If you pumped petrol these few days, you may have noticed a big sign board at the petrol station stating “Petrol Price Has Changed!” Today, ExxonMobil Synergy 5000 is selling at $2.12/liter.
If you have been following my blog, I have already warned at end of Nov that investors should not neglect the oil crisis outside euro zone. Brent Crude Oil has shot up since mid of December and has exceeded US$113 per barrel today.
Ironically, when Euro and US are pictured as doomed places and all the “analysts” and “professionals” yell that 2012 is another crisis year, Dow Jones Industrial Average Index has just reached its Golden Cross (a technical bullish indicator) when its 50-day simple moving average crossed above the 200-day simple moving average.
Next time when you pump petrol again, don’t just sign the credit card slip. Take a look at the price and see what does it tell you.
On Wednesday,The European Central Bank, U.S. Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland took coordinated action to ease the strains on the world’s financial system, saying they would make it easier for banks to get dollars if they need them.
While the world is cheering the announcement with stock markets and the euro rose sharply, you should peel your eyes away from eurozone for a moment and take a look at another crisis – which may just have enough potential impact to the global financial system.
Heightening political tensions in Iran have become a focal point, with the potential of economic sanctions including a ban on imports from one of the world’s leading Oil exporters appearing to have supported Crude Oil futures prices.
With US troops leaving Iran, the balance of Middle East may be disrupted. The uncertainties have clearly been reflected in the market. The Oil price is creeping back silently in the past month and both WTI and Brent Crude Oil have crossed US$100!
Feb. 28 (Bloomberg) — Jim Rogers, chairman of Rogers Holdings, talks about his investment strategy for global stocks and commodities. Gold advanced, approaching a record, as tensions in the Middle East boosted oil prices, increasing demand for precious metals as a protector of wealth and hedge against inflation. Rogers also discusses his strategy for the U.S. dollar. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)
Key Points from the video:
- Saudi Arabia not truthful about their oil production
- Gold is going to go up to $2000 at the end of the decade
- Investors should stay investing all commodities
- Short emerging market and NASDAQ to hedge
- Buy dollar when it is cheap now
Watch the full video from this link
Political unrest and soaring Oil price are all over newspaper headlines nowadays. Oil, which is hanging at 29 months high, become the culprit causing the market correction lately, again.
But if you recall the reports during financial crisis just 3 years ago, people blame oil price for increasing business cost, hurt corporate earnings and slow down economy. but when oil price finally came down, did the market stop falling? NO!
Look at the chart below, in fact, oil and stocks are more correlated nowadays
Oil Price vs S&P 500 (Source: Bloomberg)
So instead of panicking about the current situation, investors should ask themselves, are the global economy still on the recovery road.
Maybe many investors felt that the market was overvalued; Maybe many wanted to take some profits; Maybe some were simply looking for an excuse to reduce their equity exposure.
Hudge market movements are seldom at the hand of individual investors, fund managers also needed a good excuse when their funds are down so they blame oil.
Think about it.
Source: Wall Street Journal
Crude oil is now influenced more by the stock market than by its own inventory levels or demand patterns. Lately, that lockstep has reached an extreme, with the correlation between crude oil and the Standard & Poor’s 500-stock Index hovering around 70%, doubling the average of 34% since 2008.
Oil and stocks aren’t supposed to swing in sync with each other. Unlike stocks, which are priced off corporate earnings, oil is usually driven by supply-and-demand dynamics.
Last week, this high correlation was a double-whammy for investors who owned both oil and stocks. A 4% selloff in stocks was compounded by a 7% loss in oil prices.
“The typical low correlation causes many investors to include commodities into their portfolios of stocks and bonds to diversify and smooth out swings in their other investments”, It seems investors have to reconsider this strategy now for the portfolio construction