IF ONLY CENTRAL BANKERS BELIEVED IN MARKET FORCES:

Oil Recession: Analyst Foresees Oil at $40 a Barrel or Lower: Equidex President Phillip Gotthelf tells Bloomberg TV oil prices poised to drop much further. (Jeff Poor, 10/07/08, Business & Media Institute)

“I think that the commodities really outlived their, their useful rallies because they’ve exceeded the elasticity of the consumer,” [Equidex President Phillip Gotthelf] said. “And commodities are consumables, they’re not investments. They’re speculative equals sometimes, but they’re certainly not investments.” [...]

“I’m somewhat amused. Goldman Sachs (NYSE:GS) was forecasting $200 a barrel for oil,” Gotthelf said. “I see that their forecasts are getting more and more conservative. I said $200 a barrel was ridiculous. Even $150 I thought was ridiculous. We were looking at $24 a barrel in 2004. Everybody is now making comparisons in the financial sector to the implosion of stocks in 2002, 2003 – the last stock recession. Why shouldn’t we see oil return to $40, maybe even below $40 a barrel?”

If Gotthelf’s prediction were to come true, the price of a barrel of oil would reach a low point not seen in almost four years. The last time oil was at $40 a barrel was late 2004. At that time, the media were concerned about paying $2 a gallon for gas.

And yet central banks cranked rates up to usurious levels to fight the inflation oil was supposedly gong to cause.

MORE:
Bernanke Signals Fed May Consider Lowering Rates: Minutes Show Rate-Cut Debate in September (BRIAN BLACKSTONE, 10/07/08, Wall Street Journal)

With inflation likely to moderate in response to the steep drop in oil prices since July, a growing number of Wall Street economists now expect the Federal Open Market Committee to lower interest rates later this month after a five-month pause with the target fed-funds rate at 2%. Some economists are even calling on the Fed to revisit 2003 lows on the fed-funds rate at 1%.

Mr. Bernanke remarks Tuesday appear to support that view.

Fluctations in the price of a commodity isn't actually inflation.

Posted by Orrin Judd at October 7, 2008 5:08 PM