Wednesday, January 28, 2015

Late January

   The stock market is not off to a great start so far, but one month does not make a trend.  The prognosticators I trust say the future looks bullish for stocks.  (But of course, with stocks anything can happen.)
   The declining price of crude oil continues to be a talking point in economic circles.  Is it a watershed event?  The US has come back from being an import-dependent nation to being once again one of the top producers of energy.  Will this take power away from OPEC nations?  Some of their less-stable members are certainly in for some rough going because of the low oil prices.  Saudi Arabia continues to produce and export as usual, adding to the global oversupply and putting more downward pressure on prices.  On the demand side, China's economy has slowed, and Europe is hovering around zero growth.  Thus they use less oil, putting more downward pressure on prices.
    Can the new US producers of oil who came into being in a high-oil-price environment cope with a prolonged period of lower prices?  Is Saudi Arabia continuing its usual production in hopes of driving some of the new players out?
   So far the story has been of US innovation, technology, private property rights, etc.  We have the potential now of becoming almost energy independent.  It will be interesting to see what shakes out from these changes.
   A final point is that the Federal Reserve may be on the verge of letting interest rates rise again.  There is usually an effect on the stock market from such a move, but it could be that it will be gradual enough that it will not be significant.  However, it could be a nerve-wracking transition.
   Is the economy strong enough to withstand higher interest rates?  Should we take it as a good sign that the Fed thinks thinks the economy is that strong?  Are we turning the corner towards "normalcy"?

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