Wednesday, September 15, 2021

Markets climb higher as oil rises to over $72

Dow tack on 236 (near session highs) advancers over decliners better than 5-2 & NAZ gained 123.  The MLP index rose 1+ to the 179s & the REIT index added 1+ to the 466s.  Junk bond funds were mixed & Treasuries continued weak.  Oil soared 2+ to the high 72s & gold dropped 12 to 1794 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The staff of the Food & Drug Administration declined to take a stance on whether to back booster shots of Pfizer's (PFE) Covid-19 vaccine, saying US regulators haven't verified all the available data.  “There are many potentially relevant studies, but FDA has not independently reviewed or verified the underlying data or their conclusions,” they wrote on the agency's website.  “Some of these studies, including data from the vaccination program in Israel, will be summarized during the September 17, 2021 VRBPAC meeting.”  The staff said some observational studies have suggested declining efficacy of the PFE vaccine over time against symptomatic infection or against the delta variant, while others have not. “Overall, data indicate that currently US-licensed or authorized COVID-19 vaccines still afford protection against severe COVID-19 disease & death in the United States,” they added.  The data the FDA is looking at includes efficacy numbers out of Israel, where researchers there have released observational studies showing the effectiveness of the PFE vaccine against infection waned over time.  The stock went up a dime.
If you would like to learn more about PFE, click on this link:

FDA staff declines to take stance on Pfizer’s Covid vaccine booster shots, citing unverified data

A well-known conservative anti-tax group is taking aim at the massive $3.5T spending package that Pres Biden & Dems are aiming to pass along party lines.  The Club for Growth is going up with a major advocacy ad blitz in 10 congressional districts that targets the Dems' package, which the group portrays as "out-of-control spending" that will spark further inflation.  And the commercials zero in on what the group calls "the $3 trillion tax increase proposed by the Democrats."  Club for Growth says it will spend $300K to run the ads on TV & digital for one week starting tomorrow.  But they highlight that that the spots will be the first phase of a $2M effort to oppose the Dems' wide ranging social spending package, which House Speaker Nancy Pelosi is pushing to pass thru the House by the end of the month.  "Nancy Pelosi and Stephanie Murphy pick your pocket. Their spending spree sparked record inflation, driving up prices and eating into the value paycheck," charges in the commercial that will run in the district of Dem Rep Stephanie Murray.  "Now they’re pushing a scam they call reconciliation. It’s really a $3 trillion tax hike that could cost your family $8,200. And experts warn its higher investment taxes could slam your retirement savings," the ad argues.  "Remind Murphy she works for you. Tell her to stop Nancy Pelosi’s tax scam."

Conservative group launches multi-million dollar push to derail Dems’ $3.5T plan

Police & firefighter unions, medical professionals & teachers are fighting against Pres Biden's & local officials' vaccine mandates, saying that America is a country of freedom & they will not comply with government overreach.  "Over the past couple of weeks, the idea of forced vaccination has caused much concern across the entire country," Riverside County, California, Sheriff Chad Bianco said.  "I will not enforce the vaccine mandate on Sheriff's Department employees."  Biden announced last week that companies with more than 100 employees must require vaccinations or weekly coronavirus testing, which affects as many as 100M Americans.  Employers who break the rules could face fines of $14K  per violation.  "The government has no ability and no authority to mandate your health choices," Bianco continued.  "As your sheriff, I have an obligation to guard your liberty and freedom."  His comments are emblematic of the sentiment of many police officials, nursing groups, firefighters & teachers across the nation who are trying to hit the brakes on the gov mandating vaccinations or face termination.  Some have even decided to walk off the job.  Nurses in a maternity ward at a hospital in upstate New York resigned over the state's vaccine mandate, forcing the hospital to temporarily halt all baby deliveries after Sep 24.  While in Alabama, medical professionals are bracing for a worsened staffing shortage over Biden's federal vaccine mandate if vaccine hesitant employees quit rather than comply.  "So what we want to see is everybody get vaccinated, and we want that to happen in a way that doesn’t force people to make a dichotomous choice to either stay in health care and get vaccinated or get out of the health care system," pres of the Alabama Hospital Association, Dr Don Williamson, said, noting that the staffing shortages in the state are already "dire."  Other local leaders in areas such as California & New York have also issued vaccine mandates in their jurisdictions with penalties such as termination.  Resistance to the mandates, however, has intensified since Biden's announcement.  The world's largest organization of sworn law enforcement officers, the National Fraternal Order of Police, issued a statement emphasizing vaccination is a "personal decision."

