Equities and the Economy:

• U.S. stocks post record highs for 5th consecutive session.
• Lots of good economic news yesterday.

U.S. stocks continue to march higher with all three indexes posting new record highs yesterday. The Dow closed up a hefty 107 points, .052%, to 20,612, the S&P 500 added 12, 0.50%, to end at 2,349 and the Nasdaq had the best day rising 0.64%, 37 points, to 5,819. We have everything going for us folks. First, the global economy is improving, especially the U.S. More evidence of that came out yesterday. The Commerce Department reported that retail sales in January rose 0.4% with economists forecasting a rise of 0.1%. Further, December’s retail sales were revised upward from 0.6% to 1.0%. This was a very strong report. Remember, consumer spending accounts for about 70% of GDP. Additionally, yesterday the Labor Department reported that core inflation, which excludes the volatile food and energy sectors, is up 2.3% over January 2016. Although the Fed prefers the PCE measure of inflation, yesterday’s inflation data was very positive. Remember, a little inflation, 2%, is good. No inflation or deflation, which we had for many years, is bad. Second, we all know by now that quantitative easing is positive for the stock market. While the Fed is tightening monetary policy (higher interest rates) the other major global central banks, ECB, BOJ and PBoC, all continue to have “accommodative” monetary policies, i.e. QE. QE is fuel to the stock market engine. The MSCI World Index is up a whopping 4.7% in 2017. What’s going on here is those central banks I mentioned are erroring on the loose money side which is good for stocks. Third, with inflation returning bond yields are rising which means bond values are decreasing. This means that investors who own bonds are losing money on their investment (buy high, sell low). Therefore, there’s a rotation from bonds to equities and while every bond holder won’t be selling their bonds and buying stocks, the money in the bond market dwarfs the stock market so there’s a lot of buying of stocks that can happen. It’s a bull market amigos.

This morning the Dow is down 16 points.

Oil

• Oil prices end little changed.
• Weekly DOE report shows crude inventories rise for 6th consecutive week.

Oil prices ended little changed yesterday. WTI closed down 9¢ at $53.11 and Brent fell 22¢ settling at $55.75. Chatter. The DOE released its weekly crude and inventory report yesterday noting crude stockpiles rose 9.5 million barrels. While this came in less than API’s number Tuesday evening this week’s increase is the 6th straight week of inventory builds and the longest run in gains in nearly a year. The data also showed that U.S. oil exports last week were over 1 million bpd. That’s the highest in in 23 years! Now the current rise in inventories may be partially due to refineries doing their regular seasonal maintenance but it certainly does point to higher levels of production. The increase in exports could be due to consumers switching suppliers from OPEC to the U.S. due to cuts in OPEC production, which OPEC ain’t gonna like.

Now what’s interesting is that with all this evidence of rising production I would expect the contango in the WTI price curve to widen. It’s not. In fact, it’s narrowed over the last month, which is bullish oil prices. Hmmm. WTI is up 29¢ this morning.

Natural Gas

• Natural gas prices consolidating.
• EIA to release its weekly storage report today.

Natural gas prices did nothing yesterday with the March contract closing up 2.0¢ at $2.925. All the other months closed pretty flat as well. Today’s weather forecast is little changed from yesterday’s. For the next 10 days most of the country will experience extremely warm temperatures for this time of year. Chicago and Cincinnati are going to be about 20 degrees above normal beginning tomorrow and extending for 7 days. That’s a natural gas load killer. That being said, a lot of this warm weather is already built into the market.

The EIA will release its weekly storage report today and the market is looking for a 131 Bcf withdrawal which is about what we had last year for this week bout materially less than the 5 year average of 156 Bcf.

Natty is moribund this morning down 1.7¢.

Elsewhere

You’re not going to believe this story so I had to include a picture. Last week U.S. border patrol agents discovered a medieval-style catapult mounted on the border wall with México. The device, which appeared to be welded to the fence and located southeast of Tucson, Arizona, was designed to launch bundles of marijuana across the border. Mexican agents were called in and found two bundles of cannabis weighing a combined weight of 47 pounds lying next to the catapult.

This is just the latest example of drug smugglers ingenuity. In January officers in Pharr, Texas seized $789,467 worth of marijuana in a shipment of key limes. They used dogs and thermal imagining to find 3,947 pounds of weed that had been stuffed into more than 34,000 fake limes. Last year authorities at the same border crossing discovered 2,493 pounds of marijuana disguised as carrots. It took two Ford pickup trucks to haul away the phony carrots.