Equities and the Economy:

U.S. equities were on the defensive yesterday. One stupid headline I read blamed the unknown surrounding last night’s presidential debate. The real reason was something that didn’t even happen in America (which is why I follow global events). Deutsche Bank’s stock, Germany’s largest bank, got whacked yesterday, down 7.1% and hitting an all-time low, after Germany’s Focus magazine reported over the weekend that Chancellor Angela Merkel wouldn’t support state aid for the bank. I have been following the news on Deutsche Bank but haven’t been discussing it. Giving you the back story, there have been numerous reports recently that the bank’s balance sheet is overleveraged with over $1 trillion in assets and only a sliver of that having to go bad to put the bank in serious financial trouble. Focus’ report took its toll on the European markets and pressured financial shares in the U.S. which pulled all the major indexes lower. The Dow closed down 167 points, 0.9%, finishing at 18,094, the S&P 500 lost 19, 0.9%, ending at 2,146 and the Nasdaq ended off 48, also 0.9%, at 5,257.

We only had one economic report of consequence yesterday and that was the Commerce Department’s yesterday reporting that new home sales fell 7.6% to an annualized rate of 609,000. This compares to Wall Street’s expectation of a decline of 600,000. Little difference between the two numbers. Also, this is after a stellar July number of a rise of 13.8% in July. Let’s call this data just month to month variations.

Asian markets closed materially higher overnight but European markets are trading materially lower but investors are feeling pretty good this morning with the Dow up 79 points.

Oil

On the news by the Algerian oil minister that Saudi Arabia had proposed a deal to Iran to limit production oil prices shot up with WTI closing $1.45 higher at $45.93 and Brent gained $1.46 ending at $47.35. I’ve been telling you all along I remain very skeptical there will be a deal for various reasons not the least of which 1) Iran will not think about limiting production until it reaches pre-sanction levels, approximately 4 million bpd, 2) OPEC and Russian coffers are depleting due to the sanctions against Russia and the social programs of many OPEC countries which were barely manageable at $80/bbl and are in complete deficit at $45/bbl oil and 3) and maybe the most important, OPEC has lost its power. In commodities the marginal producer sets the price. Saudi Arabia for decades was the marginal producer. The U.S. shale producer is now the marginal producer. If Saudi Arabia cuts production and the price increases I guarantee you the U.S. producer will be more than happy to fill that gap.

Well it’s a new day and as so happens in the oil markets, a new headline. Saudi Arabia and Iran both came out today dashing the bull’s hopes that any sort of production agreement will be reached. From Saudi Arabia, “This is a consultative meeting…” From Iran, “It is not a time for decision-making. We will try to reach an agreement in November.” “Nough said. WTI is down a buck twenty eight.

Courtesy of MDA Information Systems LLC

Natural Gas

On the heels of a continuing supportive cash market natural gas closed up 4.2¢ at $2.997. So why are prices so “healthy”?, at the 40,000 foot level here’s why folks. U.S. dry production is absolutely flat from a year ago. Demand is up via coal to gas switching in electric generation, exports to Mexico, LNG exports and rising industrial production, primarily chemical and fertilizer plants. I have the numbers but that’s it. And if U.S. production is flat and northeast production is growing that means that Gulf production is declining, and the Gulf is where the Nymex is (Henry Hub, LA). Note that a lot of the demand growth is in the Gulf. There’s a lot of trapped gas in the Marcellus and Utica but it’s going to take a couple of years for pipelines to be built to get that gas out of that region.

This morning natty is literally flat to yesterday’s close. By the way, tomorrow the Octobers Nymex contract settles for the month.

Elsewhere

How about a solar road? Literally a system of modular solar panels that could be paved directly into roads, parking lots, driveway and bike paths. A surface under the sun. Four years ago, Scott and Julie Brusaw announced their concept of “Solar Roadways.” Since then they’ve received two rounds of funding from the Federal Highway Administration as well as a private grant to develop their project. They now have a working prototype featuring hexagonal panes that cover a 12 x 36 foot parking lot. In addition to the potential to power nearby homes, businesses and electric vehicles, the panels also have heating elements for convenient snow and ice removal as well as LEDs that make road signage. The panels have been tested for traction, load testing and impact resistance. Supposedly they can withstand a 250,000 pound load which is typical for the heaviest trucks. The concept is catching on. The Missouri Department of Transportation is planning an innovative reworking of historic Route 66 with a section of the road to be covered in the solar panels by the end of the year.