Good morning. Ahhhhhhhhhh! Sirens everywhere. Blood flowing in the streets of Paris. Triage applied. Stocks got slammed hard yesterday with the Dow losing 317 points, 1.88%, ending at 16,563, the S&P 500 off 39, 2.00%, to 1,931 and the Nasdaq down 93, 2.09%, to $4,68. This was the Dow’s largest point drop since February 3rd. The VIX jumped 27.2% to its highest level since April 11th. Some may blame Argentina and their 2nd default in 13 years (their stock market fell 8.4% today and they’re living with 40% inflation!) but what I think was the catalyst was the government releasing a report showing that U.S. labor costs in Q2 recording their biggest gain in more than 5 ½ years. This got investors thinking the Fed may raise interest rates sooner than previously thought and Wall Street does not like higher interest rates. Besides we’re waaaay overdue for a correction and the bullish/bearish sentiment has not been so bullish since 1987 and us old enough remember what happened then. Joe Public is always the last on the bull ride and the one to get out at the bottom. Speaking of a correction, this is an opportune time to revisit some definitions.

Photo: Emergency Light by Angie from Sawara, Chiba-ken, Japan / Licensed CC BY 2.0 Attribution 2

A pullback, also called a correction, is when the stock market declines 10% in a relatively short period of time (bear markets usually occur 4 times faster than bull markets). A correction is different from a stock market crash which is when stock prices plummet more than 10%, sometimes in one day. Crashes are so frightening they usually lead to a bear market. The latter being when the market drops another 10% leading to a decline of 20% or more. Unlike a correction, as stock market crash can cause a recession (can you say Lehman Brothers?!). Why is that? Because stocks are how corporations raise cash to grow their businesses. If stock prices fall dramatically, corporations have less ability to grow. Businesses that don’t grow will eventually lay off workers to stay solvent. Laid off workers have less to spend lowering demand. Lower demand boomerangs back to lower revenue for corporations. This means more layoffs. As the decline continues the economy contracts and you have… a recession.

Getting back to yesterday’s carnage, in one day we lost all but a tiny fraction of the major average’s gains for 2014 and ending a 5 month winning streak for stocks. Though the selling was intense, there was little evidence of the panic. After years of being rewarded for buying every dip, investors have been conditioned to treat corrections as buying opportunities but little buying was apparent yesterday. So you know what that means don’t you? It ain’t over. Joe Public has yet to panic. By the way, if you lost sleep last night over yesterday’s market action you’re too long.

This morning the Labor Department released the Big Kahuna of economic reports that being July’s unemployment report, which came in mixed. 233,000 new jobs were expected with the actual number being 209,000. The unemployment rate rose from 6.1% to 6.2%. The good news was that the May and June unemployment numbers were revised upward by 5,000 and 10,000, respectively. That’s the headlines you’ll read but a very important data point you need to follow is how average hourly earnings change because the Fed is closely monitoring this statistic looking for wage inflation and using that data for interest rate policy. For the month of July the average hourly earnings were unchanged from June. This morning investors continual to sell with Dow futures down 42.

WTI got destroyed yesterday losing $2.10 closing at $98.17. Brent fared much better falling “only” 49¢ to $106.02. The U.S. greenback held pretty strong and that along with the decimation of equities just hammered WTI. WTI is down 6.8% for the month and its lowest close since St. Patrick’s Day. The monthly decline was the largest since May 2012. Brent finished down 5.6% for the month. Still, E&P companies can make good money at these prices. Get below $80 and it’s a different matter. U.S. refineries continue to operate at peak summer levels, but poor U.S. refining margins, especially on the Gulf Coast may soon lead to run cuts or early maintenance by end-August. Lower refinery runs would reduce crude-oil demand and weigh on prices.

This morning WTI continues to get whacked being down 78¢ to near a 6 month low looking to extend its slide to a 6th consecutive session. The U.S. dollar remains at multi-month highs and concerns abound regarding the globe being amply supplied with oil which continue to pressure oil prices.

Amongst all the bears there was one lone bull and he was natty. The EIA released it’s natural gas weekly storage report yesterday showing a 88 Bcf injection with the market expecting 94 Bcf. This was the first report in a month that actually came in bullish (I have my reasons it did). Prices rose immediately after the release of the number and traded as much as 10.4¢ higher than Wednesday’s settle but eased off during the day settling at $3.841, up 5.5¢. Storage levels are now 19% below last year for this time of year and 22% below the 5 year average. For 2 weeks now natural gas prices have been consolidating above the 8 month low set earlier this month.

Today’s weather forecast is like Bill Murray’s Groundhog day continuing to show very mild conditions for the central part of the country. This will allow us to put more gas in storage which we need to do for we still are running a material deficit. The tropics are “heating up” with Tropical Storm Bertha out in the Atlantic with its projected path to first be west then northwest avoiding the U.S. Natty is down 1.5¢ as I write.

Yesterday’s price action in the stock market brings to mind a quote by John Maynard Keynes, the famous economist, regarding short term and long term investing and the pressure on professional money managers, hedge fund traders and energy traders, with me falling into the latter category. These professionals do not have the luxury of investing for the “long term.” Quoting Mr. Keynes, “In the long run, we’re all dead.” Have a good weekend.