Earlier today Jim Quinn rhetorically asked why the price of oil hasn't collapsed despite the contraction in the global economy. Well, in a completely unrelated letter, Grant Williams of Things That Make You Go Hmmm, answers not only the question of why Brent and WTI continue to disconnect (must read for anyone interested in the oil market), but also Grant's underlying quandary (as rhetorical as it may be): "As stock markets plummeted in August, one thing that was noticeable was the resilience of both ‘the oil price’ (in the shape of Brent Crude, of course) and that of copper - two bellwether indicators of any slowdown in growth that can be relied upon to flash signals when a recession is nigh. To be sure, the data reported in August was dreadful. In the US we saw a slew of appalling regional manufacturing reports, (the Philly Fed and Empire numbers could genuinely be described as ‘shock- ers’), shattered consumer confidence numbers and rising inflation all topped off with a big fat goose egg in the NFP report last Friday, while in Europe, as the periphery continued to confirm just how week their economies continue to be, the real shocks came from the region’s perennial powerhouse economy, Germany. So why doesn’t ‘the oil price’ reflect this likelihood? Simple: 1. China has a LOT of paper money and is happy to swap it for hard assets that it knows will ulti- mately be far more beneficial in the long run as Western governments continue to debase their currencies. 2. Western governments continue to debase their currencies."
Full TTMYGH letter (pdf):
Hmmm Sep 04 2011
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