Equities and the Economy:

U.S. stocks closed lower yesterday but looking at the forest rather than the trees it was another day of chatter. The Dow lost 40 points ending at 18,162, the S&P 500 fell 3 to 2,141 and the Nasdaq ended off 5 at 5,242. This market has been bouncing around, consolidating is the technical term, since early July. I mentioned this previously but I’m thinking the market is waiting for the election to pass before making a move. These are the key levels: basis the S&P 500, 2,100 is support and 2,200 is resistance. Everything in the middle is chatter.

So let’s turn to the data. As usual on Thursday the Labor Department released first time unemployment gains noting claims rose 13,000 last week to 260,000. Although this was a little higher than economists were forecasting, it was well within the range. This is a number that probably doesn’t mean much to you but here’s the take away: Initial unemployment claims have now spent 85 consecutive weeks below 300,000. That is the longest period since 1970! Obviously, a very good economic data point. Some good economic news came from the National Association or Realtors noting that sales of existing homes rose 3.2% in September to an annualized rate of 5.47 million homes. This is the highest level since June.

This morning U.S stocks are on the defense with the Dow down 88 points. It’s just following the European markets which are the same. It’s early.

Oil

The November WTI Nymex contract expired yesterday on a ugly note getting hammered $1.17/bbl closing at $50.43 wiping out the gains of the previous day. Brent lost $1.29 at $51.38. It not helping that the U.S. has hit a 7 month high vs. a basket of foreign currencies. So what pushed the price lower? The Chinese. Specifically, data was released showing they were a net seller of gasoline over the last several months. What’s the big deal? Chinese has never exported gasoline. They’ve always been an importer. Over recent years China has been building refiners and it looks like their refining capacity is equal to or greater than domestic consumption. Fundamentals like that weigh on a commodity’s price

Putin has mentioned his amicable to talks with OPEC about a production freeze but his buddy (both ex-KGB) Igor Sechin who runs the largest oil company in Russia (Rosneft owned by the government) is talking a completely different story. He’s saying that although Russian production as at record levels (11.11 million bpd in September) the country can raise production another whopping 4 million bpd if “the market needs it and there are technological and economic grounds.” That sounds like those are ”possible” reserves. There are 3 P’s in the oil business: Proven, Probable and Possible. Proven is defined as at current conditions there’s a 90% certainty of commercial extraction. Probable is a 50% certainty and Possible is a 10% certainty. As you can see, as oil prices move around an E&P companies balance sheet changes. The value of its assets are a lot more at $80 vs. $40.

This morning the December contract begins its first day as the prompt month and it’s doing nothing down 15¢.

Courtesy of MDA Information Systems LLC

Natural Gas

Yesterday was Thursday and that means it was EIA storage report day. The report stated 77 Bcf was injected into storage last week which was right in line with expectations of 75 Bcf. The market reacted accordingly, i.e., did nothing, with natty closing down 2.9¢ at $3.141. Storage levels are now at 3.836 Tcf which is 1.2%, 10 Bcf, above last year at this time and 3.6%, 185 Bcf, above the 5 year average, and that’s a huge change from when the storage injection season began at the end of March. At that time, due to the abnormally warm winter of ’15-’16, we had a whopping 1,008 Bcf more gas in storage then the end of March 2015 and 874 Bcf mor then the 5 year average. So what happened over the last almost 7 months? Record amount of power burn in the electric generation sector. The trifecta of new gas fired electric generation, decommissioning of coal plants and natty being cheap enough to displace coal fired generation created the scenario.

This morning natty continues to get crushed being down 11.3¢ with the weather forecast causing the bull to collapse. We’re close to my target level for November: $3.00

Elsewhere

We all know that pink is the girl’s color and blue is the boy’s color. What I bet you didn’t know is that it wasn’t always that way. It wasn’t until the 1950’s when department stores started marketing gender specific colors that parents began to worry about making sure their children were wearing the “right” outfit. Prior to that time children mostly wore gender neutral colored clothing with white being the favorite color because you could bleach it clean. Even when mass marketing began, the messages were mixed. The trade publication” Earnshaw’s Infants’ Department” featured and article suggesting, “the generally accepted rule is pink for boys and blue for girls. The reason is that pink, being a more decided and stronger color, is more suitable for a boy, while blue, which is more delicate and dainty, is prettier for a girl.”