AROUND THE CORNER, OVER THE HORIZON

As we discussed yesterday, credit markets are predicting the end of the world, while commodity and equity markets show a particularly positive take on the economy.  There's only one way out of a credit bubble, and that's to write off the bad loans.

It will suck for 2-3 years, but with the current efforts, we're going to limp along a little while longer, and then have to go through the write-down. There really aren't any alternatives. Consequently, either the bond bubble should burst, which the Fed can't let happen or commodities and equities have to collapse.

Not a particularly positive picture for potential energy demand growth, which is why we have to scratch our head at some of the recent price projections. Certainly, implied demand figures contained in recent reports are far from crisis proportions, and the Chinese economic juggernaut keeps chugging along, but $100 by year end seems a bit overly optimistic.

For the immediate future, the market will probably be contained within a trading band described by $74-$78, at least until after the Labor Day break. Of course exogenous geopolitical events will change that particular calculus.


 

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