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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
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