Equities and the Economy:

Friday continued the consolidation we’ve been in lately with the Dow closing down 17 points at 18,146, the S&P 500 literally closing flat to Thursday at 2,141 and the Nasdaq notching a small gain of 16 finishing at 5,257. Another reason for a lack of movement was there were no significant economic reports released Friday. For the week the Dow barely moved, up 0.04%, the S&P rose 0.4% (nice) and the Nasdaq had a good week climbing 0.8% (very nice!).

Moving on today, the week is beginning very well with the Dow up big 85 points. Boosting stocks are the European bourses which are up a healthy 0.83% to 0.91%. ECB president Mario Draghi, unlike our Fed, reinforced that QE will remain in force for the near and medium term future, and we all well know how equities love QE. Fundamentally stocks across the pond got a boost by data released today showing the European Zone PMI hit a 10 month high.

Oil

Although oil prices closed marginally higher on Friday, WTI up 22¢ to $50.85 and Brent up 40¢ closing at $51.78, oil prices have been directionless over the past couple of weeks. Last week WTI lost 0.33% and traded pretty much in $2/bbl range. Interestingly, CFTC data on Friday showed that short positions by money managers (hedge funds) were at their lowest level since the end of May and net long positions at the highest level since the oil price collapse in 2014. That being said, the bull’s yoke is just a little heavier than it was over the past few months with the U.S. dollar at its highest level against a basket of currencies since February with the big one, and most important one, the euro which is also at its weakest level since February. Makes sense. ECB has no intention of scaling back its QE program and the talk here in the States is of raising interest rates, with the market looking at the FOMC’s December meeting to be the day.

This morning WTI is approaching the $50 level being off 72¢. OPEC talks higher prices but I just don’t know how they’re going to pull this off. The latest news comes from Iraq’s oil minister who yesterday said, “We are with OPEC policy and OPEC unity….but this should not be at our expense.” Then the head of the Iraqi state oil company piling on saying “We have passed 4.7 million bpd. We are not going back. It is a question of sovereignty.” Oh, and money! So Russia is out, as well as Iran and Iraq. Venezuela is a mess and always a hawk. None of the other OPEC countries are going to cut back production. Unless Saudi Arabia cuts production, and they most likely would be about the only one to do so, OPEC production will not be frozen. And does Saudi Arabia really want to give up its market share to the Russians and Iranians? I don’t think so. And oh, they will also be giving up market share to U.S. producers for Baker Hughes reported the rig count went up by 14 rigs last week, 11 of them oil. The rig count is now at an 8 month high.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices have been getting bludgeoned of late, and Friday was no exception with the November contract losing a huge 14.8¢ settling below $3.00 at $2.993. The culprit is the weather forecast which day after day has and continues to show an above normal temperature forecast. Natty prices have now fallen 12% over just the past week. And the weather forecast this morning continues to provide plenty of food for the bears showing above normal temps for most of the nation through the first week of November. Oh, this week will be cold for the northeast but it’s not enough to boost the market. Keep in mind that every MMBtu that is not withdrawn in a winter month is one that is added to inventory and withdrawn by March 31st which is considered the end of winter in the gas business. By the way, the long term forecast is for December to be warmer than normal for the Midwest and east.

An interesting phenomenon is occurring in the shape of the natty price curve right now. All summer the calendar 2017 price strip was priced higher than the calendar 2018 which was priced higher than the 2019. This is a very unusual price curve strip. It’s called backwardation and as I stated, is not the norm. It’s actually a rare event. Well I’m seeing a big shift right now. The November contract is getting hammered and the calendar 2017 strip is falling along with it, but the calendar 2018 and 2019 strips, while falling marginally, are not dropping much. The curve is shifting back to a normal shape, contango, where the 2017 strip price is lower than 2018 which is lower than 2019.

This morning the bottom continues to fall with the November contract down a big 12.2¢. The cash market is weak.

Elsewhere

As you are all well aware, earlier this month Hurricane Andrew wreaked havoc and caused death from Florida to North Carolina. For many of us things like losing power are an inconvenience. For others though this is not the case. Losing power can not only leave someone in the dark, but can utterly disconnect them from loved ones and the rest of the outside world. Such was the case for a Florida grandmother, 87 year old Claire Olsen. She lost power during the storm and her family, who lived out of state, hadn’t heard from her for two days. Her grandson, Eric, who lives in Omaha, Nebraska, became more and more worried about her as time passed. He kept calling the police and fire departments in his grandmother’s town trying to get someone to check on her. His attempts were unsuccessful.

By Sunday, Eric was particularly worried. Still unable to get local authorities to check on his grandmother, he became quite creative and turned to an unlikely source for help, Papa John’s Pizza. He called Pappa John’s and said, “I’m going to order a pizza for my grandmother and I want your delivery person to please call me and put her on the line.” His plan worked well. The pizza was quickly delivered and the delivery man called Eric and Eric got to talk to his grandmother. Eric stated, “Police and fire couldn’t do it, but Pappa John’s got there in 30 minutes and put the cell phone to her ear.”

The story is remarkable in a number of ways. Not only does a man who lives almost 1,400 miles away have the ability to order a pizza in Omaha , Nebraska and have it delivered in Florida, but it also shows the power of the market and free enterprise. I can’t verify it, but my bet is the delivery man received a very nice tip!