Oil, The Market, & YOU!

[Tommy_Dolitte]

Oil is up about 50% since the beginning of the year.  Some economists have offered that when this value approaches 80%, a recession is inevitable--a la 1980's.

In concert with this is the government's attempt to raise interest rates to slow down the economy (i.e. oil usage) to preserve inventory levels.  We all know the local and global threats that exists compounding this current reality---e.g. waste and overuse, demand increases b/c of population growth/life expectancy, etc.  

It'd be interesting to research what our inventory levels were pre 9/11. Hmmmm


Anywho, a recession and stock market crash is amongst us folks---brace for the turbulence.  I have a feeling that all we discuss and have read will be tested very soon and at least for the next decade.

Companies are focusing on "saving" money these days vs. making money.  Productivity has become the corporate mantra as unit sells are way down across most industries.  No wonder pharmaceuticals and health care thrive---this matches PERFECTLY with the population/age trends---i.e. this is the capacity to help things chug along as we play tug of war with interest rates and the economic impact the price of oil has on e'thing.

Very sad...

Thoughts?

 

[brewer12345]

I think that this pessimism isn't necessarily justified just yet. If oil prices persist this high for an extended period (say, another year) we will really start having cause for worry. OTOH, if this is all temporary, then its nothing more than a blip. I suspect that it is temporary, in part due to the unlikely confluence of events that have jacked up oil prices (hurricanes in the gulf, Nigerian unrest, etc.). IMO, the market will respond to higher oil prices with more output, and things will equilibrate.

Companies are piling up cash and trying to cut costs, but I don't think this will persist forever. It looks to me like we are continuing to slowly climb out of recession, much the way the recovery from the early 90s recession happened. If that is the case, we will have some humps and bumps, but ultimately the trend will be upward, just not too quickly.

 

[wabmester]

On an inflation-adjusted basis, oil is still cheaper than it was at its peak around 1980. If it hits $65/bbl, then you can worry

The economic projections I've seen indicate that even if productivity levels fall back to the long-term average, the GDP will still grow at a pretty good clip for at least the next few years. You can thank low taxes, low interest rates, and deficit spending for that.

Of course, all of these chickens will eventually come home to roost.

 

[Berkshire_Bull]

so the question is how do you hedge against a sharp stock market correction? obviously index funds won't help when you see an across the board decline. gold might be a viable investment as well as possibly oil companies themselves. something about gold stocks, is when you look at them, even though the 90's were terrible for gold, they still were able to nearly match the market in return, with possibly lower risk... i don't own any, but it may be something to consider... anyone have any pics in the gold sector?

 

[Tommy_Dolitte]

Good points...

Can someone explain to me WHAT inflation is? Really...

TD

 

[unclemick]

Inflation is when something I want costs more than I think I should have to pay.

All other definitions are moot!

Heh, heh, heh, heh.

 

[wabmester]

Inflation is simply too much money chasing too few products.

 

[retire@40]

So far oil is a non-issue. I'm paying $1.85 a gallon for a gallon of gas while in Europe they are paying about $5.50 a gallon and our average income is higher than theirs. You factor in inflation and we're not even at all time highs.

If you get an average of 18 mpg and you drive 15,000 miles a year, you use 833 gallons a year. So if gas goes up even another 50 cents, what is it costing you? Another $416 a year? Big deal. If you make $20 an hour you need to work an extra 25 hours a year. There are worse things in life. Work some overtime at time and a half and you only need 14 hours a year or 2 Sundays. There are worse things in life.

I hate paying any more than I need to and I wish gas were back at $1 a gallon. But why all this doom and gloom about a few bucks?

 

[Tommy_Dolitte]

Didn't mean to come off doom and gloom...

Actually, I look @ the current situation more holistically than my personal finances. Specifically, in a context comparable to historical events---which I am more convinced most don't care about, don't get, or both.

