28 Aug 05 Oil and Economy

Oil prices have fallen back to $66.13 after crossing the $68 mark...with that substantial drop in a day, its likely that some of those that didnt sell at $68 the last time round might be taking some money off the table. Technically, the chart looks more bearish - very likely to be a short term thing because there is simply no stopping it.... how will prices of a commodity that's slowly depleting ever come down? But in the short term, a correction in oil prices will give stocks some room to move.

So, any weak buy ups in oil is a sign that oil may not be staging another rally that soon. I believe that oil might be negatively correlated to stocks for some time. Use it as a confirming indicator and not the buy trigger.

Just 2 days ago, Uncle Greenspan made an appearance again... this time commenting on the housing (residential property) market causing the economy to be on shaky ground. He also pointed out that current interest rates are LOW... no prizes for guessing which way future interest rates are heading...

This kind of ties in together with what was mentioned at my Macroeconomics lecture last week. External factors such as rising oil prices will cause inflation to go up (assuming consumption remains the same) , and eventually, the interest rates as well.

And with the historic level of budget deficit, I'm wondering when Uncle Bush will start a contractionary fiscal policy.

Rising Interest Rates + Contractionary Fiscal Policy = Not looking good for the US economy.

"BULLS MAKE MONEY, BEARS MAKE MONEY, PIGS GET SLAUGHTERED"