Equities and the economy

It was not a good day for equities yesterday. Not just in the U.S. but globally. While the Dow fell 134 points, 0.75%, to 17,603 and the S&P dropped 21, 1.01%, to 2,045 and the Nasdaq declined 48, 0.98%, to 4,894., global stocks as measured by the bellwether MSCI All-Country World Index lost 1.4%, its biggest daily drop since February 6th.

U.S. stocks retreated despite positive economic news. The Institute of Supply Management said yesterday that its index of the nation’s service sector rose from 53.4 in February to 54.5 in March with the non-manufacturing, new orders and employment sectors all increasing. Remember, in so many of these indexes, readings above 50 indicate expansion, so this was a good report.

The employment situation continues its long recovery. The Labor Department reported in its Job Openings and Labor Turnover Survey (JOLTS) showing that although employers posted fewer jobs in February, 5.45 million, vs. January, 5.6 million, American employers hired 5.42 million workers last month compared to 5.13 million in February. Additionally, the “Quit Rates” rose to 2.1% from 2.0%. The “Quit Rates” is an indicator of employee confidence of the labor market. It is known that Janet Yellen pays heed to the JOLTS and “Quits Rate” data. Yesterday’s drop in the market was due, as I mentioned yesterday, to a little fatigue in the bull. Just like you, after working hard you need a break.

The minutes of the last FOMC meeting are going to be released today and investors are going to be parsing it closely. If you recall, the Fed didn’t change the interest rate after the last meeting but there was one dissenter. Investors are going to be looking to see if there was more hawkishness than displayed publically. That said, it definitely appears this is Ms. Yellen’s Fed and her desires carry the day.

This morning I came across a bit of very interesting data. As I’ve often discussed, I look at what’s called the “open interest” in a market because it can give an indication if a market is oversold or over bought. As this stock market has rallied the aggregate short position has increased. It began in August when bearish investors sent bets against U.S. stocks rose above 4% of available shares for the first time in 6 years. They haven’t backed off since. By the end of February, the ratio climbed to 4.4%, the highest since 2008, according to Bloomberg. As of March 15th the level was 4.3%, equivalent to a short position of just under $1 trillion! All markets get overdone and like a rubber band they snap back. These short positions represent pent up demand for stocks. This is definitely bullish.

This morning stocks are pretty quiet globally and the Dow is down 33. Chatter.

Oil

Oil prices stabilized yesterday with WTI closing 19¢ higher at $35.89 and Brent up a penny more settling at $37.87. With that let’s move on to today for WTI is up $1.00 as I write. A couple things are driving it higher this morning: one headline, one fundamental. First, the Kuwaiti governor for OPEC said there are positive indications that an output freeze agreement can still be reached at the April 17th producer meeting in Doha without including Iran. However, I believe the fundamental data is trumping that announcement which is the API’s weekly report yesterday afternoon stating U.S. crude stockpiles fell 4.1 million barrels last week with traders expecting a 3.5 million barrel build. In aggregate, which includes gasoline and distillates, inventories fell 1.5 million barrels with a 2.7 million barrel build expected. This news caught everyone off guard and immediately after the report was released prices popped.

Travelling to or through Dubai any time soon? If you do you’ll be paying about $10 more in fees. The low oil prices have got all oil producing countries scrambling to cut costs or increase revenue. In this case, it’s the United Arab Emirates which is raising the fee to offset decreases in revenues from oil sales. Dubai International Airport is one of the business airports in the world with about 7.3 million people passing through it monthly. You do the simple math.

Courtesy of MDA Information Systems LLC

Natural Gas

After pushing to six week highs above $2.07 early this week, a 25% rally over 2 months, natural gas prices have retreated about 17¢, 8%. Yesterday the May Nymex contract fell 4.4¢ closing at $1.954. I’ve been asked many times “Why is the market rallying when we have a record amount of gas in storage?” Well production is flat and demand is increasing but here is the real driver of the recent rally. Yesterday a major private weather forecasting service officially released its summer forecast stating they expect a top 10 hottest summer this year. Folks, this forecast was officially released yesterday but take if from an ex-trader who worked for the largest trading company in America, this forecast has been in the market for quite a while. So back in February when we were oversold at around $1.60 this forecast, without being in print, got talked about over the phone and brought in buyers.

While the next two weeks, especially the next 5 days, will be way colder than normal in the upper Midwest and northeast, temps will be returning to normal in mid-April and you folks in the north will getting some wonderful spring weather. This is slightly bearish news for the forecast was colder yesterday and natty prices are down 3.7¢ this morning.

Elsewhere

There’s a saying “Great minds think alike.” There’s a lot more to that sentence than you think. Indeed, very intelligent people tend to come up with the same ideas at the same time. For instance, take the paperclip. When Johann Vaaler patented his paperclip in 1901, there already were similar designs by William Middlebrook and Cornelius Brosnan. Vaaler is credited with being the first to design the paperclip because of drawings he made as early as 1899.

In 1669, the principles of differential calculus were determined by Sir Isaac Newton in England and Gottfried Wilhelm Leibniz in Germany at about the same time. (The name calculus is derived from the Latin word for “pebble,” referring to the use of pebbles in reckoning or counting.)

One hour before Alexander Graham Bell registered his patent for the telephone in 1876, Elisha Gray patented his design. After years of ligation, the patent went to Bell.

At 10:35 AM on Friday December 17, 1903, Orville Wright took the Flyer that he and his brother Wilbur built into the air for what has come to be known as the first powered flight. Earlier, unbeknownst to them, Gustave Whitehead and Richard Pearse were also experimenting with flying machines. Who actually took first to the sky remains a controversy.

Without one knowing about the other, Jack Kilby from Texas and Robert Noyce from California invented the integrated circuit in 1958. However, their idea was not knew. Briton GW Dummer had suggested such a design in 1952.

Great designs did not only bring interesting fun, they brought great growth. In the 1400’s, global income rose only 0.1% annually. Today it often tops 5%.