The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Following The Nose


Long ago, farmers and ranchers learned that the easiest way to control cattle and other large livestock was to put a ring in their nose.  They could then tether the cattle to a particular location or lead them around by simply controlling the ring.

The stock market has always had a ring in its nose.  Since the Global Financial Crisis of 2008/9, the Fed has controlled the ring and the market has faithfully followed the Fed upward.  However, since mid-2015, the oil sector has controlled the ring.  Taking a look at this graph, it appears that oil may be leading the market in the wrong direction again.

Chart of the Day
But  notice the long-term trend-line for oil prices — that area between the red and green lines.  History suggests that oil prices will revert to the mean — that it will come back within the trend-lines, at least above the green lower boundary.  If so, oil will release the nose-ring, and the market will wander aimlessly . . . until something else seizes the ring, like some geopolitical event or some technological breakthrough or some change in corporate tax rates or … ?

More important than who is controlling the ring — is whether the animal is still getting bigger and stronger in the meantime?

Yes, it will !!