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We are long Oil via the USO, the U.S. Oil Fund ETF, and are adding to the position today. From a fundamental perspective, demand remains weak and the global demand picture going into 2009 looks gloomy, but Oil is a commodity with serious long term supply constraints. In addition, with interest rates as low as they have ever been in the United States, the inflation trade we have been harping on as a theme for 2009, which we will be discussing on our best ideas call on Monday, is becoming increasingly likely.

We will be posting a longer piece on Oil in the coming days, but to be clear our view isn’t that Oil returns to the euphoric highs of June / July 2008, but more simply that the risk / reward at this level, from a quantitative price perspective, offers one of the more compelling opportunities we see in the global macro arena currently. Our range is outlined in the chart below and we see upside to $51.77 per barrel.

Daryl G. Jones
Managing Director