Crude Indicator

With the current deflationary trend, oil is overbought above $50/bl.

Since the energy sector is a primary determinant of the current macro trend, the speculative volatility indicates that future trends will be strongly determined by this sector while pop analysts are focusing on the financial sector to indicate trends.

While the popular analysis is to focus on the probability of recovery, small investors need to keep in mind that this deflationary phase of the business cycle is a fully intended economic event that consolidates wealth and capital. It will be fully applied. Recovery will not occur until the capital is so consolidated that economic growth cannot occur without a distribution from the private sector. Public sector infusions tend to prolong the deflationary cycle with more capital to be consolidated, which will abate when the private sector supplies the liquidity with a return decided by the private sector alone.

Energy prices will indicate the intent to capitalize the recovery phase of the business cycle (a buy indicator). Financials will only serve to indicate a confirmation of the effect. Small investors will make more money and minimize the risk monitoring the causal factors rather than the effect indicators. That's why pop analytics tends to focus on the effects as leading indicators.

Rising energy prices dampens public sector infusions of capital to effect the recovery phase. Thus, the recent run up in crude prices. It allows the private sector ultimate command and control of cyclical timing. For the trageur, timing is everything, and on the macro scale, our economy is being shorted (classically arbitraged), setting it up to go long (see the article, "Shorting the Economy" at griffithlighton.blogspot.com).

Volatility of energy prices is a means of controlling the macro cycle. It also indicates the intent to keep the economy in a highly speculative, rather than a pro-growth, mode. Financials will profit and distribute the proceeds to shareholders. This "effect" will keep the economy in a stagflationary trend that analysts are currently identifying as indicating a protracted recovery phase. The long term effect will look like a long stagflationary period (high profit with low growth) on the long-term macro chart.

The buy-and-hold investor needs to realize that stagflationary economics will once again cycle to a deflation (consolidation) of accumulated value. The investor must be able to detect the macro indicators to sell and avoid once again being victim of a punctuated devaluation of net worth.

Chief among the macro indicators is energy prices..."crude" indications of classic economic modeling with highly predictable (low risk) results for those that can read the signs.