Equities and the Economy:

• Dow logs 8th consecutive session of record highs.
• S&P 500 and Nasdaq mark 2nd session in a row of record highs.

U.S. stocks had a very good day yesterday with all three major indexes closing at record highs. The Dow marked its 8th consecutive session of record highs closing up 119 points, 0.6%, at 20,743. After a very, very small pullback last Thursday the S&P 500 and Nasdaq closed at record highs for the 2nd consecutive day with the former adding 14 points, 0.6%, to 2,365 and the latter climbing 27 points, 0.5%, to 5,866. For 2017, the Dow and S&P have logged 10 record closes and the Nasdaq has scored 19. The S&P is up a whopping 10.6% since the election on November 8th. That extrapolates to about 42% on an annual basis! Folks, you know that can’t happen! Indeed, the economy is doing well, S&P company earnings rose to 7.5% for Q4 which is awesome and the ECB, BoJ and PBoC all still have QE programs enacted, but you just can’t get 40% annual gains! S&P 500 companies’ P/E ratio is trading 17.8 for the next 12 months well above the long term average of 15.

There were no fundamental economic reports of significance released yesterday. Folks, I’ve “felt” this feeling before in trading energy. What it “feels” like in equities is that there’s a lot of people who didn’t buy into the rally and are now buying almost in a panic. It feels the opposite of the “pain trade” if the market were tanking. Remember, all markets, including equities, get overdone, both to the downside and to the upside. Alan Greenspan, former Fed Chairman, called it “Irrational exuberance.” Let’s ride this train as far as it will take us. But one day, actually it’ll occur over weeks, we’re getting a material correction. If only I knew when that was coming.

This morning the Dow is down 10. Chatter

Oil

• Oil prices rally on compliance data and talks of OPEC production cut extension.
• Still range bound.

Oil prices rallied yesterday on OPEC Secretary General Mohammed Barkindo’s comments at a London conference stating that compliance has been higher than most parties had thought, as high as 90%, and there are discussions of extending the agreement. The latter would depend on the expected state of global inventories at the end of June, which is when the current agreement is to expire. WTI was up over a buck yesterday early but settled back for a 66¢ gain closing at $54.06. Brent added 48¢ to $56.66. That being said, prices are still range bound with $53 being a magnet and this morning WTI is down 65 at $53.68, not far off that “epicenter.”

My antennae are raised. Why? Because the average of the Brent and WTI price curve has gone backwardated (current prices are higher than future prices). This hasn’t happened since 2014. It tells me that current demand is outstripping supply. Hmmm.

Courtesy of MDA Information Systems LLC

Natural Gas

• Cash prices tank pulling futures lower.
• Futures prices at 6 month low.

Cash longs came out of the warm holiday weekend to find nobody buying begging folks to take it. Buyers were bottom fishing and the length had to hit the bid, which was way down there. They simultaneously sold futures trying to mitigate their losses. It was very ugly for the bulls. The March contract ended down a whopping 27.0¢, 9.5%, at $2.564. This is the lowest closing price in 6 months. Ole Punxsutawney Phil got it all wrong on February 2nd predicting 6 more weeks of winter. The data indicates that based on population weighted heating degree days (this is what counts in the natty business) February 2017 is going to be the warmest February on record, by a long shot. Front month natural gas prices have dropped nearly a dollar, 28%, in less than 4 weeks.

There’s very little change in both the weather forecast (above normal temps in the all-important east) as well as prices with natty up 3.4¢.

Elsewhere

The solar industry had a good 2016. The U.S. solar market doubled its annual record for installations last year and solar power was the top ranking source of new electricity generation capacity last year. According to GTM Research and the Solar Energy Industries Association, 14,626 megawatts of solar panels were installed in 2016. This represents a 95% increase over 2015. According to the National Solar Jobs Census, the USA’s solar workforce grew 25% last year and now 260,000 Americans are employed in solar. Most of the solar was installed in the utility-scale segment growing 14% form 2015. Many public utilities commissions have given utilities “sustainable“ energy goals to achieve and solar and wind are the most common ways to do it. There’s also another way to do it. Southern California Edison charges 31.335¢/kWh on weekdays during the hours of noon to 6 PM in the months of June through September. Ouch! That’s a motivator!