NATURE VS. NATURE

Our prediction that sentiment had turned determinedly bearish on US economic prospects turned us short term bullish, but we were surprised by the rapidity with which those sentiments translated into a corrective directional shift of yesterday's magnitude.

Now that positions established on a seeming correlative edge have been cleared out, stakes will be established on a more reasoned analysis. Crude oil has already pared .95 of those gains.

"The deflationary scenario though is still in place with persistent high unemployment, disappointing industrial production and falling month to month CPI," we stated yesterday and we still hold to this line. The larger picture has been clear to some for quite awhile.

Participants have been closing positions at the fastest pace since the Lehman collapse. Open interest slumped 13.2% in the 60 days through July 20, according to data from CME and ICE to the lowest level since November. The last time this magnitude of contraction was registered was the 13.7% decline over the similar period through Oct. 7, 2008, three weeks after Lehman filed.

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