It seems with each passing day, oil sets a new low. Today, under pressure from falling oil, the Russian ruble dropped yet again despite a huge benchmark interest rate hike (from 10.5 percent to 17 percent) by Moscow. The currency has lost more than half of its value against the U.S. dollar since the end of June. Soft economic news from China and the euro zone added to the growth concerns. Read more about Stocks Follow Oil's Seesaw Action 12-16-14
As we discussed last week, market expectations near term look grim for oil and energy sector stocks and funds, but this is no time to panic. In fact, as oil prices near a five-year low, this looks to us like a good time to exploit the market weaknesses of the strongest positions available.
Read more about Oil Near a Five-Year Low 12-09-14
The sharp fall in oil prices engineered by Saudi Arabia will likely be fairly short lived, and indeed sets the stage for the next major rally in oil prices. Though oil prices could stay at or well below recent levels for at least another 6 to 9 months, within the next 12 to 18 months, odds look much better than 50-50 that oil will spike closer to all-time highs than languish at current prices. The Saudi actions will have significant short- and longer-term economic and political implications; these could prove foundational vis-à-vis how to position your portfolio. Shorter term it brings us much closer to a bottom in the commodity price correction that began with the European recession in 2011. But first things first. The two economic blocs that stand to benefit most from the price cut are the Europeans and Chinese. The lower prices give both economic blocs, as major oil importers, a free shot in the economic arm. More cash in the hands of the populace without the need for any government to lay out a penny.
On balance, however, lower oil prices will provide a mixed blessing to America. On one hand, the country’s most dynamic industry, energy production, may crumble. On the other, U.S. consumers will retain more cash in their pockets. Moreover, stock investors should note that since OPEC first flexed its muscle in the early 1970s, America has never experienced a major market decline during a bear market in oil prices.
So on balance, good for Europe, okay for America, but the biggest winner by a wide margin is China. There, the drop in oil proves a manifold blessing. Chinese consumers obtain a de facto tax cut; the yuan, as a result obtains more freedom to follow its upward trajectory—further boosting consumer demand as well as Chinese wherewithal to import all that military, industrial and consumer technology that the Middle Kingdom so ravenously craves. Better times in Europe should also help offset the higher yuan as European consumer spending picks up. As a bonus, China can buy oil on the cheap Read more about How to Profit from the Trough in Oil 12-02-14
Stocks received an unexpected boost late last week as China announced a reduction in benchmark interest rates and signaled that its government was ready to adopt a more accommodative stance to prevent an excessive slowdown. The People’s Bank of China cut the one-year deposit rate by 0.25 percentage point to 2.75 percent, and lowered the one-year lending rate from 6 percent to 5.6 percent. This was China’s first rate reduction in more than two years. Read more about China Starts to Ease 11-25-14
Yesterday, the People’s Bank of China raised the reference rate, known as the central parity rate, for the yuan (aka the renminbi) by the most in the last four years, in an apparent move to support the currency in light of weakness in the yen after the Bank of Japan expanded its asset-purchase program to an unprecedented level. The yen is one of the currencies, along with the U.S. dollar, the euro, and others in a basket against which China pegs the renminbi. On a daily basis, the PBOC sets a parity rate and allows the yuan to trade within a fixed range of it. Read more about Riding China's Rise 11-11-14
Coming off two very strong weeks that took both the S&P 500 and Dow Jones Industrial Average to new record highs, U.S. stocks took a breather today as a poor growth forecast reminded investors that all’s not well across the Atlantic. Read more about A Breather After New Highs 11-4-14
The Federal Open Market Committee, the Fed’s policy-setting board, meets this week and will announce its latest policy decision tomorrow afternoon. Observers widely expect Janet Yellen and company to announce the end of the latest iteration of the Fed asset purchase program (aka QE3). Increased market volatility in recent weeks, however, alongside the strong dollar, and uncertainty over global economic stability and the possible impact on the U.S. recovery, had sparked speculation that the end of QE may be delayed. Fed officials have publicly acknowledged the possibility. Read more about The Fed to Keep the Reins Loose 10-28-14