Another day, another drop in crude oil prices. At least that’s the way it has felt a lot lately. Today crude prices hit another low, around $54 a barrel, a level last seen in early May, 2009 when the world economy had yet to climb out of the Great Recession. Circumstances look much different today, of course, and it’s not a lack of demand but a surfeit of supply that has taken crude prices so low. Read more about Overwrought, Oversold and Under Appreciated 12-16-14
After setting a new record just last Friday, the blue chips, as represented by the S&P 500 index, have retreated this week. Of course, investors have plenty of reasons to book some gains ahead of the year-end, and to garner some losses too. Read more about December Blues 12-09-14
The sharp fall in oil prices engineered by Saudi Arabia will likely be fairly short-lived, and indeed it should set the stage for the next major rally in oil. While prices could stay low for another six to nine months or perhaps a little longer, odds look good that within the next 12 to 18 months oil prices will rise much closer to their all-time highs from current levels. Moreover, oil’s drop has shortened the time it will take for commodity prices in general, whose correction began in 2011 with Europe’s recession, to bottom. All this has important implications for the short- and longer-term geopolitical and economic outlook and for U.S. investors.
For the U.S., the lower oil prices are a mixed blessing. On one hand, they will put extra cash in U.S. consumers’ pockets; on the other, the country’s most dynamic industry, energy production, will crumble. For investors, we’ll note that since OPEC first flexed its muscle in the early 1970s, U.S. stock markets have never experienced major declines concurrent with a bear market in oil prices.
The two economies that will benefit the most are Europe—at least over the shorter term—and China. Both are major oil importers, and lower oil prices are a free shot in their economic arm, giving consumers extra cash without the government laying out a penny. But China stands out as the biggest winner by far, with the drop in oil a multifold blessing over the shorter and longer terms alike.
It not only hands Chinese consumers a de facto tax cut; it also gives the yuan more freedom to follow its upward trajectory. This further boosts consumer demand while allowing China to import all the military and other technology it craves. Better times in Europe will also help offset the higher yuan as European consumer spending picks up. As a bonus, China gets to buy oil on the cheap Read more about How to Profit from the Trough in Oil 12-02-14
Contrary to what you might think, this is a tough time of the year to attempt to make market calls (not that it’s ever easy, mind you). As is common knowledge, stocks tend to rise at this time of year. In fact, since 1950 the Dow Industrials have advanced about 70 percent of the time during the month of December and, on average, gained 1.7 percent for the period, making this typically the best month of the year for investors. Read more about A Tough Call in What Should be an Easy Market 12-02-14
Data from the U.S. Commerce Department this morning confirms that the economy enjoyed its strongest back-to-back quarterly showing in more than a decade. Commerce revised upward third quarter GDP by 0.4 percent to 3.9 percent thanks to a build in inventories and an uptick in consumer spending. The current quarter will also show expansion, though likely at somewhat of a slower pace. Read more about Rally Running Out of Steam 11-25-14
Remember the drastic moves Japan announced a few weeks ago to reinvigorate and re-inflate its economy? Well, it looks like Japan must do even more work. We learned the other day that its economy slipped into recession yet again last quarter, having contracted at a 1.6 percent annualized rate in the period. This marks its fourth recession in six years. In response, the Abe government has postponed an increase in the nation’s sales tax and called for snap elections to insure that it has a mandate to govern. Read more about Central Banks to Remain Accommodative, But Stocks Due to Pause 11-18-14
The markets continue to climb on optimism for stronger growth and continued easy monetary policies. Most recently, news from Japan has it that Prime Minister Shinzo Abe is considering dismissing the cabinet and calling new elections, all before rescinding a hugely unpopular planned sales tax increase. Or, to be exact, rumors to that extent have not been rejected by the Japanese government. Read more about How High Is Too High? 11-11-14