7,286 megawatts of solar power last year which is over 1,000 megawatts, 16%, greater than 2014. In 2015 for the first time ever solar beat natural gas capacity additions with 29.5% of all new electric generating capacity met by solar. The most recent budget signed by President Obama extended the tax credits for wind and solar for the next 5 years (although they do tape off in years 4 and 5) and with the cost to manufacture a solar panel and install a system dropping expect 2016 to be an even bigger year than 2015.

Elsewhere

It’s Monday morning. Where’s my coffee? How many of us drink it??? Starbucks has even got my teenage girls hooked through those high calorie coffee milkshakes, but they still have caffeine in them. Did you know that a cup of coffee has more caffeine that an espresso? A cup of drip brewed coffee has about 115 milligrams of caffeine, an espresso, as well as percolated coffee, about 80mg. Instant coffee has about 65mg of caffeine. Decaffeinated coffee is not totally caffeine free, containing about 3mg of caffeine. An 8oz can of Coca-Cola has about 23mg of caffeine, Pepsi Cola 25mg, Mountain Dew 36mg, and TAB 31mg. Tea has about 40mg of caffeine, while an ounce of chocolate contains about 20mg.

Coffee is the world’s most popular stimulant: 4 out of 5 Americans drink it, consuming more than 400 million cups a day. Consumption in Scandinavian countries is more than 26 lbs. per capita. With more than 25 million people employed in the industry, coffee is one of the largest trade industries in the world.

The first Espresso machine was introduced in 1822 by the French, but it was the Italians who perfected and distributed it.