Equities and the Economy:

• U.S. stocks close marginally down on Friday. Dow down 36, S&P 500 off 5 and Nasdaq lost 12.

• All three indexes posted gains for the week.

• All three indexes still about ½% off record highs.

U.S. equities closed slightly lower on Friday with the Dow falling 36 points, 0.19%, to 18,868, the S&P 500 closed down 5, 0.24%, at 2,181 and the Nasdaq lost 12, 0.23%, ending at 5,321. Chatter, especially considering that last Monday the Dow set an all-time high. The S&P’s record high of 2,194 was set on August 15th. The small cap Russell 2000 posted gains for the 11th straight day registering its longest streak since June 2003. This is a very positive sign for the general market for the Russell is an index comprised of a lot of companies, 2000, and the companies are small caps, which are considered higher risk than large cap companies such as the ones in the Dow. The performance of this index gives us a good indication of the health of the general market and investors’ risk appetite.

The U.S. dollar rose to its strongest level in 14 years vs. a basket of currencies on Friday with the first time unemployment claims on Thursday showing a tightening jobs market. This is going to pressure commodities as well as create a head wind U.S. exporters for it will make their exports more expensive in the global markets. As the dollar has risen as well as inflation expectations bond yields have risen which means lower bond prices. It’s been 15 years since bond yields have risen this much over a 2 week period. This will make debt more expensive for corporations.

This morning stocks continue to grind higher with the Dow up 47. The Nasdaq is up 32 which is a record intraday high. The S&P is within 1 points of its intraday high.

Oil

• WTI rose 27¢ on Friday closing at $45.69. Brent added 37¢ to $46.86.

• WTI prices rose 5.25% for the week posting its first positive week in four.

Although the dollar continues to strengthen, oil prices continue to creep higher, which is impressive. The move up continues to be fueled by short covering taking a wait and see attitude about the OPEC meeting on November 30th. If OPEC does agree to cut production it will be their first deal to limit production since 2008.

Baker Hughes released it weekly rig count report on Friday and it was nothing short of shocking to me. The company stated that a whopping 20 rigs were added last week, 19 oil, 1 gas. Now most of the rigs that have been added over the last couple of months have been horizontal rigs which drill horizontally within the formation yielding greater production. But this report stated 7 vertical rigs were added. These rigs do not drill horizontally. This tells me the producers can make money the old fashioned way at current WTI prices, which are in the mid $40’s. 11 of the 20 rigs went to work in the Permian Basin in west Texas. The economics of this basin are the best in the nation, and lease prices reflect it. I was told that lease acreage in the Permian went for $60,000/acre. And all that gives you is the right to drill! Here’s a piece of data showing you the economics of the Permian. Half of all the rigs currently working in the U.S. are working in the Permian.

This morning WTI is popping trading up a huge $1.72 from Friday’s close. The impetus, Iran and Russia. On Saturday Iran’s oil minister said it is highly likely OPEC will reach an agreement. Now there’s nothing concrete here but it’s the change of tone of one of OPEC’s most recalcitrant members that is bringing the buying. Remember, Iran is OPEC’s second largest producer. Adding to the bullish sentiment, over the weekend Vladimir Putin said “We will do everything that our partners from OPEC are expecting. To freeze crude production is not an issue with us.” I remain very skeptical that any agreement will result in a physical production change. Rhetoric is cheap; adherence is expensive and difficult.

Courtesy of MDA Information Systems LLC

Natural Gas

• Natural gas prices skyrocketed on Friday with the December Nymex contract closing 14.0¢ higher at $2.843.

• This morning the rally continues with natty up 10.5¢, up 16¢ from a 3 month low earlier this month.

Did you catch any of the Michigan/West Virginia game on Saturday? If you did, you’ll know why prices rose. It was a very cool scene as snow fell before and during the football game. And it was not the only game where it snowed. So it is the advent of the colder weather that is pushing prices higher. Here is some data from the weekend:

Summary of snowfall from blizzard Argos over the weekend by State:

• Connecticut: 13.5 inches in Norfolk
• Maryland: 2.5 inches near Hi-Point
• Massachusetts: 11 inches in Lenox Dale
• New Hampshire: 2 inches in Laconia
• New Jersey: 6.7 inches in Highland Lakes
• New York: 21.3 inches near Foster (17.5 inches at Binghamton/NWS and 13 inches on the ground in Syracuse)
• Ohio: 5.2 inches in Akron
• Pennsylvania: 9.5 inches in Hydetown
• Vermont: 16 inches in Woodford
• West Virginia: 9.5 inches near Cortland

Elsewhere

This may be more of a legend than fact but historical research indicates that during the Han Dynasty in China tickling was used as a form of torture. Apparently the captors liked the fact that tickling didn’t leave any physical signs of abuse on the body and their captives would recover quickly. The ancient Romans may have also used tickle torture. They would bring in a goat to lick the captive’s feet! Although there is only shaky evidence that either of these modes of torture were actually employed, there appear to have been cases in which severe tickling was deemed abuse in contemporary times.