Equities and the Economy

Santa’s workshop was in full swing yesterday bringing a nice rally on the first day of Christmas week. The Dow was up and down all day and a one point trading marginally negative but in the last hour posted a strong rally ending the day up 123 points, 0.72%, at 17,252. The S&P 500 added 15, 0.77%, to 2,021 and the Nasdaq climbed 46 points, 0.93%, at 4,969. Interestingly, investors shrugged off lower oil prices with investors coming in and buying telecoms and technology. It’s a short week for trading and volume was light yesterday and will getting lighter as each day passes this week with an early close on Thursday and the market closed the entire day Friday. There were no economic reports of significance today so let’s call yesterday’s market action “chatter” in the big scheme of things. But “green” is “green” and better than red.

This morning is beginning out very quietly around the world. Intraday the Asian markets traded lower but climbed back to close pretty much unchanged. The European markets are chapping around unchanged and the Dow is doing the same with futures down 20. I get the feeling that currently investors are playing the market from the long side, albeit marginally.

Oil

As mentioned above, oil prices were flat to down with Brent off 53¢ settling at $36.35. The January WTI Nymex contract expired yesterday basically flat to Friday, down a penny at $34.74. For the record, Brent is at eleven year lows and WTI is at six lows. In fact yesterday WTI prices slid below $35 for the first time since 2009. Both markets are down 50% over the past year. It’s the same old story of excess global supply with the market searching for a bottom. There is not going to be any material rally in prices until supply decreases, and that is going to have to come from non-OPEC producers, specifically U.S. shale producers for that supply source is the highest cost. Supply will decline. The only question is when. Keep in mind the production decline curve of the average shale well is very steep with one getting only 50% of the initial production after a year and another 50% decline the second year. Regarding demand, China is the focus at the global level and everyone is trying to figure out if that economy is contracting or not.

Similar to equities WTI is doing nothing being down a meaningless 15¢

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices skyrocketed yesterday with the January contract leaping 14.4¢ closing at $1.911. That’s a pop of 8.1%!. The reason? One weather forecasting service suggested that normal weather may be returning to the eastern U.S. next month. Additionally, the market was egregiously oversold. The boat was listing heavily to the short side and a righting was necessary. So the short covering has rallied us more than 15% from last week’s 14 year low at $1.684. For January gas! Amazing.

This morning the 11-15 day forecast has once again shifted cooler in the east although it’s still in the above normal range. The market is now more balanced and natty is down 1.5¢ as I write.

Elsewhere

Ebola. You haven’t heard the word in a long time, eh? There’s a reason for that. The Center for Disease Control reported that in November there were only four cases of Ebola confirmed in the three countries in West Africa which were the very epicenter of the Ebola virus outbreak in 2014. This truly is remarkable for the same organization forecasted that if nothing was done to arrest the Ebola outbreak that in January of 2015 these same three countries would have 1.4 million cases and millions would die as a result of the disease spreading around the globe. This is really astounding and tells a great story about what the modern world is capable of doing to alleviate sickness when motivated to do so. Three cheers for us!