General

Thanks to fracking and shale oil production, the United States is becoming a leading producer of Oil and Gas in 2013, overtaking Russia. Some facts:

• Average oil production in October 2013 was 7.8 mbpd, 19% higher than last year.
• Rising crude supplies from North Dakota’s Bakken shale and Eagle Ford shale in Texas have helped the U.S. become the world’s largest exporter of refined fuels.
• Per EIA, Texas pumped 2.575 mbpd in June-if Texas were its own country, it would rank 15th in the world in terms of oil production.
• The U.S. met 87% of its energy needs in the first five months of 2013 and is on target to hit the highest annual rate since 1986.
• Exports are surging from 1 mbpd in 2006 to 3 mbpd recently.
• Imports are falling from a high of 14 mbpd in 2007 to under 10 mbpd recently. If you take out the re-export of refined products, the Net Imports have fallen even faster to 6 mbpd from 13 mbpd.

Can this declining U.S. net import of Oil and Gas have an impact on the U.S. dollar through its linkages to Current Account Deficits? Generally, a declining Current Account Deficit should be a tail wind for that country’s currency. Also, cheap and abundant natural gas in the U.S. is becoming a competitve advantage to begin bringing offshore production back onshore, which can further impact trade flows and deficits.

Can the once mighty U.S. dollar regain its footing again?

The Dow Jones Industrial Average closed above 16,000 for the first time Thursday, extending a rally that has the blue chip-index on pace for its best year in a decade. With Thursday’s gain, the Dow has advanced 22% so far this year, putting it on pace for the biggest annual rally since a 25% gain in 2003. The blue-chip index is up 144% from its 2009 low. The latest 1,000-point move in the Dow took just 139 trading days, the sixth-fastest 1,000-point gain for the Dow.

Among Dow components, Boeing Co. has led the way higher over the last 1000 points, rallying 40%, highlighting strong demand for commercial aircraft as the global economic recovery takes hold. 3M Company, meanwhile, has risen 20.6% during the same time frame.

This year, all but two of the 30 Dow stocks have gained ground this year except two: Caterpillar Inc. and International Business Machines Corp. and have declined 8.5% and 4.1%, respectively year to date.

Gains on Thursday came after Janet Yellen moved a step closer to becoming the next Federal Reserve leader and a better-than-expected report on the jobs market boosted sentiment.

Behind the broader push that took the Dow through this latest milepost: seemingly greater confidence in the stock market’s ability to withstand a scaling back by the Federal Reserve of the bond-market purchases it has been employing to stimulate the economy. More broadly, bulls point to continued expansion in the U.S. economy and recovery in corporate profits as drivers of the rally. Years of ultralow interest rates have bolstered corporate balance sheets and boards have rewarded investors by buying back stock and boosting dividends.

As such, investors are paying more for stocks relative to the underlying companies’ earnings, making it harder to argue stocks are cheap. The price to earnings ratio for the S&P 500, a broader measure of large U.S. companies’ stocks, stands at about 16.1, up from 13.7 at the start of the year but little above its 10-year average of 15.6, according to FactSet.

The Paris-based World Federation of Exchanges (WFE), an association of 58 publicly regulated stock market exchanges around the world, recently released updated data on its monthly measure of the total market capitalization of the world’s major equity markets through the end of October. Here are some highlights:

1. As of the end of October, the total value of equities in those 58 major stock markets reached $62.64 trillion. That was just slightly below the all-time record monthly high of $62.77 trillion for global equity valuation in October 2007, several months before the global economic slowdown and financial crisis started, and caused global equity values to plummet by more than 50% (and by almost $34 trillion), from $62.8 trillion at the end of 2007 to only $29.1 trillion by early 2009 (see chart above).

2. Global equities gained almost $2 trillion in value during the month of October, and increased by 3.2% from September.

3. Compared to a year earlier, October’s world stock market capitalization increased by 19.6%, led by a 22.2% gain in the Europe-Africa-Middle East region, followed by gains of 20.8% in the Americas and 15.4% in the Asia-Pacific region.

