The Importance of Being Earnest....or.....Not Letting Things Hit You Over The Head

It is coming. You can hear it. You can see it. You can even taste it in some instances. All you know is it is going to hit you hard when it gets here. It really dosn't matter what "it" is. It just matters that you see "it" before "it" hits you. "It" could be a baseball, a margin call, or a disgruntled employee. The only thing that matters is that you see "it".

Something that I see on the horizon of the markets is fear. I really don't think we have fully recovered from the idea that the fear bid is in the market forevermore. If they go down some gully in Pakistan and actually find Osama, that fear trade ain't going anywhere. Why? Because terror is now fully institutionalized.

You see, "it" in this case is fear. We are all fully invested in it. What Im wondering is what does that do to bonds and fixed income? If, indeed, fear is now with us forever, does that mean bonds stay here to, and any movement in this fear laden space is doomed to a trading range forever keeping the ten year under 5%? It certainly seems like it.

This all leads me to the conclusion that fear is a tax we have to level on everything form the GDP to the Fed Funds Rate. A modifier that ensures we dont get ahead of ourselves. It also creates an environment that I dont think any of us have ever had to deal with. An evironment based on the intangible nature of human fear response. The cure to which is only one thing. Politics and the leadership provided by the government. It is only with this that the fear trade disappears. Never before have politics so intertwined with finance.

Oil - The big head fake

"Oil is going to kill our economy."

"We are addicts, and the Saudis are the pushers."

You hear commentators saying this all the time these days. Amazing to me how if you live long enough, you see things repeat themselves endlessly. Doesnt it feel like the 70's gas crunch is right around the corner?

If you read way back in my blog, you see a theme that suggests that the most evident meme in the news cycle is almost always false. It is the head fake of all head fakes. Yes. At this point in the game, the news media seems all too easy to manipulate. This is why one has to go a bit deeper.

There are three things you have ask yourself when you consider Oil.

1. Why doesn't the government raise the tax on Oil to a point where we HAVE to conserve? They force us to do other things, why not something so basic?
2. If we are so desparate for Oil, why do we allow Oil companies to have a choke hold on our import by accepting far too few REFINERIES.
3. Why do the economic models of most alternative fuel types fail miserably. BioDiesel (a full replacement for Diesel fuel) has been around since the 80s and can not be produced for less than 4.50 a gallon!

It all smells of manipulation. Dont forget, we have had a decade of Oil doing nothing so there has been ample time to rig the system up right with hedges, non-compete deals, and inventory grabs. Yes. Manipulation.

Now, please do think me one of these conspiracy theorists, nor to I think this is a way to simply bilk the American wallet. I feel like in free markets, a certain amount of manipulation is appropriate. However once you start manipulating at the level where national economies are affected, the story has to change. Yes. Oil has always been about power, and in times of contention becomes the central player (Vietnam). So here we are, another thing you can tie back to the global war on Terror.

Finish terrorism, and you will finish this Oil hoard.