Forget the doomsday prophesies: triple-digit crude won’t slow us down much, writes Elliott Gue, editor of The Energy Strategist.
Every time crude oil nears $100 per barrel, you can count on the media to focus on how rising prices at the pump are pinching consumers. These days, pundits describe $100 oil as a major “tax” on the consumer that endangers the nascent economic recovery.
Although higher energy prices will weigh on consumer spending, $100 oil isn’t some wild card that will suddenly wreck household budgets. US consumer spending hasn’t returned to the robust levels witnessed during the credit boom, but American shoppers have exhibited few signs of concern about energy prices.
The Bureau of Labor Statistics (BLS) estimates that motor fuel accounts for just 4.5% of total US consumer expenditures. Household fuels—heating oil, natural gas, and electricity—account for another 5% or so of total consumer expenditures, but the number of consumers using oil for heat continues to decline. Meanwhile, natural gas prices are depressed, and December electricity prices were down from a year ago. Overall, household fuel costs rose just 0.8% year over year.
As much as Americans gripe about rising oil prices, the average urban consumer doesn’t spend much of his disposable income on gasoline. Individual circumstances vary from the averages used by BLS, but rising fuel prices aren’t the driving force of consumer spending that some assume them to be.
The average American consumes about 23 barrels of oil per year, including oil used for transportation and that used by industry in plastics and other products. If oil increases to $105 per barrel from $90 per barrel, that amounts to an additional $340 in annual spending per person—slightly less than 1% of the average American’s $37,000 in annual per capita disposable income. I’m not arguing that rising oil prices and imports are good for Americans or the country, but it’s hardly a death knell for spending.
The Real Tipping Point
Oil prices would need to jump to $120 per barrel—a distinct possibility later in 2011—to measurably affect US consumers’ spending habits. But oil would have to remain at this elevated level to have an adverse impact on the economic recovery.
Meanwhile, global oil demand is soaring. The graph below tracks it in millions of barrels per day from the mid-1990s to present.
Click to Enlarge
As you can see, the world consumed less than 70 million barrels of oil per day in 1995, a figure that has risen steadily to 87.7 million barrels per day in 2010. The International Energy Agency expects demand to reach 89.1 million barrels per day in 2011.
Within this 15-year period, 2009 marked the only occasion when global consumption shrank on a year-over-year basis. Oil demand growth was particularly strong between 2003 and 2007.
Global oil demand hit a new record in 2010, increasing by 2.7 million barrels per day. That’s the fastest pace of global oil demand growth since 2004, when oil demand rose by 2.75 million barrels per day.
And this year, consumption is expected to surge by a further 1.4 million barrels per day—if these expectations pan out, 2010-11 will mark the fastest two-year growth in global oil demand in at least three decades.
The Chinese Can Afford It
Higher oil prices are far more affordable to the average Chinese consumer than just a few years ago, thanks to rising incomes and currency appreciation. Disposable income has increased steadily in recent years in the developing world.
For example, since 2005 per-capita disposable incomes in China have increased at an annualized rate, in local currency terms, higher than 12%. In US-dollar terms, this pace jumps to almost 20%.
A rapid jump in disposable income always drives demand for energy. Because personal incomes are much higher than in 2008, Chinese consumers can better afford higher oil prices today than they could in 2008. A similar logic holds in most of the major emerging markets.
Showing posts with label Best Stock Investment. Show all posts
Showing posts with label Best Stock Investment. Show all posts
Monday, February 28, 2011
Wednesday, February 16, 2011
Warren Buffett’s Advice – Expect Less – For Next 20 Years!
Multi-billionaire Warren Buffett, the third wealthiest man in the country, has a flawless record of long term-market timing.
As a successful young money manager for wealthy investors in the mid-1960s bull market, he withdrew from the market entirely as the 1969 market peak approached, liquidated his partnerships, and returned the assets to his investors.
By doing so he avoided the 36% market plunge of 1969-1970, and the 45% bear market of 1973-1974.