Staffing shortage fears intensify as workers fight vaccine mandates

Gold futures posted their first loss in 3 sessions, giving back almost all of the yesterday's gains that lifted prices to their highest settlement in nearly 2 weeks.  US inflation data yesterday proved to be supportive for prices of precious metals, lifting gold futures to their highest finish since early Sep as the $ slipped.  The consumer-price index climbed another 0.3% in Aug, compared with a rise of 0.5% in Jul.  Dec gold fell $12 (0.7%) to settle at $1794 an ounce.  Yesterday, the yellow metal tacked on $12 (0.7%) to $1807, the highest finish for a most-active contract since Sep 3.  The Fed's meeting next week may not provide the clarity investors are looking for, some analysts said.  Separately, the New York Fed's Empire State business conditions index surged 16 points to 34.3 in Sep, according to the regional Fed bank, though the forecast called for a reading of 17.2.  US industrial production rose by a less-than-expected 0.4% last month & capacity utilization climbed to 76.4%, the highest rate since Dec 2019.

Gold prices end lower after back-to-back session gains

Oil futures climbed to their highest settlement since late Jul, after gov data showed a more than 6M-barrel weekly drop in domestic crude supplies, marking a 6th-consecutive weekly decline.  West Texas Intermediate crude for Oct rose $2.15 (3.1%) to settle at $72.61 a barrel.  Nov Brent crude, the global benchmark, climbed $1.86 (2.5%) to $75.46 a barrel.  Both crude benchmarks post the highest settlements for front-month contracts since Jul 30.  The Energy Information Administration (EIA) reported that US crude inventories fell by 6.4M barrels last week, marking a 6th weekly decline in a row.  The drawdown was larger than the average decline of 3.5M barrels expected.  The American Petroleum Institute reported a 5.4M-barrel decrease.  The EIA data also showed crude stocks at the Cushing, Okla, storage hub edged down by 1.1M barrels for the week, but total domestic petroleum production climbed by 100K barrels to 10.1M barrels.  Hurricane Nicholas hit the Texas coast yesterday, bringing more rain & devastation to areas of the Gulf Coast previously inundated by Hurricane Ida in late Aug.  Offshore oil & natural-gas production in the Gulf of Mexico has been slow to recover in the wake of Ida.  The Bureau of Safety & Environmental Enforcement late yesterday estimated that 29% of offshore oil output in the Gulf remains shut in, equal to 537K barrels a day of production & around 39% of natural-gas output is also shut in, equivalent to nearly 1.1B cubic feet a day of output.

Oil prices end at highest since July as U.S. crude supplies fall a 6th-straight week

Buyers came out of hiding & bid prices higher late in the day.  But the Dow has only returned to where it was over 3 months ago (shown below).  Storms in the Gulf have reduced output which has been bullish for oil.  That will correct over time.  In the meantime storm clouds remain in DC's sky, starting with raising the debt ceiling, funding the gov for next year & the massive spending bill, are still around.  Worse, Covid has not given up its fight.

Dow Jones Industrials

Markets are mixed on concerns about slowing global economic growth

Dow went up 52, advancers over decliners 4-3 & NAZ slid back 3.  The MLP index added 1+ to 179 & the REIT index was even in the 465s.  Junk bond funds did little & Treasuries were weak on profit taking.  Oil jumped 2+ to 73 & gold dropped 11 to 1795.

