Running out of oxygen

It is awkward to observe a resilient stock market in the wake of a substantially weakened dollar and record oil and gold prices. We can explain the record in gold prices by not only the imbalances in demand/supply (fuelled by growing consumption coming from commodity rich nations and India and also from growing use of this commodity in manufacturing) but also as a result of its traditional role as a refuge investment (currently boosted by the shrinking dollar and the growing pessimism on the economy). Oil prices, on the other hand, are dictated not only by demand/supply imbalances and speculation, but also by a geopolitical risk premium. This risk premium is playing an increasingly important role in explaining oil price fluctuations, considering the emergence and growing importance of Russia, Iran and Venezuela (all three amongst the top five petroleum producers) forming an increasingly confrontational alliance against the U.S. and, to a lesser extent, Europe.
With the level 3 assets issue looming as the latest twist in the subprime/credit crunch debacle and a consumer market feeling increasingly squeezed by rising costs and a shrinking wealth effect, it is difficult to maintain an optimistic view with regards to the economy. Even the hope of a possible decoupling combined with a heavily depreciated dollar coming to the rescue stands on shaky grounds considering the insane market multiples as observed in China and elsewhere. One could argue that we have not as yet reached the apex of the current crisis.