With all the talk of low oil prices you would think the world was coming to an end. No, it’s not. It’s actually great for all of us except for a few oil companies and a few investment banks who have too many high-yield bonds of those oil companies. The world consumes about 92 million barrels of oil a day or 34 billion barrels a year. At the $107.50 high a few months ago, that much oil cost $3.6 trillion. At today’s $53.60 price you could buy it for $1.8 trillion. Buy one, get one free….nice. $1.8 trillion has been taken out of the producers’ pockets and been added to the consumers’ pockets!
As you can see, it’s a tremendous tax cut for every American who will be spending that money elsewhere. Money spent on oil is burned, one-time. Money spent by consumers has a multiplier effect. Spend a buck at Target, and the company has to stock shelves and hire workers, who then have more money to spend, and so on.
Naturally any movement of money this size will cause some disruptions such as the risk of a collapse of the Russian economy. The Ruble has now fallen a staggering 70% in six months, and there is panic buying of everything going on in Moscow.
However, this decline in oil prices is extremely deflationary because the use of energy is so widespread that it is in the cost of everything. This is good deflation and different from the demographic deflation that I discuss in Facing Goliath – How to Triumph in the Dangerous Market Ahead. This will keep the Fed from raising rates for eons, well past when many fear.
Of course, deflation means other areas will slow, like housing, because home prices will level or fall. This is a major portion of the US economy which, for the most part, has been missing in action for most of this recovery.
However, if you are retired or close to it, the key is to be properly invested with a qualified retirement advisor. This will ensure you are looking at the big picture and getting the returns you “need,” but with the least risk possible, so you don’t get crushed during the next crash or correction. As you well know, you simply cannot replace this money….so you need a plan…for the good times and the bad…
…… and that’s where we can help. To learn more about The Springer Investment Approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market, or to get a free second opinion on your portfolio simply reply to this email or give us a call for a free consultation today.