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Oil dropped below $60 a barrel as consumer confidence came in below expectations. The belief is that when the American consumer is not confident, he or she does not spend money.
That’s true to an extent. A brief look at airfare and hotel deals will tell you that Americans are not traveling as much as we have in the past. Indeed, just visit Yahoo! News and put in the term "hotel bankruptcy" and you get over 1,100 results with articles highlighting the latest hotel bankruptcies: tough time to be in the hospitality business.
And retail sales showed clearly that we aren’t headed to the mall as much, either. But iPhones seem to be selling pretty well. And foreclosure sales have been going pretty well, too.
As for oil, the schizophrenic International Energy Agency (IEA) just raised its demand forecast for 2010 by 1.4 million barrels a day. Seems like the IEA was just lowering estimates a couple weeks ago.
In any event, after taking profits on oil positions in my Top Stock Insights and SmallCapInvestor PRO advisory services, I’ll be looking to buy oil stocks again sometime in the next couple of months. That’s because demand is only half the story on oil. (Click here to find out more about Top Stock Insights and click here for SmallCapInvestor PRO.)
Oil companies are not investing as much to bring new supply on line. So when demand does return, companies won’t be able to ramp supply quickly enough. This will lead to demand outstripping supply. And prices will rise. In fact, some believe supply and demand will reach parity in 5 years or less. That’s a dangerous situation. And as an investor, you are almost obligated to own oil stocks.
*****"We are at the cusp of stabilization…" So says Stephen Stanley, chief economist at RBS Securities. Economists are raising their growth forecasts for the second half of 2009 from 1.2% to 1.5%.
Granted, that’s not a big move, but we’ll take what we can get. And maybe a little bullish talk will help consumer confidence.
Of course, consumers will probably notice when unemployment averages 9.8% in 2010. The U.S. economy has changed in some fundamental ways. The auto and finance industry job cuts may well be permanent. And it could take a few years for new jobs to be created.
*****Cold War politics are alive and well. At the G-8 meeting in Italy, Russian president Medvedev pulled a coin from his pocket that he said represents the new world currency. Medvedev even has the motto for this global currency worked out – "unity in diversity" is printed on the coin that was minted in Belgium. Quaint, isn’t it?
What does Russia hope to gain with this tactic? Nobody wants to buy their bonds. And a global currency won’t give Russia any new influence. Oil is priced in dollars, but even then, a new currency won’t affect oil’s value, only its relative price.
So it would seem that Russia is simply messing with the U.S. And that’s a strategy that could backfire, mainly because Russia has no leverage. I’d expect to see other countries come out in support of the U.S. dollar just because Russia doesn’t like it.
*****Now, here’s TradeMaster Daily Stock Alerts’ Jason Cimpl with his weekly video chart analysis. Enjoy! Click here to view the video.
P.S. Next Wednesday I’m releasing an update to my Predictions issue for Top Stock Insights. We did the first issue of it back in January to lay out how investors should invest in 2009. We were spot on and make huge profits for subscribers. This new update comes at a time when the market rally appears to be petering out and investors really need solid data and investment ideas. Click here to sign up for your copy and a 30-day trial to the service.