Permalink: [584] Top Stocks To Buy - Warren Buffett’s Advice – Expect Less – For Next 20 Years!
Then listen to what he had to say in August 1979. The Dow was at 848. After being mauled by several bear markets, the public had no interest in the stock market. Bonds were the popular investment.
In a 1979 magazine interview Buffett said, “Stocks are now selling at levels that should produce long-term returns far superior to bonds. Yet pension managers and investors are pouring their money in record proportions into bonds, while placing orders for stocks with an eye-dropper.”
“Dow type stocks can now be purchased at around their book value and their earnings are liable to be 13% per year.” He said. “If price/earnings ratios expand over the next twenty years then purchases made now at book value will result in even more than a 13% return.”
His prediction was on the button. From August 1979 to August 1999 the S&P 500 has had an unusual total annualized return of 17.2%.
Throughout the bull market he predicted, Buffet has remained steadfastly in the bullish camp. As a “value” investor he refused to chase the latest fad stocks, totally avoiding each craze as it came along, whether it was the rise and subsequent fall of the exciting biotech sector or early computer stocks, or his current avoidance of anything connected with the Internet.
Yet he amassed an incredible fortune, and investors in his holding company for the bull market, Berkshire Hathaway, have enjoyed exceptional returns.
However, Buffett recently revealed his expectations for the next twenty-year period. Investors should pay attention.
Speaking to a group of business leaders at a bash in Sun Valley, Idaho, and in a recent magazine article, Buffett said,
“First, let’s look at the last 34 years.”
“In 1964 the Dow was at 874. Seventeen years later, at the end of 1981, it was at 875. Now I’m known as a long-term investor and a patient guy, but that is not my idea of a worthwhile holding.”
“The problem was that from 1964 to 1981 there was a tremendous increase in interest rates, from 4% in 1964 to more than 15% by 1981. Stocks can’t handle rising interest rates, so even though the economy was strong, with Gross Domestic Product quintupling over the period, it was not a good time for stocks.”
He went on to say, “In the early 1980’s however, the situation reversed itself. Paul Volcker stepped in as Chairman of the Federal Reserve and broke the back of inflation. Interest rates began to fall, which was great for stocks. So over the last 17 years, through last year, the Dow’s annual return has averaged 19%. That beat any 17 year period in history.”
What should investors expect from here?
Buffett says, “Investors are expecting far too much of the next twenty years, following their unshakable habit of projecting the future by looking through the rear-view mirror at what has been happening, instead of looking through the windshield at what lies ahead.”
Buffet’s assessment is supported by a recent Gallup poll. Investors who have been investing less than five years expect annual returns over the next ten years of 22.6%. That pretty well parallels what they have seen through the rear view mirror, since the Dow has gained an average of 24% per year over the last five years.
According to the poll, those who have invested for the last twenty years, expect returns of 12.9% over the next twenty years, which has pretty well been their experience.
But Buffett says, “Given the current low interest rates, and high valuation levels being applied to the market, the exact opposite of conditions seventeen years ago, it’s very hard to come up with a persuasive case that the stock market over the next seventeen years will perform anything like – anything like – it performed over the last 17.”
“If I had to pick the most probable return”, he said, “If interest rates and inflation can remain constant, it would be 4%. And if 4% is wrong, I believe that percentage is just as likely to be less as more.”
Buffett has apparently acted on his cooled-off enthusiasm for the stock market. It’s been reported he raised as much as $40 billion in cash over the last 12 months or so. His comment to investors in his Berkshire Hathaway holding company on the subject, “I dislike cash. But I dislike being foolish even more.”
While the return of favorable seasonality, with its impressive history of producing market rallies, has me bullish on the market for the next few months, Buffett’s reputation and sobering words serve to cool-off any temptation toward irrational exuberance.
As a successful young money manager for wealthy investors in the mid-1960s bull market, he withdrew from the market entirely as the 1969 market peak approached, liquidated his partnerships, and returned the assets to his investors.
