Which is another way of saying that Oil prices tend to correlate with US recessions. Is correlation cause? Partly. But that is not the whole picture by any means. The 70's had many other things going on that contributed mightily to the inflationary psychology of the period. IMO, one of the strongest forces was the very low productivity of the massive baby boom generation as it first entered the work force. A condition that is absolutely reversed today. Also the 70's was the last stand for unions. The Reagan stare down of the Air Traffic controllers signaled the death knell of the great power trade unionism had over wages in the US. Then came Thatcher in UK, and finally the the automation revolution brought on by the microchip. I've argued that $25 oil is not the inflationary monster it used to be. I believe OPEC is onto this as well. The key question now, is at what price level does oil start to threaten world economies? $30, $40, $50? We're in the process of finding out, huh? <g>
I'll still stick with Wolanchuk's penultimate number of oil somewhere in the forties.
Having said all the above I believe the US economy is entering a late phase of it's cycle. The bottoming of the CRB is the big clue here. Bear in mind, however that this is a HUGE secular cycle cause by demographics, and that the end game will probably stretch out for years, rather than the months that are customary. I believe the time for a shifting of asset classes is under way. Note, stocks that did not get killed Friday, BS, PD, IP, WY.
Bull |
