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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5110)	11/16/2001 3:54:25 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

sure thing........ Oil has reversed course today, and is now down $0.10 at $17.35 a barrel. The recent carnage in oil highlights the demand shocks that have been introduced into the global slowdown on the back of a deepening from the corporate to the consumer level. As far as we are concerned, this dynamic may be able to help correct the recent divergence surrounding the positive correlation between the price of oil and 2-year note yields. the demand shock is that the global demand for crude is really declining, due to the big global economic slowdown. 10 to 15 months ago we started to see the corporate sectors cutting back their CAPEX spending, and also cutting spending and costs in all sorts of ways. The consumer, held up longer and been cutting their spending and consumption but it's only been in the past say 5 to 8 months. Normally oil and interest rates (yield) go in the same directions, when oil and commodities go up in price the debt market worries about inflation and interest rates go up, to compensate the note and bond holders for the decrease in their purchasing power. And normally when oil and energy prices are going down inflation concerns are going away and rates go down. But the past 2-3 weeks, interest rates have been going up like crazy while crude and the entire energy complex has been falling off the table in price. So there has recently been a change (divergence) in the normal positive correlation in oil prices and interest rate yields. I think that's it -g- and it was a bit obtuse. I was focusing more on the first half of the note, and the idea that to see this pronounced energy weakness means that consumer consumption is contracting quite a bit now as well. It's not just reduced demand for energy as Silicon Valley, reduces office space and the number of servers they are running etc. Yields should go down as the price of oil declines, right? That would have oil prices matching economic weakness and the flight to safety in bonds, right? you're on the same page as me. John