NYMEX crude oil drops below $92 as financial market meltdown intensifies

Crude oil tumbled, dipping below $92 per barrel in the biggest two-day drop in almost 4 years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand. Oil fell as much as 4.3% today [16 Sep 2008] after Lehman Brothers sought bankruptcy protection, sending US stocks to their steepest drop since 9/11. NYMEX crude oil for Oct 2008 delivery fell below $92 to as low as $91.54. Oil has declined 4.4% this year and dropped 38% from the record $147.27 a barrel reached on July 11. Brent crude oil fell to $89.80 on London's ICE Futures Europe exchange. The plunge in oil, cotton and copper led to the CRB Index of 19 commodities erasing its gains for the year.

- So far Bernanke has been trying his very best not to live up to his "Helicopter Ben" moniker, instead resorting to "creative measures" such as swapping out half of the Fed's assets of Treasury bills for toxic waste paper - about $450 billion worth, give or take a few billion here or there. If the Fed has been reluctant to help out Lehman Brothers with say $600 billion or so, that's because they are rapidly running out of ammo to continue with their "creative measures" technique. In the final analysis it is back to the same old Fed dilemma - kill the dollar, or kill the economy. If they make the wrong moves, or execute them with the wrong timing, they could very well accomplish both - kill the economy, and *then* kill the dollar after that. That would be quite an accomplishment.

There is no longer any point in being long oil, wheat, or any other commodities if indeed this is a global economic collapse which will completely wipe out demand, shrink economies, and roll back human progress and advancement all the way to .... well, take your pick here : the 1970's, 1920's, or perhaps the Stone Age. Okay maybe not the Stone Age. But really. If the Fed manages to pull off the incredible feat of killing off the economy and *then* the dollar, then yes, there would still be some point to owning commodities. As you can tell my bet is on them to make exactly the wrong moves with exactly the wrong timing. They have lived up to these expectations so far. It should be pretty historical. We shall see.

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