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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: russwinter who wrote (18026)	8/24/2004 10:42:29 PM
From: ild	Read Replies (2) of 110194

Couple points from today's CI: Based on historical precedent, unless the recent spike in crude is quickly followed by a near term and very sharp sell off in price, it would seem a darn good bet that much higher short term rates lie ahead. The Fed is being pushed into a very tight corner. With each tick higher in crude prices, the Fed is increasingly being forced to choose between perhaps very unacceptable outcomes. idorfman.com But maybe more than anything else, what has truly amazed us over the recent past is what appears to be the casual manner in which the financial markets have viewed higher crude prices. If you had told us one year ago that we would virtually kiss $50 per barrel on crude pricing, we would have expected an efficient market to perhaps react much more violently to the downside than has been the case so far. And it's not just the broader financial markets that appear to be dismissing crude pricing strength of the moment as completely unsustainable. The energy stocks themselves have sold down from recent highs while crude has moved up a good 15% over the past month or so. If the energy stocks don't believe crude pricing strength is sustainable, then why should the broader market, right? And, as we have mentioned many a time, capital spending in the industry likewise is telegraphing the current message that macro crude pricing strength is transitory. Again, we really have no way of knowing where exact near term crude pricing will go over the short term, but it sure appears to us that there is a mile of room for financial market price reconciliation if indeed crude stays near the half century mark for any extended period of time as we move forward.

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