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1 Nov 18 2009 @ 10:30am by Matt Smith in Capital Markets, Crude Oil, Natural Gas

If I had a dollar for every time crude oil was blamed for a move in other commodities, i could buy a Nano

And I don’t mean an iPod. I mean the the 100k Rupee* car. Just as people gravitate towards the kitchen at a party, journalists are subconsciously lulled into following the herd and explaining away price movements in one asset by the movement in another.

Nano Nano

Nano Nano

Granted, sometimes this is justified. For example, a flight to risky assets has been occurring for much of this year, hence a Herculean-like negative correlation between the US dollar (safety) and crude oil (risky asset). On days when the market is heading south, we see a migration to safety. A strong positive correlation also exists betwixt US equities and black gold this year – they’ve been bosom buddies, with risk-taking a-go-go.

Here comes the ‘but’…if markets and people were perfectly rational, we would be able to find an explanation as to why a market has moved in a certain way, and dictate which way it is going next. But they aren’t and we aren’t, so we can’t. Sometimes it would be more honest to say ‘hey, markets went down today because the sun wasn’t shining’ (it happens – just ask Forrest). My point being, if you’re gonna make something up, at least be creative about it.

Dollar / Crude = Yin / Yang

Crude / Dollar : Yin / Yang

This year we have intermittently seen crude blamed for the movement in natural gas, when in fact this relationship has all but evaporated. Admittedly, there have been days when gas has steered on a similar path to crude, but these days have been due to a common tide raising all boats, such as economic data. It’s simply lazy journalism to point to crude to explain regular movements in natural gas in 2009 – the relationship just hasn’t been there.

Sometimes markets cannot be justified; they react in unexpected ways, and are impossible to definitively predict – hence why we love, hate, and try to pigeon-hole them all at the same time. But my beef is this: please don’t keep blaming them on tenuous relationships. And until this stops, I will keep a mental note of all those hypothetical dollars, and dream of the Nano that could have been…

* 100k Rupees = approx. $2200

1 Comment on this post:

  1. Swanny says:

    kay-o, I am finding a strong correlation between your love for Mork from Ork and blogging…

    … Nano-Nano.

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