It’s one of the biggest stories in the world…
As oil crashes to $36.40 – an 11-year low – there’s little reason to buy it.
There’s no catalyst. Supply outweighs demand.
Funds heavily weighted in oil names have been hit over the last year. High yield funds lost 4.1% on the year, worse than most stock funds. The United States Oil Fund (USO) lost another 29% of value from October highs.
Famed “God of Oil Trading” Andy Hall’s Astenbeck Capital Management lost 26% on the year… and is on track for its worst year since inception in 2008.
Calls for $70 oil from T. Boone Pickens fell to the wayside.
Global economies are suffering. The World Bank just cut its forecast for global growth to 3% from 3.4%.
Drillers filed for bankruptcy. And the world has become awash in oil…
States are suffering, too.
In fact, Alaska may see its first income tax in 35 years
At one time, thanks to taxes collected from oil companies, Alaska was one of the wealthiest states in the country.
Oil accounted for 72.4% of Alaska’s revenue in 2014.
Oil money was so rich residents received dividend checks that could total more than $8,000 for a family of four.
But after oil prices began to plummet, legislators noticed a $3 billion gap between the money they expected to spend vs. the money they needed to earn. For every, $5 drop in oil prices, notes The Atlantic, the state loses $120 million.
As a result of the budget gap, the Governor has requested to bring back personal income taxes for the first time in 35 years. Dividend checks could be cut too with poor economic consequences from reduced consumer spending.
But it’s not all bad news…
We have to remember that consumers – once cash-strapped with higher pump prices – don’t have much reason to be upset with $2 pump prices.
That’s the lowest price since the recession.
And it could fall well under $2 in coming days.
Consumers could save at least $12 filling up a 20-gallon tank this year.
The average household could spend $570 less on heating oil, too.
While some consumers are saving money from lower oil prices, increasing the personal savings rate to 5.6% on the year, U.S. retail sales are still up 3.7%.
That may be down from last year’s pace of 4.9% but it’s still higher than the 2.3% wage growth.
They’re also spending much more on cars thanks to lower oil.
In fact, the auto industry is having a banner year, with analysts expecting for 2015 to set a new high of 17.5 million autos sold.
That would break a record of 17.4 million in 2000.
Spending on restaurants is up 8.2% over the last 10 months.
Companies – like Wal-Mart (WMT) – are benefiting, too, as its fleet of more than 6,600 trucks run of fuel much less expensive than a year ago.
Airlines are expected to generate $33 billion in net profits this year, nearly doubling the $17.3 billion of 2014… All thanks to lower oil prices.
At the moment, oil is not a good investment.
However, opportunities still exist with a great deal of potential.
With the right strategies and a focus on pockets of strength, investors will do just fine. It’s just part of the reason The Cheap Investor has been so successful for more than 30 years.
Happy New Year, my friends!!