Tuesday, September 02, 2014 05:08am
North Adams, MA now: 66 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
Independent Investor: Oil — The New Tax Cut
By: Bill Schmick On: 03:35PM / Thursday June 23, 2011
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

On Thursday, for only the third time in its history, the International Energy Agency decided to release 60 million barrels of oil from global strategic petroleum reserves. They did so in order to "ensure a soft landing for the world economy."

As readers are aware, I suggested that investors "take profits" on oil as it soared past $100 a barrel almost two months ago. I argued that the clearing price on oil should be closer to $85 a barrel, given the slow growth of world economies. I was early in my recommendation, since oil subsequently climbed as high as $112 a barrel before plummeting to its present level of around $90 a barrel. I fully expect my price target will be reached in the coming weeks.

However, while oil dropped 5 percent Thursday, generating an annualized benefit of $36 billion to American consumers, the stock market fell by over a percent equating to a $200 billion loss. To me, that is a major contradiction. Here's why.

In energy, the rule of thumb economists often site is for every $10 increase in the price of oil, Gross Domestic Product (GDP) drops by one half of one percent. By March of this year, we had experienced a $25 hike in a barrel of oil in a very short time period. Economists were predicting that when (not if) oil reached $120 a barrel, the U.S. economy could easily fall back into recession.

Consumers bear the brunt of higher energy prices. Every one cent increase in the price of gasoline takes $1 billion out of our pockets. And actually it is much more than that (almost double) when you include things like home heating, electricity and price rises in alternative sources of fuel such as propane.

The real tipping point in impacting our consumption behavior occurs when energy prices reach 6 percent of average consumer spending, which occurred in March 2011 at 6.27 percent of spending. At that point, the top 20 percent of income earning Americans were spending 7.9 percent of their disposable income on food and energy. That may be a manageable hit for the rich, but not so for the bottom 20 percent of income-generating Americans. For them, energy and food account for a whopping 44.1 percent of after tax income. No wonder consumer spending and employment fell off a cliff.

As a result of higher energy and food prices, together with the fallout from the Japanese earthquake and tsunami, our economy has hit a soft patch which triggered the present decline in the stock markets. But circumstances have changed and in my opinion it won't be long before market players begin to realize that.

We can't have it both ways. The steep decline in oil and other commodity prices will boost consumer spending and economic growth while reducing unemployment. For consumers, it should be a matter of days before we begin to see this decline reflected in the price at the pump, in electric bills and in other areas. It is an instant and fairly hefty equivalent to a tax cut. Corporations will feel it too, but consumers benefit from that as well in the form of lower prices for products.

Right now, investors can't see the forest for the trees. With Greece threatening to collapse, unemployment rising a bit and the economy still slowing, it is hard to focus on what is just around the corner. But that, my dear reader, is exactly why I write this column — to help you focus on the horizon because there are better days are ahead.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

 



0 Comments
Tags: oil, energy      
News Headlines
College, Criminal Processes for Sexual Assault Cases Not in Conflict
Pittsfield Board Approves Expansion For Pediatric Devleopment Center
MCLA Women's Soccer Falls to Albertus Magnus
Larabee, Giorgi Honored With 'Frankie' Awards
Former Finance Director Returns to Williamstown as Pastor
Armory Takes Lead in Torchia Softball League Final
Legislative Q&A: State Rep. William 'Smitty' Pignatelli
MCLA Women's Soccer Ties; Tennis, Volleyball, Men's Soccer Win
Holiday Hours: Labor Day
Clarksburg Weighing Bridge Plans, Preparing Special Town Meeting
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (143)
Independent Investor (194)
Archives:
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
October 2013 (6)
September 2013 (6)
Tags:
Stimulus Banks Housing Crisis Oil Fiscal Cliff Markets Economy Taxes Energy Retirement Interest Rates Pullback Debt Ceiling Congress Fed Recession Deficit Euro Stock Market Europe Jobs Metals Debt Bailout Europe Selloff Japan Federal Reserve Stocks Election Currency Commodities Greece Rally
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
@theMarket: What's Up With Bonds?
The Independent Investor: Baby Boomers and Retiremen
@theMarket: Labor on Their Mind
The Independent Investor: Financing ISIS
@theMarket: Geopolitical Risk Trumps Economic Growth
The Independent Investor: Beware the Russian Bear
The Independent Investor: Why Some Corporations Are Leaving America
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?


View All
Friday Soccer Scrimfest
Friday afternoon girls soccer 'Scrimfest' at Drury High...
Pignatelli Campaign Kickoff...
State Rep. William "Smitty" Pignatelli held a kick off...
Down Street Art
People flooded main street to see the new art installations...
Western Mass Beer Fest 2014
Hundreds turned out for the 9th annual Western Mass Beer...
High School Soccer
High School soccer practice got under way on Thursday.
Motorama
Hundreds of cars, trucks, motorcycles, snowmobiles and...
Chamber Nite @MountainOne
A who's who was at the MountainOne-hosted Berkshire Chamber...
Third Thursday Aug. 21, 2014
The August Third Thursday event in Pittsfield included a...
High School Football
High School football practice got under way on Monday.
Giorgi League Semis: B&B vs...
Burr and Burton held a steady lead over Bennington, Vt.'s,...
Giorgi League Semis: Drury vs...
Alex Heck scored 19 points to lead the Drury boys...
Mill Children Opening
The 5 Hoosac Street Gallery held its grand opening Friday...
Downtown Celebration 2014
North Adams held its annual street fair on Main Street on...
Worcester Bravehearts vs...
Key at bat helps the Worcester Bravehearts defeat the...
9th Annual Rock, Rattle &...
This year's theme is "Living in Harmony, Fulfilling Our...
Softball Series: Berkshire...
Friday Soccer Scrimfest
Friday afternoon girls soccer 'Scrimfest' at Drury High...
Pignatelli Campaign Kickoff...
State Rep. William "Smitty" Pignatelli held a kick off...
Down Street Art
People flooded main street to see the new art installations...
Western Mass Beer Fest 2014
Hundreds turned out for the 9th annual Western Mass Beer...
High School Soccer
High School soccer practice got under way on Thursday.
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved