Equities and the Economy:

• U.S. stocks slip.
• Geopolitical events lead to investor cautiousness.

Riskier assets, which includes stocks, came under marginal pressure yesterday with North Korea’s foreign minister Ri Yong Ho announcing that President Trump’s recent comments were “clearly a declaration or war” and that Pyongyang has the right to shoot down U.S. bombers. While investors have become more resilient toward the North Korea/U.S. political noise, with nothing much else to focus on investors decided to reduce risk which took all three major U.S. indexes lower. The Dow fell 54 points to 22,396, the S&P 500 closed 6 points lower at 2,497 and the Nasdaq relinquished 56 points. 0.9%, to 6,372. The tech-centric index had its single worst day since September 5th weighed down by Apple which lost 0.9% marking its 4th consecutive day of losses. A report surfaced that Apple told suppliers to scale back shipment of parts for its upcoming iPhone X (the one that costs $1,000!).

The fundamental economic news was good yesterday. The Conference Board reported that consumer confidence rose in August from July to 122.90 points from July’s 120.00 reading with both present and future expectations rising. Being that about 70% of our economy is predicated on consumer spending this is a good omen. More confidence translates into more spending.

Sales of new single-family homes fell 9.4% to a seasonally adjusted rate of 571,00 in July from June. This was the lowest reading so far this year. Sales fell in the Northeast, West and South.

Equities are quiet across the globe today with the Dow up 14 points.

Oil

• Geopolitical events take precedent.
• Prices rise sharply.

Oil prices shot markedly higher yesterday on tensions surrounding an independence referendum in Iraq’s Kurdistan region. Voting began yesterday with both the Iraqi Central Government and Turkey opposing the referendum with the latter threatening to close the oil pipeline that flows from the region through Turkey to the Turkish port of Ceyhan. Closing the pipeline would take 500,000 to 600,000 bpd off the market. Not an inconsequential sum. That news added to evidence that OPEC and Russia are succeeding in their efforts to rebalance global supplies pushed prices way higher yesterday. WTI rose $1.56 closing at $52.22, its highest settlement price since mid-April and about 22% above the lows in June. Brent gained a big $2.16 settling at $59.02, its highest close since July 2015.

OPEC’s and Russia’s efforts are having much more effect on Brent prices than WTI prices. The spread between the two oils is $6.62, premium to Brent, the highest since August 2015.

This morning some profit taking is coming in with WTI down 34¢.

Courtesy of MDA Information Systems LLC

Natural Gas

• Prices retreat a little.
• Weather still supportive.

After pushing to near 4 month highs above $3.15 last week, prices have dropped 25¢, 8%, to just above $2.90 primarily driven by last Thursday’s bearish EIA storage report. Yesterday the October contract fell 4.0¢ to $2.919. Although we’re getting deep into the shoulder season, the weather forecast remains supportive. Not manifestly bullish, just supportive. I say this because above normal temperatures are forecast for the next 2 weeks. Now this won’t do much to boost A/C load in the north, but it will definitely keep the air conditions running in the south which means higher natural gas burns. Additionally, the nuclear plant refueling season is well under way which boosts natural gas demand.

This morning natty is fairly quiet up 1.1¢. By the way, the October Nymex contract expires manana.

Elsewhere

When you think of Inner Mongolia what do you think of? First of all, you probably aren’t even sure where Inner Mongolia is. Inner Mongolia is located in the very northern part of China and borders on, duh, Mongolia. When you think of jobs there you think of farming, coal mining and herding. Roads in the region aren’t used very much and buildings aren’t finished. It’s an area with towns so empty they are sometimes called ghost cities. It also happens to be where one of the biggest Bitcoin farms in the world is. Eight factory buildings with blue-tin roofs, in what’s called the Dalad Economic Development Zone, mine nearly one-twentieth of the world’s daily production of the cryptocurrency. In today’s prices that equates to over $300,000 a day!

The factory is owned by a company called Bitmain China and inside the buildings sit nearly 25,000 computer crunching mathematical problems that create Bitcoin. Workers carry laptops as they walk the isles looking for breakdowns and checking cable connections. They fill water tanks that keep the computers from melting down or bursting into flames. Hundreds of thousands of cooling fans fill the building with a whooshing white noise. When many of the workers began working at the factory they had no idea what Bitcoin was.

Bitmain, founded by Jihan Wu, a former investment analyst, makes money mostly by selling equipment to make Bitcoins. China makes more than two-thirds of all Bitcoin issued daily.