In a recent blog (1/1/52016), I wrote about the risky times ahead in the stock market. I said my broker and I had talked about safe havens but found none. For those trying to keep up with the cost of inflation — not the real one which would include medical and drug increases – Money Magazine’s investor guide for 2016 recommends Treasury Inflation-Protected Securities, (TIPS). TIPS come with an interest rate the fluctuates with inflation. (“10 Things Every Investor Must Know Now,” by Kim Clark, Paul J. Lim et all, Money, Jan/Feb. 2016 pgs 51- 61) To find where to purchase TIPs go to Treasurydirect.gov. Vanguard’s Short Term Inflation Protection Securities is one of those the article recommends. (Ibid pg. 55)
Understand, I’m making no recommendation, here. I’m not qualified. I’m passing along information. How a person invests depends on income, goal and time frame necessary to reach that goal.
Knowing why oil prices are part of today’s market volatility is important. Normally low oil prices are good for the economy. Transportation carriers, airlines, truckers and rails benefit as does the average automobile driver. The less money a person spends to fill the gas tank, the more money can be spent elsewhere. Planes can upgrade the fleet, for example, or a hauler might consider buying a new truck. As for the average consumer, extra cash bodes well for retail and home improvements. So who besides oil companies isn’t benefitting from the lower oil prices and why the sharp decline in the market?
The answer lies in human psychology. Even in good times, people worry. Russ Koesterich, an investment officer with BlackRock, believes the drop in oil prices represents a forecast of a world economy grinding down. Not only do folks worry about Asian and European finances, they worry about the long time affect on the oil market itself, when oil prices drop below $40 a barrel. Koestrich explains it takes an oil company $36 to produce a barrel of oil in the U. S. (Ibid pg. 57) Oil prices at or below the cost of production eliminate any incentive to pull the commodity out of the ground. $50 a barrel makes production possible, a level that maintains thousands of jobs in the industry and gives people hope for the world wide economy.
Oddly enough, other factors, like periodic acts of terrorism have less effect than the price of oil on the market. History shows these events to be blips from which investors soon recover. Oil, despite the wishes of the environmentalists, continues to have a strong grip on our economic outlook.