The Limping Bull 4.1

"The All Ordinaries Index lost four points to 3,951. The benchmark ASX 200 was off two points to 3,940. Dragging the market down was an overnight fall in commodity prices. Oil is now at a three-month low of $US43 a barrel." ABC News

$US43 a barrel? What happened to the "terror premium"? Now most analysts and experts explain this sharp fall as being the results of higher-than-expected crude oil, gasoline and petroleum distillate inventories. The data released by the Energy Information Administration helped dissipating concerns about short term supply levels.

So the Market is working fine. Participants reacted instantly to the new information made available by the EIA. What a re-adjustment! But, hey, Market is at least semi-strong form of efficiency, right? So info comes in, it is assessed by the rational investors and builds up in the price shortly after. So again, what happened to the "terror premium"? Disappeared? Or is it the $15-$20 above the $30-$35 long-term price estimate?

And is $US50 the resistence level or should we tell investors that there is an attack on pipelines and refineries almost every day in Iraq?

I came across an article on Aljazeera's website where they questioned the relationship between oil prices, economic theories, politic and of course the theme du jour, terrorism. It was an interesting piece I should say. The author, Adam Porter, claims that the theory of "Terror Premium" may well be unfunded. In fact, if it was, oil prices could and would rise well above the $US50 mark.

So S&P 500 Index' three year high record makes sense. Remember: "markets rise because of oil price falls, oil prices fall as the markets rise". Remember? No? Well, the Washington Times explained the concept quite well when Patrice Hill sais that the latest fall in oil prices is good news for retails stocks. Us consumers do not seem to be overly bothered by high energy prices as evidenced by 0.7% consumer spending increase in October. So they should be even happier if oil prices start to tumble down. And happy spending consumers means good news for the stock market.

You must have realised by now that I am confused. It is late. I'll think about it at work tomorrow. Until then take care.