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Oil: Where it Goes After the Israeli BombingsBy
Monday, July 17, 2006
On September 12, 2001, I issued a special report to my subscribers called,What Happens to Stock Markets When National Security is Threatened. I studied every threat to national security in the 20th Century, and what happened to the stock market afterward. I did the research through the night on September 11th. I felt my subscribers needed to know what could happen... whether the news was good or bad. The conclusion of my report was optimistic:
September 11th changed everything in America. The day before, we were blissfully ignorant. Now we’re aware that there are thousands of men out there, willing to kill us without remorse, simply because we don’t believe in their god. At the end of my September 12th report, I also included a special section on what happens to commodity prices in times of war. What I found is particularly applicable right now, with what’s going on in Israel today... In my look at commodity prices, I started with oil. I said,“History suggests that oil prices only rise if the opponent poses a threat to the world supply of oil.” I gave a few examples of international crises where oil was not at stake in the conflict:
The conclusion was simple: “Based on limited evidence, it seems clear that oil prices rise when the supply of oil is threatened in particular, not our national security.” I believe that conclusion today. But how do we size it up now? If Israel and Hezbollah keep the fighting amongst themselves, there shouldn’t be a long term impact on the price of oil. To be brutally honest, this doesn’t affect the world supply of oil. The question is: How far will things escalate? I’m no expert in that. Honestly, the possibilities scare me. If oil keeps going up, chances are, it’s telling us we’ve got a lot more to worry about than expensive gas at the pump. Just as the stock market is typically a good leading indicator of the economy... oil is likely a good leading indicator of tension in oil-producing nations. Starting today, you can think of the price of oil like the president’s approval rating... as the price falls, the world is “voting” that the tensions in the Middle East are easing. And if the price of oil rises, unfortunately, chances are, there’s more trouble to come. If you want the honest answer on how things are going day-to-day on the Israeli border, don’t watch the news. Watch which way the price of oil moved that day. That will tell you all you need to know. Good investing, Steve Market Notes
NEW HIGHS OF NOTE LAST WEEK
Merck & Co. (MRK)… Big Pharma NEW LOWS OF NOTE LAST WEEK Dow Chemical (DOW)… chemicals New Low of Special Note: After a brief rebound in June, the homebuilding sector resumed a brutal downtrend last week. Even best builders are down 50% from their 2005 highs. This 2-year chart of the Philly Homebuilding Index displays the plunge: -Brian Hunt |
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