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

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To: forceOfHabit who wrote (74285)	11/17/2006 2:28:35 PM
From: mishedlo	Read Replies (1) of 110194

In addition, correlation is not the same as causation, and the debate has been about the latter not the former (see below). The evidence supplied in your first sentence is about correlation. The conclusion in your second sentence is about causation. So your "conclusion" is simply an unjustified assertion. Indeed correlation is not causation and that was the point of what I wrote. There was no evidence offered to support the idea that a decline in gasoline prices fueled the recent stock market rally. None. Just a belief. I posted charts to show why that belief is silly. No one knows for sure why the stock market rallied but (to me anyway) it is far more likely to be for the standard reason: bearish sentiment got too extreme (and there is some proof of that from various surveys). Furthermore I am not even sure this is a valid belief: Almost everybody credits the big drop in oil prices as being a key factor behind the strong stock rally this fall. In fact, I am sure it is NOT a valid belief that "almost everybody" is saying that. Of course that depends on what "almost everybody" means but if I am not mistaken a later post said I was a minority of 1 in my beliefs which I can easily dispute. At least three hedge fund managers on Minyanville talked about this multiple times. If got funny listening to the comments on CNBC "stocks rallied today because oil was down" ... two days later we would hear "stocks rallied today because oil was up showing the economy was strong". Who knows really "WHY" something happened. There are a hundred variables and to attribute a massive rally in equities just to a decline in crude prices is just far fetched. As for what drove that "bearish sentiment" there is every reason to believe that it was a combination of many factors of which oil may have been extremely far down on the list. Personally I think the housing sector and debt levels and a falling GDP were far more worrying to the stock markets. There is certainly no evidence that I know of to suggest the average Joe (or anyone else) started investing gung ho into the stock market because of falling oil prices. Nor is there any evidence to show that "Joe" spent that energy savings elsewhere. In fact there is evidence that shows Joe did NOT spend that money elsewhere. With so many variables at play, attributing this rally to a decline in gasoline prices simply has little merit. Mish

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