By doing so he avoided the 36% market plunge of 1969-1970, and the 45% bear market of 1973-1974.
Permalink: [584] Top Stocks To Buy - Warren Buffett’s Advice – Expect Less – For Next 20 Years!
Then listen to what he had to say in August 1979. The Dow was at 848. After being mauled by several bear markets, the public had no interest in the stock market. Bonds were the popular investment.
In a 1979 magazine interview Buffett said, “Stocks are now selling at levels that should produce long-term returns far superior to bonds. Yet pension managers and investors are pouring their money in record proportions into bonds, while placing orders for stocks with an eye-dropper.”
“Dow type stocks can now be purchased at around their book value and their earnings are liable to be 13% per year.” He said. “If price/earnings ratios expand over the next twenty years then purchases made now at book value will result in even more than a 13% return.”
His prediction was on the button. From August 1979 to August 1999 the S&P 500 has had an unusual total annualized return of 17.2%.
Throughout the bull market he predicted, Buffet has remained steadfastly in the bullish camp. As a “value” investor he refused to chase the latest fad stocks, totally avoiding each craze as it came along, whether it was the rise and subsequent fall of the exciting biotech sector or early computer stocks, or his current avoidance of anything connected with the Internet.
Yet he amassed an incredible fortune, and investors in his holding company for the bull market, Berkshire Hathaway, have enjoyed exceptional returns.
However, Buffett recently revealed his expectations for the next twenty-year period. Investors should pay attention.
Speaking to a group of business leaders at a bash in Sun Valley, Idaho, and in a recent magazine article, Buffett said,
“First, let’s look at the last 34 years.”
“In 1964 the Dow was at 874. Seventeen years later, at the end of 1981, it was at 875. Now I’m known as a long-term investor and a patient guy, but that is not my idea of a worthwhile holding.”
“The problem was that from 1964 to 1981 there was a tremendous increase in interest rates, from 4% in 1964 to more than 15% by 1981. Stocks can’t handle rising interest rates, so even though the economy was strong, with Gross Domestic Product quintupling over the period, it was not a good time for stocks.”
He went on to say, “In the early 1980’s however, the situation reversed itself. Paul Volcker stepped in as Chairman of the Federal Reserve and broke the back of inflation. Interest rates began to fall, which was great for stocks. So over the last 17 years, through last year, the Dow’s annual return has averaged 19%. That beat any 17 year period in history.”
What should investors expect from here?
Buffett says, “Investors are expecting far too much of the next twenty years, following their unshakable habit of projecting the future by looking through the rear-view mirror at what has been happening, instead of looking through the windshield at what lies ahead.”
Buffet’s assessment is supported by a recent Gallup poll. Investors who have been investing less than five years expect annual returns over the next ten years of 22.6%. That pretty well parallels what they have seen through the rear view mirror, since the Dow has gained an average of 24% per year over the last five years.
According to the poll, those who have invested for the last twenty years, expect returns of 12.9% over the next twenty years, which has pretty well been their experience.
But Buffett says, “Given the current low interest rates, and high valuation levels being applied to the market, the exact opposite of conditions seventeen years ago, it’s very hard to come up with a persuasive case that the stock market over the next seventeen years will perform anything like – anything like – it performed over the last 17.”
“If I had to pick the most probable return”, he said, “If interest rates and inflation can remain constant, it would be 4%. And if 4% is wrong, I believe that percentage is just as likely to be less as more.”
Buffett has apparently acted on his cooled-off enthusiasm for the stock market. It’s been reported he raised as much as $40 billion in cash over the last 12 months or so. His comment to investors in his Berkshire Hathaway holding company on the subject, “I dislike cash. But I dislike being foolish even more.”
While the return of favorable seasonality, with its impressive history of producing market rallies, has me bullish on the market for the next few months, Buffett’s reputation and sobering words serve to cool-off any temptation toward irrational exuberance.
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