Equities and the Economy

Good morning and happy National Creative Ice Cream Flavors Day. Stocks bounced marginally back from the huge losses they took on Monday with the Dow closing up 23 at 17,619, the S&P 500 climbing 5 to 2,063 and the Nasdaq 29 points higher finishing at 4,987. You should feel pretty good about those marginal gains for although the Asian stocks closed higher, European equities, which are more really more important to U.S. markets, continued to fall under the weight of the Greek crisis with Germany’s DAX losing 1.25%, London’s FTSE off 1.5% and France’s CAC down 1.63%.

I also believe technical traders entered the market because the S&P is just about on a big technical support number and that is the 200 day moving average which comes in at 2,054. By the way, folks, the 200 day moving average is a really important technical statistic. Closing definitively above or below a stock’s or indexes 200 day moving average is considered a change in trend. In this case, a definitive settle of the S&P below its 200 day moving average means lower prices lie ahead.

Looking at the forest and not the trees, the bellwether S&P 500 index had its worst half year since 2010 rising only 0.2% for the first 6 months if 2015. Now you need to keep this in perspective because the index is up 200% since 2009! At a minimum a pause, a consolidation, if not a correction, is necessary. For you data keepers, the S&P hit its high on May 21st.

Just hours before the June 30th deadline Greece’s Prime Minister Alexis Tsipras blinked sending a letter to creditors saying his government was prepared to accept the creditors’ proposals made last weekend but the creditors did not accept the overture and let the country’s bailout program expire with Greece not making its payment to the IMF. To put this in perspective of seriousness, the last country to miss an IMF payment was Zimbabwe in 2001, and that country is still seriously screwed up. The Greek citizens will now vote on a referendum on Sunday which for all intents and purposes is whether to stay in the EU or not. Or maybe not. Greek government officials have now begun hinting that if a deal can be worked out by that time the referendum might not go ahead. Even though the Greek government is on TV pushing for a ”No” vote on the referendum (reject the Brussels Group’s proposals), polls are showing a “Yes” vote would pass. Tsipras is most definitely not negotiating from a position of strength.

So how are the markets responding this morning? In Asia the Nikkei and Hang Seng closed higher but China’s Shanghai closed down 5.23%. This is after gaining 5.53% the day before! That volatility is absolutely insane! The European markets are welcoming the news with all the major indexes solidly in the green. The U.S. markets are liking the developments as well only on a more muted level with Dow futures up a nice 161 points, 0.92%.

As I’ve stated the last couple of days, Puerto Rico announced on Sunday it cannot pay its debts. This news has been largely dwarfed by the news surrounding Greece. However, U.S. investors would actually have much more to lose in a potential Puerto Rican default than in a Greek default. The reason is that Puerto Rico’s bonds are trading in the U.S. municipal bond market while the vast majority of Greek debt is in the hands of the IMF, the ECB and eurozone countries. Out of about $350 billion in Greek debt outstanding, only about $14 billion is owed U.S. banks. Conversely, in Puerto Rico’s case the debt is all in U.S. holdings and totals about $72 billion.

Oil

After losing $1.30 on Monday WTI captured back almost 100% of that loss yesterday closing up $1.14 at $59.47. Brent rose even more, $1.58, settling at $63.59 and in doing so covered all its losses on Monday plus 33¢. Traders turned bullish on a report from Brazil’s Petrobras stating that due to lower oil prices it cut its five year production outlook by 1.4 million bpd. Now I know this is a 5 year outlook but remember, it’s the new news that move commodity prices at the margin. Although WTI prices lost 1.4% for the month of June they are up about 11.6% for the first half of this year.

Tehran and Washington were supposed to have reached an agreement yesterday but the U.S. State Department said yesterday the parties have extended the deadline to July 7th. Another fluid situation.

Last night the API reported in its weekly report that crude inventories unexpectedly rose by nearly 2 million barrels last week. The other big oil news was a report from Bloomberg that Iraq’s crude oil production climbed 567,000 bpd to a new record of 4.388 million bpd this month sending OPEC production up 744,000 bbls/day to 32.1 million bbls/day which is the highest level since August 2012. On these two reports the bears came out and are pushing WTI $1.20 lower this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices continue to meander like Old Man River rising 2.7¢ yesterday settling at $2.832. There appears to be a nice balance right now between consumption for power burns, which are at record levels I might add, and production. The weather forecast certainly isn’t bullish although it’s not as bearish as it might be seen. The west is, and will for the next 5 days, experience some extremely hot weather and being hydropower is virtually non-existent right now, gas demand is extremely high right now in the region. Natural gas traders don’t care this morning with prices down a couple of cents from yesterday’s close.

Elsewhere

Robert Goddard is widely recognized as the “Father of Modern Rocketry.” Even though Goddard had a PhD, folks ridiculed him especially the New York Times which pilloried him in 1919 saying “everybody knows rockets wont’ travel in the vacuum of space where there’s nothing to push against.” The paper went on to say Goddard “seems to lack the knowledge ladled out daily in high schools.”

Not to be deterred, Goddard went on to launch the first liquid-fueled rocket on March 16, 1926 at Auburn, Massachusetts simply noting in his diary “The first flight with a rocket using liquid propellants was made yesterday at Aunt Effie’s farm.” The rocket rose just 41 feet, stayed in the air for 2.5 seconds and then landed in a cabbage patch. Goddard continued to press on finding little to no support in the public. After one experiment in 1929 a local Worcester newspaper carried the headline “Moon Rocket Misses Target by 238,7991/2 miles.”

Unfortunately, Goddard never lived to reap the rewards of his work dying of throat cancer in 1945. However, his work was carried on by others who eventually publically recognized their indebtedness to Goddard.

Then in 1969, fifty years after the New York Times had first ridiculed him and his ideas, Goddard got his revenge, posthumously. Just days before the Apollo moon landing the New York Times swallowed its pride and retracted its 1919 editorial about Goddard. “Further investigation and experimentation have confirmed the seventeenth century findings of Sir Isaac Newton and it is now definitely established that a rocket can function in a vacuum as well as in an atmosphere. The Times regrets the error.”

It’s too bad the New York Times wasn’t there when Robert Goddard gave his high school graduation oration which he entitled “On Taking Things for Granted.” In a forward looking moment the Father of Rocketry reminded the audience that “It is impossible to say what is impossible, for a dream of yesterday is the hope of today, and the reality of tomorrow.”

Make it a good day.