{"id":2059,"date":"2014-11-26T06:30:39","date_gmt":"2014-11-26T11:30:39","guid":{"rendered":"http:\/\/olduvai.ca\/?p=2059"},"modified":"2014-11-26T06:30:39","modified_gmt":"2014-11-26T11:30:39","slug":"epsilon-theory-salient-partners-the-unbearable-over-determination-of-oil","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=2059","title":{"rendered":"Epsilon Theory – Salient Partners | The Unbearable Over-Determination of Oil"},"content":{"rendered":"

Epsilon Theory – Salient Partners | The Unbearable Over-Determination of Oil<\/a>.<\/p>\n

You know you\u2019re in trouble when the Fed\u2019s Narrative dominance of all things market-related shows up in the\u00a0New York Times<\/i>\u00a0crossword puzzle, the Saturday uber-hard edition no less. It\u2019s kinda funny, but then again it\u2019s more sad than funny. Not a sign of a market top necessarily, but definitely a sign of\u00a0a top in the overwhelming belief that central banks and their monetary policies determine market outcomes, what I call the Narrative of Central Bank Omnipotence.\u00a0<\/a>

There is a real world connected to markets, of course, a world of actual companies selling actual goods and services to actual people. And these real world attributes of good old fashioned economic supply and demand \u2013 the fundamentals, let\u2019s call them \u2013 matter a great deal. Always have, always will. I don\u2019t think they matter nearly as much during periods of global deleveraging and profound political fragmentation \u2013 an observation that holds true whether you\u2019re talking about the 2010\u2019s, the 1930\u2019s, the 1870\u2019s, or the 1470\u2019s \u2013 but they do matter.

Unfortunately it\u2019s not as simple as looking at some market outcome \u2013 the price of oil declining from $100\/bbl to $70\/bbl, say \u2013 and dividing up the outcome into some percentage of monetary policy-driven causes and some percentage of fundamental-driven causes.\u00a0These market outcomes are always over-determined, which is a $10 word that means if you added up all of the likely causes and their likely percentage contribution to the outcome you would get a number way above 100%.<\/b>\u00a0Are recent oil price declines driven by the rising dollar (a monetary policy-driven cause) or by over-supply and global growth concerns (two fundamental-driven causes)? Answer: yes. I can make a case that either one of these \u201cexplanations\u201d on its own can account for the entire $30 move. Put them together and I\u2019ve \u201cexplained\u201d the $30 move twice over. That\u2019s not very satisfying or useful, of course, because it doesn\u2019t help me anticipate what\u2019s next. Should I be basing my risk assessment of global oil prices on an evaluation of monetary policy divergence and what this means for the US dollar? Or should I be basing my assessment on an evaluation of global supply and demand fundamentals? If both, how do I weight these competing explanations so that I don\u2019t end up overweighting both, which (not to get too technical with this stuff) will have the effect of sharply increasing the volatility of my forward projections, even if I\u2019m exactly right in the ratio of the relative contribution of the potential explanatory factors.<\/span><\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Epsilon Theory – Salient Partners | The Unbearable Over-Determination of Oil. You know you\u2019re in trouble when the Fed\u2019s Narrative dominance of all things market-related shows up in the\u00a0New York Times\u00a0crossword puzzle, the Saturday uber-hard edition no less. It\u2019s kinda funny, but then again it\u2019s more sad than funny. Not a sign of a market […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[303,534,588,592,1427],"class_list":["post-2059","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-fed","tag-monetary-policy","tag-oil","tag-oil-price","tag-supply-and-demand"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/2059","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2059"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/2059\/revisions"}],"predecessor-version":[{"id":2060,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/2059\/revisions\/2060"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2059"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2059"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2059"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}