Why should we be immune to a major failure---as a culture, we've only provided analogs and derivatives of some of the most BASIC of concepts, technologies, etc.

I prefer to keep an open mind to things as well as stay well versed in what is recirculated as being the truth.

Still...no one has really answered my first question---continuing to ask does not suggest that I know either. What IS inflation...and why are their limits to retirement contributions?

Most of us will do very well in life, but I wonder if we ALL could do much better, faster, and easier if we COLLECTIVELY asked and DEMANDED answers to fundamental questions....this is of course what makes America...America right---the constitution and democracy---the former of which is FILLED with inconsistencies....

 

[Beachbumz]

I'm not disputing your point, retire@40, but certainly if the cost of the gas you personally consume was the only issue it wouldn't be a big deal as you explained. The bigger problem, as far as inflation, is how the rise in oil prices will affect the cost of all the goods and services we consume. I agree that it is probably not a big problem yet, but if prices continue to rise....

 

[retire@40]

I'm not disputing your point, retire@40, but certainly if the cost of the gas you personally consume was the only issue it wouldn't be a big deal as you explained. The bigger problem, as far as inflation, is how the rise in oil prices will affect the cost of all the goods and services we consume. I agree that it is probably not a big problem yet, but if prices continue to rise....

Very true. There is so much a company can absorb in additional expenses before it has to increase the cost of goods to make up for that increase so not only do we pay more in gas, but we also pay a few cents more per head of lettuce that got transported by the truck that used the fuel which increased in price.

I haven't quite grasped how the entire global market works. All this extra money we are spending is going to the oil countries. What are they doing with all this extra money? Is it coming back to the US when they invest in our stock market or buy military hardware from us?

 

[cute fuzzy bunny]

The cost implications are magnified when you live in an area that has to have much of its products imported.

Where I live, pretty much any food product is grown or raised within a few hundred miles, give or take. So its pretty cheap. But the same companies who drive it 10 miles to the store I buy from also have to send it 1000-3000 miles away to northern states that cant/dont grow all these items and to other locations during the winter months. The extra cost of that ripples down to me as well, even though I live right up the street.

Farmers markets are our friends though.

Where we're really going to get pinched though is in fertilizers, medications and other specialty items that require oil to make.

Looking at oil costs, the europeans really have the idea. Tax the crap out of it and look what happens: people drive tiny little cars, ride bicycles, and only drive when they have to. Oil consumption is extremely low in europe compared to the US. They're not dependent on it. (Here I go starting trouble) It also means that you dont have to concoct reasons to invade oil rich countries to make sure the pipes stay open. Factor in THOSE costs.

 

[Tommy_Dolitte]

There are no rich sources for oil in Europe....BUT, the world is EUROPE's puppet...especially the U.S.---anyone that believes otherwise doesn't get it.

As for the questions on what happens to the money---think about who participates in the stock market---and REALLY what the stock market is all about...

 

[wabmester]

Is it just me, or does this board keep getting weirder each day?

Just kidding. I know it's just me.

 

[unclemick]

Wab

Perhaps you inadvertantly inhaled some fresh dryer sheet fumes. Once you've kicked the fresh habit - recycled dryer sheets get better and better.

BTY - how much oil is consumed in making dryer sheet fragrance worldwide or is it just a U.S. thing?

 

[Brat]

Yes, we are getting goofy..

Maybe we can lure Dory back to comment on the oil situation but here is my take...
There are several "oil" prices. One is for light sweet that we get from the Carib and off of Africa, primarily. The other is high in sulphur, the Arabian Gulf product. The inventory of light sweet is VERY tight at the moment and our 'fix-it" actions in the Middle East haven't helped. Complicating this is that refineries can't easily change from one type to another.
Add to the above the fact that citizens of the developing world also want to drive cars. All those products they are making require electricity to run the plant and trucks/trains/ships to transport products to market.
The price of petro chemicals will go up. What it's impact will be on the world's economies is uncertian.