Equities and the Economy:
• Stocks close little changed on light volume.
• Nasdaq breaks 9 day rally.
Equities closed marginally lower yesterday on very light volume due to the holiday. The Dow fell 13 points to 22,761 and the S&P 500 slipped 5 points to 2,545. The Nasdaq touched an all-time high intraday but couldn’t hold on to the gains closing down 11 points to 6,580 breaking a 9 day rally. Volume was very, very light being only 45% of the average of the last 30 days. This is the lowest since December 30, 2004. It’s been a very good year for your portfolio. The Dow is up 15.2% in 2017, the S&P 13.7% and the Nasdaq a whopping 22.2%.
Due to the holiday and the government being closed there were no economic reports released.
This morning the Dow is starting out 50 points higher pulled up by world shares which are posting a record high. Same old theme. The global economy is improving and there’s still a ton of cheap money around.
• Prices post small gains.
• OPEC secretary-general states additional measures may be needed to balance market.
Oil prices edged higher yesterday with WTI closing up 29¢ at $49.58 and Brent adding 17¢ settling at $55.79. OPEC Secretary General Mohammad Barkindo said Sunday there was a “growing consensus” that a rebalancing of the global market was under way. He added, however, that to sustain the process next year some “extraordinary measures may have to be taken.” His remarks, which imply a deepening and extending of the current production cuts, provided some support for the market. That being said, getting OPEC members to agree to further production cuts, and comply, is going to be a tall order. Firstly, for most of the OPEC members this is their country’s primary, if not only, revenue source, and second, all that’s going to happen is OPEC will lose market share to the U.S. producer. But, they might pull it off. Why? Because Saudi Arabia may take OPEC “on its back” and take all of any additional production cuts. Why would they do that? Because Saudi Aramco, the kingdom’s national oil company, is going public next year offering up 5% of Aramco. This would be the world’s largest IPO ever expecting to bring $100 billion to the country’s coffers. The higher the price of oil, the higher the valuation of the IPO offering.
This morning WTI is getting a boost up 87¢ on Saudi Arabia saying last night it would reduce its monthly exports next month.
Courtesy of MDA Information Systems LLC
• Front month price drops to 2 month low.
• Calendar strips remain firm.
Yesterday the November Nymex contract closed down 3.0¢ at $2.833 hitting a 2 month low intraday low just above $2.80. Front month prices have fallen 10% over the past 3 weeks dragged lower by a weak shoulder season cash market. All the weakness has been in the front month however. The 2018 calendar strip is still about 10¢ above its lows from this past July. Cal ’18 is getting support from the fact that we’ll go into this winter with 3-5% less gas in storage than the last 2 years plus some forecasters winter prediction the Midwest will have a cold winter. That’s ample gas for the winter but it is price supportive.
This morning’s weather forecast continues to show much above normal temperatures for the eastern U.S. I can tell you it’s warm in Texas. We’ll be 90 degrees this weekend. The 11-15 day forecast takes us to the 3rd week of October and if the warm forecast continues it will indeed be bearish by reducing heating load.
This morning natty is up 4.1¢ with traders buying technical support.
Prices for 2018 electricity in Texas spiked yesterday with Vistra announcing it would retire its 1,800 MW coal plant in east Texas in January 2018. Folks, this is a huge plant! For comparison, two large nuclear units equate to 2,200 MW’s. The closing must be approved by the Texas PUC so we’ll have to see how this goes.
I’m not sure you heard, but it was announced yesterday that U.S. economist Richard Thaler from the University of Chicago won the Nobel prize for economics for his “understanding of the psychology of economics.” The Nobel committee went on to say Thaler has provided a “ more realistic analysis of how people think and behave when making economic decisions.” Richard Thaler is considered one of the founding fathers of behavioral economics, a field that shows that far from being rational decision-makers described in economic theory, people often make choices that don’t serve their best interests. This could include, for example, refusing to cut their losses when their investments plunge in value or making big bets in the casino because they are convinced their hot streak will continue.
In 2015, Thaler had a cameo appearance alongside pop star Selena Gomez in the film “The Big Short,” (great book!) about the global financial crisis. In the scene, he explains the “hot hand fallacy.” In which people think whatever’s happening now is going to continue into the future.
The award includes a prize of $1.1 million. When asked during a news conference how he will spend the money he said, “I will say that I will try and spend it as irrationally as possible.” Love it!