Equities and the Economy:

• M & A activity drive equities higher.
• Volume light.

U.S. stocks closed higher yesterday on the announcement that chipmaker Marvell Technology will buy rival Cavium.  Possibly like myself, you’ve never heard of either company, but the importance here is that investors view mergers and acquisitions activity as bullish for equities because the acquirer is willing to take on the risk of the acquisition which means they see economic growth in their space.  On the news the Dow closed up 72 points at 23,430, the S&P 500 advanced 3 points to 2,582 and the Nasdaq added 8 points to 6,791.  Of note, trading volume was very light, the lightest of the month.  Volume confirms trend and although the volume was light yesterday which usually means the move may be unconvincing, this a bull market and “the trend is your friend.”

Yesterday Fed Chairwoman Jane Yellen submitted her resignation. The move was not unexpected.  Her term will end February 3^rd.  However, her term as a board member doesn’t expire until January 2024 and she could have stayed on the Fed board until that time.  This means President Trump will get to fill 4 of the 7 Fed board seats.  He’s already announced his pick for Fed Chairman, current Fed Governor Jerome Powell, who must go through Senate confirmation hearings.

Yesterday the Conference Board released its Leading Economic Indicator report stating the index rose 1.2% in October.  That’s the largest m-o-m gain in 7 years.  Some of the rise is attributed to a post-hurricane rebound but with 9 of the 10 components posting positive gains the increase is broad based meaning the economy is on solid ground.

This morning we’re off to a good start with the Dow up 97 points on the coattails of materially higher European stock prices.

Oil

• Oil prices close lower
• U.S. production growth weighs.

Oil prices closed lower yesterday with WTI off 46¢ to $56.09 and Brent down 50¢ at $62.22.  Last week’s EIA report showing an unexpected increase in U.S. crude and products inventories and continued growth in U.S. oil production is still weighing on prices.  That being said, prices are coming of 2 year highs set in recent months.  The U.S. dollar rallied yesterday which also hurt all commodities priced in the greenback, which includes oil.

Yesterday Nebraska regulators approved the Keystone Pipeline route through the state.  This is after the oil spill last week in South Dakota which put into question the outcome.  The decision is just the first obstacle needed to be cleared and challenges remain.  Opponents of the pipeline have promised to tie the project up in court for years to come.  Additionally, the commercial viability of the pipeline is still a question.  TransCanada, Keystone’s owner, is still studying the economics of the project.  A surge in drilling in the U.S. and a drop in crude prices of about 50% from the time the pipeline was proposed has made the project much less attractive.

This morning traders are getting coffee and chatting.  WTI is up 12¢.  Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

• Warmer forecast weighs on prices.
• Trend to normal temps continues.

The recent trend from below normal temperatures to normal temperatures continued in yesterday morning’s weather forecast bringing out the bears who pushed December gas down 5.0¢ to $3.047.  Since hitting a 5 month high early last week near $3.250 natty has been on the defensive falling nearly 22¢, 7%.  The major headwind for the bulls has been record U.S. production which is up about 400,000 MMcf/d in 2017 compared to last year.  Additionally, demand this year is about 2.3 Bcf/d less than 2016 almost entirely due to less burn in the electric generation sector which is due to natty prices being significantly higher in 2017 vs. 2016.

This morning the forecast continues to inch warmer with the map for the first time in weeks showing no below normal temps in the nation in the 11-15 day time frame.  This is bringing out some marginal selling with natty down 1.4¢ to $3.033.  I expect $3.00 to hold into the holiday.

Elsewhere

The police have a new tool for catching the bad guys, and it’s really cool.  Developed by Mario Venturi, Assistant Chief of the State Police in Milan, Italy and evaluated over three years by Dr. Giovanni Mastrobuoni it has helped reduce robberies in stores, pharmacies and supermarkets in Milan by 57% between 2008 and 2015.  So how is this being done?  With “predictive policing” software technology.  Called KeyCrime, the software collects and analyzes 11,000 bits of information about each crime, such as time, date , location, type of business, type of crime as well as information about the criminals involved, their perceived age, height, body structure, skin, hair, eye coloring and clothing.  It even takes into account the weapons involved and the type of vehicle involved in the crime.  This information is then combined with police reports, interviews with victims and surveillance camera footage.

Potential future targets are then communicated to police patrols, together with a likely day of the week and time alongside a description of the offenders, their modus operandi and the transportation they are likely to use.  The system works because robbers follow habits.  They tend to select the same business types, around the same time if day and the same city or neighborhood, especially if previous robberies have been lucrative.  Another use of the software is that because investigators are already able to connect the criminal to earlies crime scenes, conviction rates are higher.

In August of last year the police in Essex, England tried the technology in the county and burglaries dropped 9.8% in just 10 months.