Equities and the Economy

Good morning happy National Waffle Iron Day. It was another wait and see day Friday with the major indexes closing pretty flat to Thursday. The Dow did manage a 57 point (0.32%) gain ending at 17,947 however the S&P 500 ended dead flat to Thursday at 2,102 and the Nasdaq lost 31 to 5,081. Well there’s no wait and see today. Creditors and Greece officials met over the weekend and no agreement was reached. Instead the Greek government said it is putting the decision to the people calling for a referendum on the matter which is to be held July 5th. For all intents and purposes the referendum is whether or not Greece should stay in the European Union, with its required austerity, or withdraw.

This all but guarantees Greece will not make its $1.79 billion payment to the IMF tomorrow. The ECB, which for the last couple of weeks had been supplying money to Greece’s banks to keep them liquid due to the massive amounts of capital withdrawn by Greek citizens and investors, has stopped making emergency loans to the Greek banks. This has forced the banks to impose capital controls including closing the banks until next Monday and allowing no more than €60 per day to be withdrawn at an ATM. Additionally, the Greek stock market is closed until next Monday. Greek 10 year government debt yield has spiked to, are you ready, 14.5%! That’s the highest level since December 2012. No country can borrow at anywhere close to that level and survive.

So if all of this isn’t bad enough, over the weekend the Governor of Puerto Rico, Alejandro Garcia Padilla, stated his country cannot pay its outstanding debts ($72 billion) and is asking for a five year deferral on repayments. When it rains, it pours.

On the double whammy of bad news equity markets around the world are getting thrashed. The Asian markets as usual opened first and the Nikkei, Hang Seng and Shanghai closed down 2.88%, 2.61% and 3.34%, respectively. The baton was then handed to the European markets which unsurprisingly are getting hammered with London’s FTSE, Germany’s DAX and France’s CAC 40 trading down 1.64%, 3.06% and 3.39%, respectively. Here in the U.S. we’re actually faring better, if you give me the liberty of calling it that, with Dow futures down “only” 1.04%, 185 points, which is better than when I came in this morning when it was down 200 points.

Mark my words folks, we’re in for a very volatile week.

Oil

Oil futures ended little changed on Friday with WTI closing 7¢ lower at $59.63 and Brent settling 6¢ higher at $63.26. Total chatter. That being said, WTI did post its 3rd day in a row of losses and was down 0.6% for the week. Brent actually gained last week, up 0.3%.

Baker Hughes in its weekly rig count report on Friday noted the rig count fell by 2 last week to 859. This is really just chatter meaning the market is finding an equilibrium around $60 apparently meaning oil and gas exploration companies can make money at $60, at least for some plays.

With all the talk about Greece don’t forget the deadline on the Iranian nuclear talks is tomorrow and it’s all but certain that deadline will come and go which means the current sanctions will continue. Although this is bullish, the weight of falling equities, and the associated decrease in energy demand, is more than offsetting the Iranian matter with WTI getting whacked down $1.14¢ on above average volume.

Courtesy of MDA Information Services LLC

Natural Gas

The July natural gas contract expired on a weak note falling 7.7¢ settling at $2.773. If you already haven’t hedged your electricity and nat gas for July you can now do your calculation, assuming you are using this data point as the basis of your calculation.

The jet stream is buckling with a big ridge in the eastern Pacific Ocean and a big trough in the central U.S. resulting in the western, draught stricken west continuing to experience above to above normal temperatures with no hint of precipitation while below normal temperatures are pervasive across the Midcontinent and east. Now remember, the west experienced very little snowpack this winter hence hydroelectric power production is way below normal therefore natural gas demand is high in the west offsetting the below normal demand in the eastern half of the nation; which is why natty continues to find a balance around $2.75-$2.80ish. The August contract is now the prompt month and is up 4.6¢ as I write.

Elsewhere

In the late 1990’s a Dutch electronics technician named Romke Jan Berhard Sloot announced the development of the Sloot Digital Coding System, a revolutionary advance in data transmission that, he claimed, could reduce a feature-length movie down to a file size of a miniscule 8KB. The decoding algorithm was 370 MB and apparently Sloot demonstrated this to Philips executives dazzling them by playing 16 movies at the same time from a 64 KB chip. After getting a bunch of investors, he mysteriously died on September 11, 1999, two days before he was scheduled to hand over the source code. Dying two days before release. Hmmm. I’ll let you think about what happened.

Have a good day.