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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: faqsnlojiks who wrote (68658)	9/2/2005 6:52:38 AM
From: RetiredNow	Respond to of 77400

Well, I sometimes tend to speak in general terms when I talk about oil and the market, but I understand the relationship very well. I've never run a correlation of oil to the market, but I'd bet what that guy said is true: oil prices may not have a statistically significant direct correlation to the stock market. However, there a couple things to consider. Note that I italicized direct above. What this guy didn't do was check to see if there was a significant correlation of oil prices to the stock market, taking into account some kind of lag. My understanding of gas prices, 65% of which are driven by oil prices, is that dollar for dollar, when gas prices go up, consumers have less money to spend. In the U.S., where the savings rate is 0%, every dollar going to gas is money not spent. That lowers Consumer spending, which represents 2/3 of the U.S. GDP. Lower GDP and lower expectations about future GDP due to a belief that oil and gas prices will remain high for the foreseeable future MOST DEFINITELY puts a ceiling on how high the stock market can go. Do you think it is a coincidence that the stock market has tread water for all of 2005? It's not. Investors don't believe oil is coming down any time soon. Despite a remarkably resilient economy in the face of high oil, investors believe that its toll on consumption will eventually lead us into a recession. That perception has held stock prices in check. Now, I believe that demand driven high oil prices don't cause recessions, but that supply side shortages do. After Katrina, we have both. I think a recession is in the cards and the stock market will pay the price. Here's the ultimate test for you. If you really believe that the stock market goes up when oil goes up, I challenge you to put a lot of money in the stock market right now. Or better yet, 6 months from now when the full force of today's oil shock will be completely felt in all areas of our economy. If you are hesitant to put your money down, then I think your gut is telling you that I'm right. High oil is bad for our economy. It is nothing more than a dollar for dollar tax on Americans, without the benefit of societal or governmental use of those tax dollars, since most petroleum dollars go to our Middle Eastern masters.