The investment newsletter of the decade.

Higher OIL Prices…
A short term phenomenon or here to stay???

Wall Street and most investors are still convinced that oil prices are up on a temporary basis and will be headed lower in the near future. This same group seems to want to discount the affect that oil prices is having on the economy, on the consumer, and on corporate America.

Over the past 30 years, the price of oil would have periodic price spikes but always settle back down to normal levels. Less than two years ago oil was below $30 and it was just three years ago that oil was below $15 dollars a barrel. Since 1869 US crude oil prices adjusted for inflation have averaged $18.59 per barrel compared to $19.41 for world oil prices.

We have been accustomed to oil prices that have maintained reasonable levels and we have fooled ourselves into thinking that this is what will happen today. These prices will affect all stock market investment systems.

WRONG !!!

The world is ever changing and many of the changes that have taken place over the last few years have had a direct affect on the consumption trends of oil and therefore have pushed prices to levels never witnessed before. The one thing that is different about today’s increase in oil prices is that IT IS HERE TO STAY. Be careful with advice from other investment newsletters that are banking on the opposite...

The consumptions trends that have been put into motion over the last few years will not only continue but grow exponentially over the next 50 years.

The consumption trends I am speaking of are not just that of the US, but the growth of emerging twin economic power houses. I am referring to China and India.

The world currently consumes over 80 million barrels of oil a day. China’s growth has been well documented over the last several years. By 2040, the economy of China will be larger than that of the U.S. And by 2060, India looks to have a larger economy than both.

By 2030 (less than 25 years from now) India’s population will overtake that of China. By then China will have 1.4 billion people and India will have close to 1.6 billion people. That is 3 billion people combined, all of which want to live and consume like Americans.

If the world is currently consuming 80 million barrels of oil per day with only 1 million barrels a day in spare capacity, what will oil consumption be 10, 20, or even 30 years from now.

Oil consumption in China has grown exponentially over the last several years and is showing no signs of waning. India hasn’t even entered the picture yet. With over 80% of its population under 45, and 50% under 25, look for the economy of India to begin to explode in the very near future.

The trends I am describing are demographic and economic trends that cannot be stopped. These are good trends and we are prepared to profit from these trends. But the one overriding ramification of the growth and success of China and India is higher oil prices.

IT IS UNAVOIDABLE…..

We believe oil over the next 5 years will easily surpass $100 dollars a barrel and gas prices in the U.S. will be between $3.00 and $4.00 per gallon.

This spells trouble for the United States economy because of the debt that the American consumer continues to hold and add to. High debt levels of individuals and low savings are only exacerbated by higher prices at the pump.

Supply and Demand…economics 101

America, Europe, and Japan all continue to be huge consumers of the worlds oil supply. Now China and India want to enjoy the capitalism and grow and flourish. Because of the shear number of people in these two countries (quickly approaching 3 billion compared to 300 million in the U.S.), the demand for oil will continue to skyrocket. Prices will too!!!

This is the one overriding factor that will continue to keep a lid on the stock market and keep the economy from really taking off.

We look for the stock market to continue to stay in a broad trading range, much like it did throughout the 1970’s. Unless you are able to pick really good stocks and have an understanding of when to buy them and when to sell them, you will have a hard time profiting in the stock market. The days of Buy & HOLD are long gone!

Of course you could always follow the recommendations of The Common Sense Investor and let us do the research and stock picking for you. Read the investment newsletters, and you simply have to bank the profits! Our stock market investment system always takes world wide conditions into account.

MARC BARHONOVICH
Jul 2005 by Marc Barhonovic


Enjoy the Rest of the Summer,

MARC BARHONOVICH