Monday, May 16, 2005

The Bare Necessities.

Look for the bare necessities
The simple bare necessities
Forget about your worries and your strife
I mean the bare necessities
Old Mother Nature's recipes
That brings the bare necessities of life

Lyrics: The Jungle Book Soundtrack.

I mentioned Stephen Leeb's oil indicator a while back.

That indicator tracks S&P performance after year over year increases in oil prices, but there's something that indicator leaves out: what happens if oil prices simply keep rising for say, 6 years? That can't be too positive either, can it? And at some point, something may have to give.

Six years of rising oil prices is, by the way, pretty much what we've had from 1999-2005, though the prices rose most at the beginning and end of that period. (You remember what happened around the beginning of that period, don't you?)

It's been an interesting year so far. The past couple of weeks have been particularly interesting. There was clearly blood in the water and probably there was a shark hedge fund feeding frenzy as somebody's positions got bloodied and then shredded by eager dining companions.

That sounds like a good explanation for the shaky market, and I have no doubt it's a part of it, but there's a possibility it could be something larger.

One of other Stephen Leeb's other theories is that as oil prices rise higher and higher, we could see either inflation (driven by oil prices as they get passed through to everything else) or deflation (driven by oil prices, as they suck the life out of everything else).

So Richard Russell's observation here about deflation bears some thought and some watching.

Add this to the way the 10 year is behaving...