Advice from a knowledgeable source

My old UConn grad school colleague -- and one quality human being I might add -- former U.S. Congressman Rob Simmons, R-Connecticut, used to say, "You have to use the correct methodology to separate what is 'noise' from what is just 'static.' " Here's one barometer investors need to pay attention to: the price of oil.

That's correct: the price of oil. Every day, or so it seems, U.S. stock markets give the impression that all commercial activity will cease and that the U.S. and the world will revert to the barter system -- the market's mood is that somber most days.

Well, ignore the above, which often is just static, and keep your eye and ear attuned to the price of oil, which closed Thursday down $1.77 to $43.52 per barrel. If conditions, financial and economic, are deteriorating as much as some think they are, oil will drop much lower. It will certainly fall below $30 per barrel and will, relatively quickly after that, within a month or two, trend toward $20. That's noise.

More noise: An oil price below $20 suggests a deeper global recession. Further, a sustained oil price below $15 implies the worst economic conditions in the U.S. and globally since World War II, and perhaps longer.

That's because given the global economy's development, trade flows, and the number of major oil users, oil should not trade below $30 for any sustained length of time -- 3 months and longer -- if there is even a reasonable amount of commercial activity, both in the U.S. and globally.

Important point: Don't worry about a dip below $30 or a spike down to $28 etc. that is followed by a price rebound. Both can be ignored, so long as oil rebounds in a sustained way. That's static.

However, if oil drops below $30, then $25, and stays there, with additional downward pressure over 3-8 weeks, then you know that economic and/or financial market conditions have deteriorated substantially.

- -

Financial Editor Joseph Lazzaro is based in New York.