Everyone's complaining about it because everyone is a consumer: Oil prices seem to show up in everything we buy. From the gas pump to electricity to food to the cost of Saran Wrap, oil rules our wallets.
Question is: Do oil prices also rule the financial markets?
Journalists sure seem to think so. I can't even count the number of headlines in the past month which said the stock market moved "in spite of" or "on news of" oil prices.
If you watch closely, online news stories about the stock market will even change from one extreme to another within minutes of posting … based solely on the price of oil or some other "crisis" commodity. A few weeks ago, for example, the crisis commodity switched from oil to rice – then back to oil a week later.
On the face of it, the idea that price trends in oil will move financial markets could make sense. We all know that skyrocketing oil prices do show up in the stuff we buy. So, it stands to reason that this connect-the-dots logic applies to the stock market.
But it's not the reality. EWI founder and CEO Robert R. Prechter Jr. directly addresses this phenomenon in his book Prechter's Perspective.
"When stock markets move towards the top of their bubbles, it's on rising optimism. When commodities move towards the same peaks, it's on rising fear –fear of inflation, fear of shortages, fear of deficits."
Sound familiar? The media's coverage of the oil market has been similar to its coverage of weakness in the dollar – with particular worry about inflation.
Even the guys who are supposed to be in charge are talking about it -- Fed Chairman Ben Bernanke had this to say just this morning: "The challenges of this year's economy have generated some downward pressures on the foreign-exchange value of the dollar, which have contributed to the unwelcome rise in import prices and consumer price inflation."
The quote from Robert Prechter comes from Prechter's Perspective, which published long before this latest oil mania. If such a simple idea can be used to foresee an opportunity to time both entry and exit by thinking for yourself and anticipating market moves rather than reacting to everyone else, imagine what else the book has to teach.