Equities and the Economy

Good morning. Yet another quiet day for U.S. stocks ending in mixed results. The Dow lost 10 points to 18,214 and the S&P 500 closed down 3 at 2,111. The Nasdaq bucked the trend gaining 21 points to 4,988. Those of you with higher math skills will note the Nasdaq is only 12 points shy of 5000. Weighing on the Dow and S&P were the energy stocks with oil prices getting hit. With respect to the Nasdaq, Apple was up 1.26%. Is there a correlation?!

In economic news the Labor Department reported consumer prices fell sharply in January from December falling 0.7% giving the consumer price index its first 12 month fall since 2009. The culprit was falling gasoline prices which dropped 18.7% in January with energy overall dropping 9.7%. However, core CPI (ex-food and energy) rose 0.2%. I’m sure this will be a data point Janet and her colleagues will use when determining when to raise interest rates. With this data there’s nooooo rush.

This morning Asia stocks closed mixed and European equities are trading the similarly but locally all three major indexes’ futures are painting red but only marginally with Dow future down a meaningless 7 points.

Oil

Oil is schizophrenic. On Wednesday WTI and Brent rose $1.71 and $2.97, respectively. Yesterday WTI fell $2.82, closing at $48.17, and Brent lost $1.58, settling at $60.05. One day it’s a Saudi minister’s comments on increasing global demand pushing prices up and the next traders are worried about a global supply gut. It’s as if the DOE report came out yesterday instead of Wednesday. All I know is this. Crude oil inventories in the U.S. are going to continue to rise filling up storage and the rig count is going to continue to drop. Evidence of how oil is looking for a place to be parked is that tanker ship prices and lease rates have risen 100% over the past 18 months! The contango will indeed get steeper.

This morning oil is continuing its bipolar, trench warfare ways with WTI up $1.05. The bears point to increasing global supply with storage getting fuller every day, anemic demand in China and Europe and here in the U.S a continuing strengthening dollar. The bulls point to a precipitously falling rig count, steep well decline curves and civil war in Iraq and Libya. I don’t know where WTI is going but I do know it’s a buy below $40. Not sure we’re going to get there though. The current battle is around $50.

Natural Gas

The EIA released its weekly natural gas storage report yesterday showing the U.S. withdrew 215 Bcf last week. This indeed is a big number for last year for this week 117 Bcf was withdrawn and the 5 year average is 131 Bcf. And the bulls got decimated. The problem they had was the market was expecting an even bigger withdrawal of 235 Bcf. Natty immediately fell and ended 16.5¢ down (5.8%) on the day at $2.697.

Courtesy of MDA Information Systems LLC

The weather forecast this morning moved marginally colder in the 6-10 day time frame and warmer for the north central and western parts of the U.S. but the MidAtlantic and northeast remain cold. February will indeed go down as a very cold month. Possibly record breaking. And we have natural gas trading around $2.70 this morning bouncing around unchanged being up 2.4¢. All I can say is you folks in Midwest and east better thank George P. Mitchell for if this was 8 years ago your heating bills would be double. So who is George P. Mitchell? Mr. Mitchell is the person credited with developing shale hydraulic fracturing. I might add that after he developed the science and technique, which took a decade and tons of capital, he published how to do it and made it available to the world, for free. Kind of like open source software.

Elsewhere

Here’s a couple of interesting facts to take you into the weekend. In the New Deal, FDR called for a new tax program called the Revenue Act of 1935. The Act would impose an income tax rate of 75% on incomes over $5 million. The tax rate affected literally one person: John D. Rockefeller.

Afghan resistance leader Ahmad Shah Massoud, who fought against the Soviets in the 1980’s, was also against the fundamentalist interpretation of Islam. He was assassinated two days before 9/11, after warning of a major terrorist attack set to happen in the United States. Have a good weekend.