Equities and the Economy

Good morning and happy National Chocolate Pudding Day. Equities began the day painting Wall Street a nice green but they ran out of green paint around 1 PM CDT and went to the hardware store for more but I surmise they are red/green color blind because when they returned they started painting everything red. When the whistle to go home blew the Dow was down 76 points (0.42%) at 17,890, the S&P 500 was off 6 (0.30%) at 2,102 and the Nasdaq lost 1 (0.20%) to 5,112. Let’s blame the drop in equities on the confusion surrounding Greece for the domestic economic news was actually pretty good. Weekly first time jobless claims came out right at expectations at 271,000. Interestingly, when looking at jobless claims as a percentage of the labor force the percentage has fallen to a 45 year low! The Commerce Department reported that consumer spending rose 0.9% in May which is the largest monthly increase in almost 6 years and coming in greater than estimates. Further, personal income rose 0.5% and the savings rate fell from 5.4% to 5.1%. Interpretation: consumers are feeling a bit better about life and as Martha Stewart would say “That is a good thing.”

Moving to today, let’s just get the Greek thing out of the way. Greece has been given until Monday morning to reach an agreement with its creditors. But it seems that time after time the “line in the sand” has come and gone and a new line is drawn. That being said, over the last week or so talks have been intense so there is no doubt there’s a sense of urgency.

Overnight Asian equities closed lower with China’s Shanghai just getting obliterated closing down 7.40%, that would be a loss of 1,323 Dow points. Guarantee you that would get your attention! As a matter of background, the index earlier this month was up 127% for the year (annualized at 265%) which is absolutely insane. Paraphrasing Ben Stein, former head of the Council of Economic Advisors under Nixon and Ford said, “Trends that can’t continue, won’t.”

European markets are trading mixed as are those here in the states with Dow futures up 76 but Nasdaq futures in the red. By the way, the S&P 500 PE ratio is over 20:1 and historically anytime we get above this level stock prices are high. Yes, it’s been higher, like the 1920-1921 recession peak, Dot-com bubble and the recent financial crisis. Discretion may be the better part of valor here.

Oil

After trading over $61 earlier this week WTI has been retracing with yesterday it off 57¢ and once again closing below $60 at $59.70. Bottom line is that the $60 is currently a magnet. That may change for the deadline of the Iranian nuclear talks is Tuesday but it seems every deadline is not lately. Even if a deal was reached the supposedly 1 million bpd of incremental volumes would come to the market slowly and not in a gush for Iran’s infrastructure needs repairing.

This morning WTI is leaking 78¢ on the smashing of Chinese equities and a marginally stronger U.S. dollar.

Courtesy of MDA Information Systems LLC

Natural Gas

The EIA released its always much anticipated weekly storage report showing the U.S. injected 75 Bcf into the ground last week. Although this was at expectations it was the first weekly injection which was both lower than last year and the 5 year average. This brought out the bulls who pushed the July Nymex contract up 9.1¢ settling at $2.850 which is the 3rd time this month its settled over that level. Storage levels are now 5% above the 5 year average and 38% greater than last year, but I heavily discount comparisons to last year due to the anomalous weather in 2013-2104. Production has been struggling a tad as of late. Whereas a couple of months ago we were producing 74 Bcf/d of dry gas now we’re at 71-72 Bcf/d. Got to keep my eye on that.

The July Nymex contract expires today setting the price of those of you floating on a heat rate for electricity and basis product for nat gas as well as many financial derivative products. This morning natty is down 67.3¢.

Elsewhere

Peter Gray loved baseball more than life. He grew up playing sandlot ball and was the best hitter on the block. As a young man he played semipro and then played in the majors for one season. During those few months as a pro Gray so distinguished himself that his glove was installed in the Baseball Hall of Fame in Cooperstown. Gray’s skill notwithstanding, he never would have gotten the opportunity to play if not for WWII which drained teams rosters. It was a glorious day on April 18, 1945 when Gray put on the St. Louis Browns uniform and took his spot in the outfield against the Detroit Tigers in his first pro game. He had finally realized his boyhood dream. Peter Gray went one for four that day and did himself proud on defense as well helping the Browns win 7-1. Gray went on to play in 77 games that season getting 51 hits and posting a .218 batting average. He hit 6 doubles and 2 triples striking out just 11 times. In September of that year the war ended and with it Peter Gray’s career as the veterans returned home. So with such as very short tenure as a pro why would anyone want Peter Gray’s glove? Well, you see, Peter Gray only had one arm and his glove was especially made for him. Having lost his right limb just above the elbow in an accident when he was young he learned to use his left hand. Peter Gray died in 2002, a much admired yet humble man. I know a few pro athletes could take a lesson from Mr. Peter Gray.  Have a nice weekend.