Equities and the Economy

Good morning. Call it a late year rally. Call it a holiday rally. Call it whatever you want. But call it good. Yesterday the Dow posted a super day rising a big 248 points, 1.42%, closing at 17,737, the S&P 500 rose 34 points, 1.64%, to 2.084 and the Nasdaq was the winner on the day jumping 1.78%, 89 points, to 5,075. This was all despite the FOMC saying in its October minutes released yesterday that “most” participants felt conditions for a rate hike “could well be met by the time of the next meeting [December].” I think the market actually wants this rate hike. Investors are tired of waiting for it and want to get it behind them and move on. By the way, if rates are increased in December it will be the first rate hike in seven years! That’s a loooong time amigos. The debate now at the FOMC is not about when the first rate increase will be, it’s about the timing and rate of increases in the future. The Fed wants to avoid tightening financial conditions too quickly and stifling economic growth. We just may have a “one and done” for quite a while. We also have to keep in mind we’re looking at a rate hike from 0 to 0.25% which is still an astoundingly low rate and very monetarily accommodating.

Turning to the economic data, the Commerce Department reported yesterday that housing starts fell a stunning 11% in October and well below economists’ forecasts. Construction of single family homes fell 2.4%, which itself was dismaying, but it was the multi-unit sector where the real weakness was with starts falling a whopping 25.5%. The silver lining in the report was that permits for new housing rose 4.1% suggesting that next month’s report will be an improvement to this month’s.

Overnight the Asian markets popped on the coattails of U.S. equities as well as the People Bank of China announcing they would cut interest rates. European markets are shrugging off the events in Paris being up 0.6% to 1.37%. Locally things are much more quiet this morning after yesterday’s big gains with Dow futures down 18.

Oil

Oil prices ended little changed yesterday with WTI closing a meaningless 8¢ higher at $40.75 while Brent added a bit more, 57¢, settling at $44.14. WTI was trading negative, even below $40/bbl, until the EIA released its weekly crude and products report which although showed an increase in crude stockpiles, the increase was less than analysts were forecasting. After hitting a 6 month high vs. a basket of currencies on Tuesday, the greenback is retreating a tad but is still putting pressure on commodities priced in U.S. dollars, including oil. Global “over” supply relative to demand is still the major theme in the market and is keeping a lid on prices. WTI is down 53¢ this morning.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas prices slipped a tad yesterday closing down 2.4¢ at $2.347 and have now spent the better part of 3 weeks trading around the $2.35 level. It’s Thursday and that means it’s EIA storage report day. Expectations are for a 24 Bcf injection. U.S. natural gas inventories are already at record levels and if we get an injection greater than 14 Bcf, which is pretty much assured, we’ll be over 4 Tcf. Putting this in perspective, when I was trading 20 years ago 3.2 Tcf of gas in storage was full. We’ve added about 25% more natural gas storage capacity in the last 20 years.

The all-important weather forecast has shifted materially warmer for the 6-15 day time frame following some below normal temperatures for the next 5 days. With the storage report due out today and the market already loaded with shorts traders are taking a “wait and see” attitude with natty being down 1.6¢ as I write.

Elsewhere

If you’ve followed Louisiana politics even a little bit you know it can be crazy! For the better part of the 19th and 20th centuries it was pretty much the “good old boy” system giving rise to shenanigans that made the rest of the country blanch. Take 1959. That was when Earl Long was serving his 3rd term as governor when he addressed a hostile, joint session of the state legislature. Long had been in a heated tug-of-war with the lawmakers over his attempt to succeed himself. During the session Long lost his temper at the rostrum and folks with a television watched in amazement as the governor was forcibly held down by three men, placed kicking, screaming and cursing into a wheelchair and driven by a limousine to the Southeastern Louisiana Hospital in Mandeville. The hospital director, Dr. Charles Belcher, wasn’t sure how to handle the sensitive situation so he called the state director of hospitals, Jack Bankston, for direction. Bankston ordered Long to be placed under heavy lock and key.

Earl Long may have been crazy, but he was determined not to be undermined and had access to a telephone. He called Belcher and ordered him to release him. Belcher refused. Next he called Bankston who he also ordered to release him and Bankston also refused. Not to be deterred, Long then called his staff and inquired as to whether he had the authority to fire Bankston and Belcher. The answer can back “yes” and immediately the two men found themselves unemployed. The governor next instructed his staff to search out replacements for the positions who were sympathetic to his predicament. Within a few days (not weeks or months) two new directors were appointed and in a matter of hours Long was released. A police escort was dispatched to the hospital to bring the governor to a celebration breakfast with his staff at the Green Springs Motel in Covington, LA where he was surrounded by friends who all along believed in his sanity. It was at this point, though, that he gave his supporters cause for pause. When the waitress served the meal, Long refused to eat off his plate and instead took breakfast from everyone else’s plate. He was afraid someone in the group might poison him.

For the shocked and stunned staffers who stood by the governor it was a long, lonely and silent ride from there to the state capital. However, thereafter, they along with everyone else gave Governor Earl K. Long a wide berth until his term in office was over.