Oil Just Topped $90

Oil has been skyrocketing. There are a couple of ways to look at this. Presidential candidate Steven Colbert would be quick to point out that this is simply big oil trying ot gouge the good people of South Carolina. They are unfairly raising the prices on something that we require to live. They must be stopped and the price must be set by the government. It worked great for Russia, after all.

Another way to look at it is to say we use a ton of it and there is just more supply than demand at this point. The problem with this theory is that on hand supplies are actually increasing, according to reports. A big factor that they do bring up in this story is loss of faith in the American dollar.

To clarify, I am not preaching any dooms day scenario. Well maybe kind of. People will have to start working for a living again, and the government will have to tighten it’s belt. But for the average American that does a little saving and tries to live within their means, things will not be too bad. First of all, inflation (which will cause the fall of the dollar versus other currencies) will make things produced in foreign countries more expensive here. At this point, that is pretty much everything except drugs and defense. On the bright side, our good will cost less in other countries. This will be a massive boon for American manufacturers. As long as they can keep unions from getting unrealistic, we could gain some advantages. Also, if someone has stayed relatively debt free, they can take a few waves. It is the ships that have been sailing nearly sunk that will be capsized. I guess we all need to look at where our individual ships are in terms of earnings, spending, and savings. If you make a million a year, spend a million, have 10k in savings, and have100k invested, you are in a lot worse shape than the guy who makes 50k, spends 35k, has 8k in savings, and 50k invested. Americans have been taught that they deserve to live with everything they make spent (plus a bit more, especially if you are spending it on my products.) Some of the weaker ships are going to have to scramble a bit. One thing that is scary to me is that in the 1920’s, people believed they were in a new economy, that they were beyond the depressions. We seem to think that way about ourselves also.

Parts of me don’t like investing in stocks, seeing that a panic could cause rapid drops across the board. Although historically, things should come back, I don’t really want to take the ride down. I think it would hurt watching thousands of dollars evaporate in an instant. When I invest, I try to pick companies that will make decent money, and I love a dividend. I also like the policy of Buffet, where he never invests in a company that he doesn’t understand. I am not saying that I understand these companies extremely well, but I get how they make money. One company I love is a miner, FCX. If the US economy does well, it will continue to drive the world economy, including China, resulting is a lot of use of metals. If the US does poorly, the commodities (copper, gold, and molybdenum) will retain their value better in an inflationary period. The energy giants have the same situation. Unless you think Americans are going to quit driving, you want a piece of the energy giants. Their biggest danger is demagogues like Hillary Clinton. They give these speeches about how much money the energy giants make. They do not say that almost every American owns a piece of these energy giants through mutual funds. The returns of these oil companies are historically pretty average. The thing I like is they don’t look like they will be going down from here.

Anyway, I still see inflation as being a risk. Deflation is a problem given the shortage of dollars that Americans have. The government can cure that problem with the presses. If inflation starts to pick up, foreign countries will start dumping their dollars in the US and exacerbate the problem. I like being invested in international companies with headquarters in the US. You gain the advantages of the falling dollar and international growth with the benefits of the low risk US environment.

Anyway, those are my thoughts


1 Response to “Oil Just Topped $90”

  1. 1 rhill October 21, 2007 at 9:05 pm

    I think we are in the hurt locker.

    This is the start of the drive to a world currency which will in turn fuel the need for a world government.

    Part of the reason our dollar has dropped in value is that we have a huge debt and we continue to print money that has no real basis (ie not a gold standard). To date many foreign countries have invested lots of money in the US. I think China has to a large degree to keep us propped up so they can continue to sell us cheap goods and grow their manufacturing basis. Other countries do it because they have so much already tied up in our future.

    The end of this will be when the US market goes really bad which will cause an international recession/depression which will then open the door for discussions of a world currency. I think that will also be the setting for the end times mentioned in Revelations.

    A world currency might help other countries but I doubt it will do much for the U.S. In fact, I think we will see a repeat (on a national scale) of the madness of post-Katrina thoughout the U.S. because people feel entitled to their current standard of living. And, like Katrina, I think many politicians (aka Hillary) will see populace disarmament as the solution.

    What can we do in the meantime?
    1. Gain other skills than your job at work. If you can’t garden, fix things around the house, work on your own vehicle, etc and your current job goes under you’ll probably be in a crisis.
    2. Minimize debt and unnecessary material items. If you can sell it for money now and don’t need it, get rid of it as I think we will see the value for many things drop in the future. Minimize debt and don’t take on unnecessary debt.
    3. Set your spiritual house in order. Many of us have ignored God for too long and this is part of the wakeup call.

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