4. By individual country, the largest year-over-year gains for October were recorded in Greece (118%), Ireland (53.2%), Bermuda (47.3%), the UAE (40.4%) and Taiwan (37.3%). In the US, the NYSE capitalization increased by 25.7% and the NASDAQ by 27.2%. The biggest losses in equity value over the last year were posted in Peru (-15.9%), Turkey (-14.5%) and Cyprus (-14.5%).

Compared to the recessionary low of $29.1 trillion in February 2009, the total world stock market capitalization more than doubled (115.3% increase) to the current level of $62.64 trillion, recapturing almost all of the global equity value that was lost due to the severe global recession and the various financial, mortgage and housing crises in 2008 and 2009. The global stock market rally over the last five years has added back more than $33.5 trillion to world equity values since 2009, and demonstrates the incredible resiliency of economies and financial markets to recover and prosper, even following the worst financial crisis and global economic slowdown in generations.

U.S. household debt climbed 1.1 percent during the third quarter as borrowing for mortgages, education, car purchases and on credit cards all increased, according to a Federal Reserve Bank of New York survey.

Consumer indebtedness rose $127 billion to $11.28 trillion, the biggest increase since the first quarter of 2008, according to a quarterly report on household debt and credit released today by the Fed district bank. Mortgage balances climbed $56 billion, student loans increased $33 billion, auto loans were up $31 billion and credit-card debt rose by $4 billion.

“We observed an increase of household balances across essentially all types of debt,” Donghoon Lee, senior research economist at the New York Fed, said in a statement. “With non-housing debt consistently increasing and the factors pushing down mortgage balances waning, it appears that households have crossed a turning point in the deleveraging cycle.”

Americans have slashed their debt from a peak of $12.68 trillion in the third quarter of 2008, according to the New York Fed.

Delinquency rates continued to drop in the third quarter, with 7.4 percent of outstanding debt in “some stage of delinquency,” down from 7.6 percent in the second quarter, the New York Fed said. There were about 355,000 new bankruptcies during the period, about the same as in the comparable timeframe in 2012.

There is no evidence that the Federal Reserve’s massive bond-buying effort has led U.S. stock prices higher, according to a report released on Wednesday by the economics research arm of McKinsey & Company. Instead, study co-authors Richard Dobbs and Susan Lund found that the biggest impact of quantitative easing by the world’s major central banks has been the cost-savings delivered to governments. Since 2007, bond-buying programs in the United States, the UK and the euro zone have reduced costs for governments by a total of $1.6 trillion. The finding will come as a surprise to many investors who attribute the rise in stock prices in the United States and elsewhere since the 2007-2009 financial crisis at least in part to easy central bank policies. All told, major central banks have added $4.7 trillion to their balance sheets over the past five years in an effort to push down long-term borrowing costs while keeping short-term interest rates low. The findings are sure to resonate among central bankers as they debate when and how fast they may be able to scale down the monetary stimulus they have used to keep deflation at bay and try and pull ravaged economies from the depths of recession.

While the entire study is over 70 pages long, the rather counter-intuitive findings regarding QE and stock prices can be found on pages 32-36 of the PDF:

The impact of ultra-low rate monetary policies on financial asset prices is ambiguous. Bond prices rise as interest rates decline, and, between 2007 and 2012, the value of sovereign and corporate bonds in the United States, the United Kingdom, and the Eurozone increased by $16 trillion. But we found little conclusive evidence that ultra-low interest rates have boosted equity markets. Although announcements about changes to ultra-low rate policies do spark short-term market movements in equity prices, these movements do not persist in the long term. Moreover, there is little evidence of a large-scale shift into equities as part of a search for yield. Price-earnings ratios and price book ratios in stock markets are no higher than long-term averages.

According to preliminary data from the 2013 NACUBO-Commonfund Study of Endowments, U.S. educational endowments returned an average of 11.7% net of fees in the fiscal year ended June 30, 2013., which is a significant improvement over the -0.3% return in the prior fiscal year. The average 3 year trailing return as of June 30 was 10.4% for the 206 surveys received  to date, while the average five-year trailing return was 4.3% and 7.1% for the 10-year period. Returns are net of fees and annualized.

Source: Pensions & Investments