AMJ (Alerian MLP index tracking fund)

CL=FCrude Oil72.49\+2.03+2.9%

GC=FGold   1,796.30
-10.80 -0.6%




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Soaring aluminum prices are the latest worry for a construction industry that has been grappling with higher materials & labor costs as the US economy emerges from the pandemic   The 3-month offer price for aluminum traded at the London Metal Exchange has surged 47% this year to $2907 per tonne.  Prices are up 73% from their pre-pandemic levels.  "Aluminum is integral to residential construction and used to make everything from siding and gutters to insulation, nails, and HVAC equipment," said National Association of Home Builders CEO Jerry Howard.  Aluminum is also used in roofing, fencing & many other products.  Higher aluminum prices have "translated into higher material costs for builders as the price of building materials made with aluminum has increased 15-25% over that period," he added.  Higher aluminum costs aren’t the only headache for homebuilders.  Lumber prices earlier this year had climbed by as much as 316% since the start of 2020, adding $36K to the cost of building an average-sized new home.  Other essential materials including iron, copper, steel & natural gas have also seen their prices skyrocket.  Builders & contractors are also dealing with higher transportation & labor costs.  In addition, there aren’t enough roofers, glaziers, plumbers, electricians & other types of workers to fill the needs of the construction industry.  The drop in confidence mirrors a decline in homebuilder sentiment that was reported last month.  The National Association of Homebuilders'/Wells Fargo Housing Market Index fell 5 points in Aug to 75, the lowest since Jul 2020.

Aluminum prices soar in new construction headache

Pres Biden campaigned on a promise to raise taxes on the very richest Americans, unfurling just months after he was elected one of the biggest tax hikes in decades to help fund his $4 T economic agenda.  As part of his sweeping "Build Back Better" agenda, Biden called for a slew of new taxes on corps & the top sliver of US households, including raising the corp tax to 28%, nearly doubling the capital gains tax rate to 39.6% from 21%, restoring the top individual income tax rate to 39.6% from 37% & taxing capital gains at death.   "My fellow Americans, trickle-down economics has never worked," the pres said in Apr during his first primetime address before a joint session of Congress.  "It’s time to grow the economy from the bottom up and middle out."  But on Mon, House Dems released a blueprint to fund the $3.5T climate & family plan that watered down some of the most ambitious elements of Biden's original tax plan.  Under the outline from the House Ways & Means Committee, the corp tax rate would be diluted to 26.5% — & would only apply to businesses earning more than $5M in taxable income.  The tax rate would actually decline to 18% for small businesses earning less than $400K; all other businesses would continue to pay the current rate of 21%.  And although the measure includes a 3% surcharge on incomes exceeding $5M, it completely excludes Biden's move to end the "step-up in basis," which allows heirs to inherit assets while paying minimal capital-gains taxes (based only on the time they receive the asset and the time they sold it, allowing them to reduce the tax bite).

Biden's extreme tax-the-rich plan diluted by divided Democrats

Fall is usually the start of the slower season for the housing market, but nothing is usual in today's pandemic-driven housing market.  Potential homebuyers are seeing a slight rise in inventory & consequently rushing back into the fray.  Mortgage applications to purchase a home jumped 7% last week from the previous week, seasonally adjusted, according to the Mortgage Bankers Association (MBA).  An additional adjustment was made to account for the Labor Day holiday.  That is the highest level since Apr of this year.  These applications were still 11% lower than the same week one year ago, but that was the smallest annual decline in 14 weeks.  Buyers have been hamstrung by the meager supply of homes for sale, but that supply has been rising lately, albeit slowly.  The number of new listings rose for 9 straight weeks during the summer, but finally fell again last week, according to a report.  “Even with the recent new listings slip, the gap with pre-COVID levels has shrunk significantly as more new sellers have entered the market so far in 2021 than last year,” according to the report.  Home prices continue to gain at a record pace & that was also reflected in the purchase mortgage applications.  “Both conventional and government purchase applications increased, and the average loan size for a purchase application rose to $396,800. The very competitive purchase market continues to put upward pressure on sales prices,” said Joel Kan, an MBA economist.  Applications to refinance a home loan fell 3% for the week & were also 3% lower than the same week one year ago.  Borrowers have not had a lot of incentive to refinance, as mortgage rates have barely budged in the last month & rates are now higher than they were at the start of the year.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548K or less) remained unchanged at 3.03%, with points decreasing to 0.32 from 0.33 (including the origination fee) for loans with a 20% down payment.

