Ron:" crude conclusions? "
>What's the relationship between oil and interest rates ?
directly? I'd say it is similar to Cost of Labour; eg.,
...cost of oil ===> Cost of Energy
...Cost of Energy ===> Cost of Goods Sold + Transport
...Cost of Goods Sold + Transport ===> Profit Margins
...Profit Margins : Productivity ===> pricing pressure
...pricing pressure ===> Fed response to inflation potential.
indirectly? I can think of a coupla things, Ron; first...
stockcharts.com
note - "The INVERSE relationship between commodities and bonds".
indirectly... CL99Z imports aggravate the U.S. current account or, "trade deficit" - which affects the USD:JYen/euro currency forex rates. This has two, apparent effects on our bondz.
First, businesses in Tokyo and Frankfurt sell USD (typically in the form of US TYX) to convert $$$ profits into JYen and euros - to square the profits on their books back home.
Second, we can trace many kapital flows of the big money banks, fund managers back to the BofJapan, in a system known as "the carry trade". What they do is borrow money from the BOJ at some fractional interest rate. Then they sell these JYen, buy USD (typically in the form of US TYX) at what, ~6.x% ?
They may borrow against this collateral basis to fund some investment project, etc. This works great so long as the USD:JYen is not moving against their effective "short" JYen currency position or, is at least stable. When the JYen is gaining on the USD (as it has been) this "carry trade" and subsequent TYX liquidity dries up.
That commodities in general and crude oil in particular tend to be inversely correlated to our bondz - is more or less an historically "direct" relationship. Old Money families here in Texas put their $$$ into BONDS : OIL for this reason, Ron - it is a traditional hedge - when the objective function is preservation of kapital.
That currencies in general and JYen in particular tend to affect TYX liquidity - is a much more subtle, indirect relation, that Gersh has taught me a lot about.
>I think OPEC et al will keep crude between $20 and $25 for a long time...
I hope for a trading range between $18~$27/bbl, Ron. This is high enough to grow capital gains in XOI.X and capital investment in OSX.X sectors. As bond holders, what you and I want to see is (at least) stability in commodities and currencies; and - at best - deflation in commodities and currencies.
>I think the (equity) rally is a dead cat bounce in a bear market...
I really don't know, Ron. I will repeat: that all my charts, T/A have been of little use (to me) ever since we bounced from the YTDzero area on the SnP, psychological support level of "DOW 10,000".
I have a great need to follow closely the equity/bond/money market fund flows; Right now, it appears to be unwise to bet against these flows. The historic Banking Reform Bill and radical changes in the DJIA-30 index that take effect on Monday only heighten my feeling that we're all in the middle of a game where the rules just changed (^_^)
-Steve |
