Equities and the Economy

Good morning and Happy Earth Day. Yesterday U.S. equities mostly failed to follow through on Monday’s gains. I say mostly because the Nasdaq did rise 20 points to 5,014 lifting the index to near record levels getting a boost from M&A activity in the biotech sector. We all know how investors like M&A activity. Unfortunately the two other bellwether indexes, the Dow and S&P 500, closed lower with the former losing 85 points closing at 17,950 and the latter down 3 to 2,097. Basically folks, the major indexes have gone nowhere year to date. The two previous years we’ve seen incredible gains and investors are currently viewing P/E ratios as high and in the face of deteriorating earnings portfolio managers question how long the march higher can continue. A material part of their concern is that the U.S. dollar has risen almost 9% since the beginning of the year against a basket of major currencies pressuring multinational corporations revenue and earnings. According to Thomson Reuters Q1 earnings of S&P 500 companies are expected to fall 2.2% and revenues down 3.1% and this includes companies that have already reported.

We’re getting a little bounce today the Dow down currently up 61 but it has been trading on either side of unchanged all morning meandering just like the Old Man River.

Oil

Oil got whacked yesterday with WTI losing $1.12 closing at $55.26 and Brent off $1.37 settling at $62.08. I believe yesterday’s move was profit taking ahead of the API and DOE’s report. The former was released as usual after the closing bell yesterday and indeed showed a material increase in inventories. In aggregate (crude oil, products (mostly diesel) and gasoline) rose 8.3 million barrels with the 5 year average of a decreased in inventories of 0.68 million barrels. Today the DOE releases its data which carries more weight because reporting is mandatory to the DOE. It’s voluntary for the API.

This morning WTI is up 22. Chatter. Platts yesterday reported some data which is manifestly bullish of oil prices. Frist, they stated that the massive Russian oil company Lukoil is forecasting no growth in Iraqi oil production this year (Lukoil would know for they are very active in Iraq.). Second, they said that Chevron believes oil production in what’s referred to as “the neutral zone” between Saudi Arabia and Kuwait may decline due to “logistical challenges,” and thirdly, the IEA is forecasting that Russian Ural production would fall 100,000 barrels this year. With the U.S. rig count falling this will induce traders to play oil from the long side.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices rose a tad yesterday with the May contract adding 3.9¢ to $2.575 with the $2.60 level having the gravity of a black hole, at least for now. $2.60 seems to be the equilibrium point where the gas lost to the lack of heating and cooling degree days is absorbed by the electric generation sector. I fully expect this to change as Mother Nature plays her hand as the summer progresses. But for now its trench warfare with neither side making gains.

This morning natty is up 2.4¢ Yawn.

Elsewhere

Last Sunday there was a competitive eating contest in Amarillo, Texas and of course the food naturally had to be steak. The winner ate three 72 ounce steaks in about 20 minutes. Dozens of people gathered outside The Big Texan Steak Ranch restaurant to watch the winner eat to victory. The first steak was downed in 4 minutes and 18 seconds which beat the previous record, also held by winner. Not only were the three steaks consumed in that period, but three baked potatoes, three shrimp cocktails, three salads and three rolls were also consumed. And oh, did I mention the winner was a female? Molly Schuyler of Sacramento, CA. You’ll love this! When it was all over she told the Amarillo Globe News she had to turn down a fourth steak because she was sick of the taste, not because she was full! In January 2014 she ate 363 chicken wings in 30 minutes at a Philadelphia competition. Have a nice day.