Mortgage demand from homebuyers jumps after new listings rise all summer

Sep doldrums are keeping investors on the sidelines.  Inflation remains a nagging problem even if the CPI data was relatively mild.  The prospects for higher taxes is also a worry.  Next week when the FOMC meets, there will be more discussion about reducing & eliminating the tapering program.  The short term chart for the Dow below shows a very tired stock market.

Dow Jones Industrials


Tuesday, September 14, 2021

Markets erase gains with looming fovment funding issues

Dow sank 291 (near session lows), decliners over advancers 5-2 & NAZ pulled back 67.  The MLP index fell 1+ to the 177s & the REIT index was off 1+ to the 465s.  Junk bond funds were mixed & Treasuries continued higher with strong demand.  Oil was steady above 70 & gold climbed 10 to 1805 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Congressional leaders are digging in on their contradictory debt limit positions as the deadline for US default looms in Oct in a bit of high-stakes political gamesmanship with potentially severe economic consequences.  Senate Minority Leader Mitch McConnell & Majority Leader Chuck Schumer doubled down on their positions regarding how the debt limit should be raised.  Schumer is arguing it should be done on a bipartisan basis, while McConnell says Dems should raise the limit on their own because they're the ones proposing partisan spending bills.  If the stalemate continues to the last minute, it could affect the US' credit rating – or worse if the US actually defaults on its debt when the Treasury Dept's "extraordinary measures" run out in Oct.  "Washington Democrats have spent trillions, trillions of dollars on pet liberal projects. They've been printing and wasting money like there's no tomorrow," McConnell said.  "Democrats have done this proudly on a party-line basis."  "The debt suspension that just expired in August automatically covered the borrowing that had been accumulated before that date," McConnell added, referencing Dems' claim that the debt limit hike will pay for spending by former Pres Trump.  "This is about the future," the minority leader continued.  "This isn't the last four years when we were reaching bipartisan agreement."  McConnell & Reps want Dems to instead raise the debt limit via budget reconciliation, either in their multitrillion-dollar spending plan or thru a separate reconciliation vehicle.  If Dems are forced to put the debt limit increase in the $3.5T reconciliation bill, it could make it more difficult for their fiscally conservative members to vote for that legislation as well –  another benefit for Reps of their current stance.  "If the United States defaults on its debt, it will harm every single American in this country, including potentially those who rely on Social Security and members of our military," Schumer said.  "The consequences would reverberate around the world."  He continued: "So any efforts to play nasty political games with the full faith and credit of the United States is reckless, irresponsible, despicable."  46 Rep senators signed a letter saying they won't vote for a debt limit increase in any form, meaning the GOP can stop any effort by Dems to raise the debt ceiling thru a standalone bill, a gov funding bill or otherwise.  Without movement by either side, the US will eventually default on its debt, an outcome that both sides say would be unacceptable – but say would be their opponents' fault.

McConnell, Schumer dig in on debt limit demands as October approaches

Pfizer (PFE) expects to release clinical trial data on how well its Covid-19 vaccine works in 6-month to 5-year old children as early as the end of Oct, CEO Albert Bourla said.  Covid vaccine data for kids between ages 5 -11 will come much sooner, he said, potentially ready to be submitted to the Food & Drug Administration by the end of this month.  “Then, it is up to the FDA to take their time, and then make a decision,” Bourla added.  His comments come as many parents say they are anxious to get their children vaccinated, especially as schools reopen & the highly contagious delta variant continues to spread.  The strain has led to a surge in hospitalizations across the US, including among young kids who are currently ineligible to get the shots.  The stock went up 15¢.
If you would like to learn more about PFE, click on this link:

