Oil and the economy

Can someone explain to me why falling oil prices is having such a negative effect on the stock market? Ragu?

I get that it screws oil stocks, but it would seem to me that lower energy prices are an overall good thing for the economy. Like more disposable income, cheaper costs to make and transport goods, more driving/tourism instead of staycations, etc.

 

The oil companies say their break-even point to get a barrel of oil out of the ground is around $60, so when the price falls below that level, the financial press gets in a snit that oil companies will lay off people until it becomes more profitable to conduct their normal day-to-day operations. Then it becomes a vicious circle; less oil that comes out of the ground means higher potential unemployment via fewer pipeline transmission operators needed, fewer transportation and storage people, less work at refineries, etc., etc. That, in turn, means lower corporate profits and no one is better at creating Doomsday scenarios than Wall Street.

For obvious reasons, no one likes more people out of work, and this is part of the worry on Wall Street. There's also a concern that if oil prices remain this low for an extended period of time, it'll create a recession within the oil and energy sectors as well as cause turmoil to the economies of the countries that are so dependent upon oil. Is the current situation good for Venezuela and Saudi Arabia? Probably not.

I agree with the basic premise of lower oil prices, however. It's like American drivers get a $25 raise every time they fill their tanks, and that goes right back into the economy because we'll spend that, not save it.

 

Since when has Wall Street ever cared that more people are put of work? How often do we hear of a company's stock price rise when they announce layoffs?

 

I believe the stock market drop is more a reaction to the possibility the eurozone is entering terminal crisis mode than to the price of oil. Stocks rose briskly towards the end of December when oil was dropping. The eurozone issue causes the dollar to rise in value and the euro to drop, impacting earnings of major international US businesses who aren't in energy at all.

 

David Cay Johnston recently cranked out an opus that suggested it was the patriotic duty of Americans to pay more for gas, more than they could afford since that money kept stable governments in places in the world that need stability and the higher the price, the more likely it was that people would embrace green technology and buy electric cars, etc that would decrease oil dependence.

More critical thinkers might note that those two points seem to be in opposition.

Anyway, as for me, I filled my car up for less than 25 bucks and spent the savings on buying more shit.

Cause I'm 'Murican and happy as hell for $1.59* gas again.

*After grocery store points.

 

I remember when Michele Bachmann vowed that if she were elected, she would bring back $2 gas. As I recall, her backers in the Republic Party thought that was tremendous, especially with the shiftless good-for-nothing in the White House, sipping his martinis while the rest of us ate cake/$4 gas.

My point is: Wow! The right must be really excited about these low gas prices

 

With more money we'll be able to do this more often. No?

 

Analysts always need some "reason" for why stocks behave the way they do.

How many times have we heard, "Stocks fell sharply on Wall Street on fears that . . . ", only to see them rise back higher than they were before a couple of weeks later? How come the "fears that . . . " scenario never lasts more than the next news cycle or two?

I also love the "XYZ Co. stock fell as earnings fell short of analysts' predictions" reasoning. Punish the stock because the analysts fucked up? Makes sense to me.

 

I know it looks like it, but it's not really punishing the stock. The analysts' predictions have already been priced into the stock, and the adjustment is to simply square the price with the new information. And it works the other way, too, of course. XYZ's stock can rise sharply when analysts underestimated what earnings would be, but that's not "rewarding" the stock ...

 

I'm just looking forward to when Obama is finally out of office so the markets can finally begin their long recovery.

 

I've always kind of wondered where the "analysts" are getting their predictions from? How are they privy to information about, say, Apple's fourth-quarter earnings to the degree that they can forecast the company's earnings accurately?

 

Ever see that trick where you lick your finger, then hold it up in the air to see which way the wind is blowing?

I don't know all that much about the analyst game. This WSJ article gives you a sense of how the good ones do what they do:

http://www.wsj.com/articles/SB10001424052702304811304577367661186800128