Good morning. Another excellent day for 401K’s. Worldwide stock indexes rose modestly yesterday on expectations of more stimulus from the ECB and positive economic data here in the U.S. The benchmark S&P 500 closed above 2000 for the first time ever, right at 2000, up 2 points. The Dow added 30 points to 17,107 and the Nasdaq climbed 13 to 4,571. The bulls are on full parade as the hated rally continues. I say hated for the bears for months have been pointing out with very sound arguments this market is overdone and due for a correction. There will be a time when they are right but right now they are wrong and their income statements have suffering egregiously. This party will end when the bears retreat to their caves and the bullish/bearish sentiment boat is listing heavily to the bullish side. It’s not there yet.

Photo by  thetaxhaven / Licensed under CC BY 2.0

Stocks have been pushed higher since last Friday on comments by ECB President Mario Draghi hinting the bank is preparing a program of large scale asset purchases to weaken the euro and to try and jump-start growth in the struggling euro zone. I have no idea how Mr. Draghi is going to accomplish this because interest rates in the EU are already close to zero but I guess the market thinks he’ll figure it out. Let me elaborate. Central banks basically have three ways of managing monetary policy: adjusting interest rates, increasing liquidity and adjusting the reserve requirements of the banks they regulate. I’ll save discussion of the latter one for another day but I’ll address the other two here. The ECB, like our Fed, has lowered interest rates close to zero so you can’t get any more “QE” from that tool in your monetary belt. That leaves increasing liquidity, i.e., buying assets like bonds. Most central banks like our Fed, the Bank of Japan, the Bank of England, the Bank of Canada, et al, have government bond markets that are deep, liquid and sovereign in which they can buy securities and monetize their respective economies. Such is not the case in Europe. There is no individual debt security extant in Europe but instead there are more than two dozen nations with their own debt securities none of which can be purchased by the ECB without creating political chaos within the Union. No pan-European bond exists for the ECB to buy . Effectively the ECB has one less tool in its belt with which to implement monetary policy. Hence, with interest rates near or at zero and no pan-European bonds to buy I don’t know how Mr. Draghi and the ECB will create more QE. He’s a much smarter man than I so we’ll soon find out.

There were a couple of economic reports released here in the U.S. yesterday impacting equities. The first was Durable Goods which came in for July up 22.6% from June. This was the largest month-on-month increase in history. And ridiculous. This highly erratic number is impacted by an airplane sale moved forward of back from month to month. In fact, July’s number was led by a truly stunning 74% increase in airplane sales. Nondefense airplane sales were the culprit with Boeing’s sales up nearly 320% month-on-month while defense aircraft sales fell nearly 29%. Next month’s we’ll almost certainly see a materially negative month-to-month change.

The other report was the Conference Board’s report showing consumer confidence this month has risen to its highest level in years rising to 90.9 from last month’s already high and upwardly revised 86.4. This is really good news. Remember, only three years ago this number was down to 40.

This morning equities are bivouacking waiting of supply lines to be reestablished and armies replenished with Dow futures up 7.

Oil chattered around yesterday with WTI climbing 51¢ closing at $93.86 and Brent falling 15¢ to $102.50. Late Monday U.S District Court Judge Gray Miller ruled that Kurdish oil now offshore in the Gulf of Mexico can be off-loaded, title taken and paid for saying the federal government here in the U.S. lacked standing authority to seize the oil at the request of the Iraqi government. The judge said “Kurdistan’s unauthorized export of oil over land, and later over sea, may violate Iraqi law but it does not violate U.S. maritime law.” The Kurds just raised the price of their oil.

There’s a cease fire in Gaza today and the Presidents of Ukraine and Russia have met and apparently reached a tentative accord to stem the killing in eastern Ukraine so global tensions are diminished from last week. WTI is taking it all in stride being up 27¢ this morning. Chatter.

Natural gas did nothing yesterday closing down 2.6¢ at $3.911. Today the September Nymex contract expires setting one “leg” of many derivative products and the cost of supply for many natural gas contracts and unhedged heat rate electricity supply agreements. The bulls are trying to push it higher this morning with Sept being up 5.9¢ as I write. There’s still a long time until the close. The forecast in the 6-15 day time frame keeps getting warmer which is definitely supporting natty. That being said, we are most definitely over the historical peak CDD days of the summer so these temperature deviations will not have the impact they would in July or August. Have a good day.