Most Americans are rejoicing at the big drop in gasoline and heating oil. They are also counting a drop in air fare, food clothing, and other products as energy drops. Landowners are worried about a drop in royalties. But CNBC, FBN, and other financial media say there are many more potential affects of the plunge, not all good.
A drop in employment is expected in the energy field as drillers cut back. As energy has been the largest driver in employment, that could hit the national rate.
Many of the most leveraged companies will either be bought out (Talisman was bought out just hrs ago) or go bankrupt. This will affect investors from stock and bond holders to banks to investment firms How will that ripple through the financial system?
Many hedge funds are heavily linked to energy stocks and bonds. And it was hedge fund failures that led to the financial collapse in 2008. Will we see a repeat of 2008?
The Russian ruble is in free fall since oil is Russia's only export. The ruble collapse of 1998 set of a global currency crisis. Will that scenario repeat? Will Putin lose power or will he do something extreme to remain in power?
Many European countries are strongly tied to the Russian econ through exports and financial investments. Will the ruble free fall and/or a drop in exports take down the Euro econ?
Iran is also in huge trouble with oil so low, how will the mad mullahs react?
Venezuela and Brazil are seriously hurt since they are huge oil exporters. Will this affect the Latin American econ and bring down the US econ?
Lots more possibilities that none of us can foresee. A drop in oil is good but this may have been way too far and way too fast.
Cheap oil means devastation for the energy industry, which is bad since it's basically the only thing that's been pulling this economy out of the toilet for the last five years.
The shale has been known since 2000 when internet chat was new big money was getting laid out in pa for cheep rights, guys braging online about it back then wrapping up lands with 50 to 80% royalties returns, had one guy tell me not sell unless I seen30% royalties back then my family never listened to me tho I even wanted to drill my own small well but that was over a million bucks back then to get insured was impossible
even tho gas was hard to get in 1973 was a lot of jobs food was 100% cheeper than today. farmers had no issue getting gas,, cheep oil is good were there is no oil jobs is about it, I mean heck you could pick up a 1968 rs/ss camaro 4 speed convertible Camaro with no engine for 175$ in 1974, im not that old but still can see how far money went with what my family bought in the 70s
Jim you forgot to mention everyones retirement accounts. If this stuff starts happening and the market tanks most people will lose more in these accounts then they ever saved on gas!
Over the decades the airlines have consistently been one of the worst investments unless you were a really good day trader and nimble.
I remember my passbook savings account paying 5% but I also remember double digit interest rates on mortgages that damn near put my dad out of business building new homes for people.
About 10% in the "WIN" days - that was under Pres. Ford. It got to 18% in 1980 when I purchased a mudlogging unit and financed it for 3 years.
In 1973 I returned home from the USN . The Christmas of 1973 was special to me and energy shortage be dang we had the only lit Christmas decorations on my street!
Good post as usual; very thoughtful.
There is no doubt that lower oil and natural gas prices have a down side. But, economically there are far more positives.
First, consumer goods including gasoline, other fuels and food will be less expensive. This will allow more money to be kept by average Americans (consumers). One of the problems plaguing our economy is the anemic spending by consumers. More money in the pockets of average Americans usually translates into more spending. This spending helps the economy.
Further, lower energy prices help manufacturers. There was already a trend of companies returning to the U.S. due to lower energy prices. The more companies that expand facilities or build new facilities means more money injected into the economy. Plus more manufacturing means more jobs.
There is a fine line between oil and natural gas prices being a benefit or a deficit to the economy. At this point it appears we are on the benefit side of that line.
Get a Samsung Note 4 and draw away.