Pfizer CEO says Covid vaccine data for kids under age 5 may come in late October

Anyone searching for a home today knows full well the pickings are slim. The supply of US homes for sale is near a record low, & the gap between supply & demand is widening.  The US is short 5.24M homes, an increase of 1.4M from the 2019 gap of 3.84M, according to new research from  The US Census found that 12.3M American households were formed from Jan 2012 - Jun 2021, but just 7M new single-family homes were built during that time.  Single-family home construction has suffered from a severe labor shortage that began well before the pandemic but was then exacerbated by it.  Supply chain disruptions in the past year have pushed prices for building materials higher, & as pandemic-induced demand soared, prices for land increased as well.  While new household formation is actually slower than it was before the pandemic, homebuilders would have to double their recent new home production pace to close the gap in 5-6 years.  A new household can be either owner-occupied or rented.   “The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid. Put simply, new construction supply hasn’t been meeting demand over the last five years,” said chief economist Danielle Hale.  “Millennials, many of whom are now in their 30s and even 40s, have debunked the industry’s ‘renter generation’ expectations.”  Household formation is when an individual moves out of a shared living situation.  Single-family home construction has been rising steadily since it bottomed in 2009 during the last recession.  It is still not as high as it was just before the housing boom & is actually running at the slowest pace since 1995, according to the US Census.  The slower pace comes as the largest generation enters its typical homebuying years.

America is short more than 5 million homes, and builders can’t make up the difference

Gold futures ended higher, finding support as the $ weakened after a report showing US inflation rose in Aug at the slowest pace in 7 months.  The consumer-price index climbed 0.3% in Aug, compared to a rise of 0.5% in Jul.  The forecast estimated the cost of living, as measured by CPI, rose 0.4% in Aug.  Dec gold rose $12 (0.7%) to settle at $1807 an ounce, reversing course from an earlier drop to as low as $1780.  The settlement marked the highest for a most-active contract since Sep 3.  In addition to the CPI data itself, the Fed next week will likely use inputs, including the CPI report, to determine its plans for scaling back COVID-era bond purchases which have been in force to help provide liquidity to markets that were gummed up during the worst of the pandemic in the spring of 2020.

Gold settles back above $1,800 as dollar weakens after U.S. inflation report

Oil futures settled little changed, holding ground at their highest prices in about 6 weeks, as concerns eased over the impact of Tropical Storm Nicholas on crude & natural-gas production in the Gulf of Mexico after the storm made landfall as a hurricane on the Texas coast.  West Texas Intermediate crude for Oct rose by a penny to settle at $70.46 a barrel.  That was enough to mark its highest finish since Aug, but prices had climbed to as high as $71.22 during the session.  Nov Brent crude, the global benchmark, climbed by 9¢ at $73.60 a barrel, the highest front-month finish since Jul 30.  The Bureau of Safety & Environmental Enforcement estimated that 39% of oil production in the Gulf of Mexico remained shut in due to Ida, equivalent to 720K barrels a day of output & more than 48% of natural-gas output was also shut in.  Meanwhile, the Intl Energy Agency (IEA) cut its supply rebound forecast for 2021 by 150K barrels a day, due in part to storm damage, while also cutting its demand forecast by 100K barrels a day, citing the impact of the delta variant of COVID-19.  The monthly report from the agency comes after OPEC yesterday also trimmed its demand forecast for the Q3.  Unlike OPEC, however, the IEA didn't lift its 2022 demand forecast.  OPEC said a robust economic recovery would see demand grow by 4.2M barrels a day in 2022, up 900K barrels from the cartel's Aug estimate.  The IEA expects world oil demand next year to average 99.4M barrels a day, while OPEC is looking for demand of 100.8M barrels a day.

Oil settles little changed, holding at a 6-week high as output concerns tied to Nicholas fade

This is hardball time again in DC.  Funding must be approved for the new year which begins on Oct 1.  Also, raising the debt ceiling must be solved & soon.  Both sides do not want to give in since the whopper $3.5T spending package will be right behind whatever is decided.  The stakes are high & there are no signs of compromise.  Sep is the toughest month for stocks.  So far, the Dow is down about 800 in the month, although the stock market is way overbought.  Meanwhile nervous investors are buying gold & Treasuries.

Dow Jones Industrials