Equities and the Economy:

• Dow streak of record closes snapped.
• North Korea excuse to reduce risk.

Although all three major U.S. stock indexes hit record highs intraday, they closed lower on the day after President Donald Trump vowed to respond aggressively to any threats from North Korea with investors reducing risk. That being said, the losses were marginal with the Dow finishing down 33 points at 22,085, the S&P 500 off 6 to 2,475 and the Nasdaq closing at 6,370, down 13. President Trump told reporters that if North Korea continues to threaten the U.S. it would be met with “fire and fury like the world has never seen.” His comments followed a report earlier in the day that North Korea had successfully miniaturized a nuclear warhead that could fit inside a missile. Being we’ve had a series of days with record highs investors took the news as an excuse to reduce risk. Additionally, plenty of investors are nervous looking for a pullback having their finger at the ready to click “sell.” Why? Because the S&P has gone 281 days without a pullback of 5% or more. This, as we say in statistics, is in the tail of the curve.

Turning to the fundamentals, there were two reports of significance yesterday. First, the Labor Department in its Job Openings and Labor Turnover Survey (JOLTS) [love that acronym!] reported that employers posted 6.163 million jobs in June. This is a stunning increase of 461,000, 8%, from May and the highest level since the report’s inception in December 2000. This is further indication employers are having trouble finding qualified workers. (I smell wage inflation!)

The second report was the NFIB Small Business Optimism Index rose sharply in July from June to 105. The all-important small business owner is feeling pretty good, but apparently can’t find qualified workers. Remember, most of the nation’s jobs are created in small business.

This morning investors continue to be cautious with the Dow down 45 points.

Oil

• Prices have consolidated.
• API report mixed.

Prices in the oil market have consolidated over the past couple of weeks trading in roughly the $48 to $50 range basis WTI. Yesterday WTI fell 22¢ closing at $49.17 and Brent was off 23¢ to $52.14. Yesterday OPEC and “friends” concluded their two day technical meeting without much fanfare simply stating “the conclusions reached with the countries at the meeting will help facilitate full conformity [to the production cut agreement].” Yawn.

Of more importance was API’s regular weekly report after the closing bell which showed a huge draw on crude oil inventories last week. Stockpiles plunged by 7.8 million barrels, more than 3 times forecast. However, don’t buy that bullish ETF quite yet for the report also stated gasoline inventories rose by 1.5 million barrels with expectations for a decrease of 1.5 million barrels. So the bottom line was the report was neutral, and the price action this morning is reflecting it with WTI up 26¢. Today we’ll see the more important DOE weekly report.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices rebounding off lows.
• Weather forecast shifting warmer.

After dropping to a 5 month low last week just above $2.75 natural gas prices have rebounded about a dime yesterday closing up 2.1¢ at $2.822. After getting crushed a week ago Monday by a very cool summer weather forecast, that forecast each day since then has shown marginally warmer temperatures in the Midwest and East bringing those regions back to normal temps which has brought in buying to either cover shorts or go long. Remember also, the lower prices go, the more gas that gets burned for electric generation thus providing price support, especially in the summer. The natural gas market is truly a classic example of economic elasticity.

Prices continue to creep higher with natty up 5.1¢ this morning with this morning’s weather forecast showing much-above temps in the 11-15 day time frame for the upper Midwest, MidAtlantic and New England

Elsewhere

Homes in San Francisco can easily top a million dollars. One savvy investor who couldn’t afford a home there took a different tack, he bought the street! Yes, the road. Due to a city auction stemming from an unpaid tax bill Bay Area real estate investor Michael Cheng and his wife, Tina Lam, bought the street sidewalks and other common ground in Presidio Heights. All for just $90,000. Now this isn’t just your everyday rich neighborhood. This is the neighborhood where Senator Dianne Feinstein and House Democratic leader Nancy Pelosi have lived.

The residents on the street are livid the city auctioned off the street. This all happened because the tax the homeowners association (HOA) paid was erroneously sent to an accountant who hadn’t worked for the HOA since the 1980’s. And oh, did I mention the tax rate? A whopping $14 per year! To recoup the past due taxes San Francisco’s tax office put the property up for sale at the cost of $994 in an online auction which Cheng then bought for $90,000.

The HOA’s attorney said the residents didn’t even know their street was put on the auction block, let alone sold, until May when a title search company hired by Cheng and Lam reached out to ask if any of the residents had interest in buying the property back. In lieu of an outright sale he’s also thinking about renting out the 120 parking spaces that line the private road. You know where this is headed: court. Prior to that though the HOA petitioned and received a hearing with the Board of Supervisor in October to rescind the tax sale. Those are some powerful folks Mr. Cheng and Ms. Lam will be taking on.