Equities and the Economy

Just like Columbus discovering America (ok, I know that’s debatable), U.S. equities discovered a way to finish for a higher for a 7^th consecutive session despite both the banks and bond market being closed.  After climbing more than 600 points last week, or nearly 4%, investors resumed their buying yesterday.  The Dow climbed 47 to 17,132, the S&P 500 added 3 to 2,017 and the Nasdaq climbed 8 to 4,839.  The big news of the day was the announcement by Dell of its acquisition of data storage player EMC in cash and stock deal valued at $67 billion.  Folks, we often get lost in the numbers but let me just say if this closes it will be the biggest deal ever in the tech sector!  The reason I mention it, besides the ginormity of it, is that investors like M&A news.  M&A activity is bullish.  It means folks are positive on the market and are willing to take on risk.

There were no major economic reports released yesterday so let’s move on to today.  Although the Asian markets closed flat to lower on a report out of China that both imports and exports fell in September month-on-month, with the former falling 17.7% and the latter 1.1%.  This is after imports fell 14.3% in August.  It’s hard to hide economic weakness with those figures.  The European markets are giving away some of the gains they also made last week with all the major indexes off 1.01% to 1.55%.  Locally, U.S. shares are starting lower following their brethren across the pond with Dow futures down 109.  Considering the big run we just had some sort of pull back is not to be unexpected.

The world’s two biggest brewers announced today they would be combining.  SABMiller, after four previous rejected overtures, agreed to be acquired by Anheuser-Busch InBev.  The resulting company will make almost a third of the world’s beer.  If the deal goes through it would rank in the top 5 mergers in corporate history and be the largest takeover ever by a UK company.  The new group would be a combination of AB InBev’s Budweiser, Stella Artois and Corona lagers with SABMiller’s Peroni, Grolsch and Pilsner Urquell.  The merger would leave only three megabreweries with the other two being Heineken and Carlsberg.

Oil

After posting its largest weekly gains since 2012 oil futures settled sharply lower yesterday on a report that OPEC continues to pump crude at a breakneck pace last month giving back some of last week’s sizable gains.  WTI closed down $2.53, 5.1%, at $47.10 and Brent fell $2.79, 5.3%, at $49.86.  Mr. al-Badri, Secretary General of OPEC, stated OPEC produced 31.6 million bpd in September, well above expectations.  This is the most the cartel has produced since 2012.  He added the market “may” be balanced in 2016 which is contrary to the Paris based IEA which very recently stated that abundant global supply will persist through 2016 as demand growth slows and key OPEC producers maintain near record output, especially Iranian sanctions are lifted.

This morning we’re starting out quietly with WTI down 13¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices once again closed higher yesterday. This time 3.3¢ at $2.535. You probably haven’t noticed but we’ve had 7 consecutive days of small daily gains. I think we’re seeing short covering. Although we’re down 2.9¢ this morning, you bears out there better be careful. Last Friday the Position of Traders Report showed that money managers have on more than 400,000 shorts. The significance? This is the largest number of shorts since record keeping began back in 2006. Over the last month the number of short positions has increased 30%. Natty is primed for a bounce. It probably won’t hold but the boat is listing way too far to one side.

As is normal in fall and spring, the weather forecast is flip flopping between below normal temperatures and above normal temperatures. The 1-5 day time frame shows a burst of cool air for the upper Midwest progressing to the east coast in the 6-10 period with above normal temperatures returning for the 11-15 day time frame. If the 11-15 day forecast materialized, you folks in the north are going to have some awesome weather.

Elsewhere

A new and disturbing danger has apparently arisen in the Middle East, and the Russian military is all over it. I’m sure you’re aware that on Russian President Vladimir Putin’s orders the Russian military has increased its involvement in Syria. Last Wednesday Russian warships in the Caspian Sea launched a reported 26 cruise missiles toward Syria. Shortly thereafter, the Russian president and his Defense Minister Sergie Shoigu appeared on TV celebrating the success of the mission. They boasted the precision guided weapons were launched from a distance of 1,500 km and hit all the targets demonstrating the sophistication of the Russian defense industry and the good skills of the personnel.

Hmmm, maybe not so fast Mr. President. Reports began to trickle in the next day that perhaps not all the Russian missiles had actually made it to Syria. A report for the town of Takab, Iran, which was directly under the path of the Russian missiles as revealed by maps released by the Kremlin, detailed how a massive explosion around 6 AM rocked the rural area on Wednesday. The “unidentified flying object” exploded several hundred meters outside of Takab and close enough to shake buildings and frighten residents. It also killed “several head of cattle.” The Kremlin adamantly denied the accusation sticking to its claim that all 26 missile attacks were successful. “No matter how unpleasant and unexpected for our colleagues in the Pentagon and Langley was yesterday’s high-precision strike on Islamic State infrastructure in Syria, the fact remains that all missiles launched from our ships have found their targets,” said Russian Defense Ministry Major General Igor Konashenkov.

So, if Russia is indeed only targeting terrorists, as it has stated, and no missiles were off target, there can be only one conclusion: the cows were terrorists! Thank you Mr. Putin for identifying this new and highly dangerous risk and taking decisive action to neutralize it! I can see the newspaper headline “Putin’s Missiles Take Out Terrorist Iranian Cows!”

Have a good day