Over a Barrel at $100?

One hundred is a great number. If your baseball team wins 100 games, you start waiving your victory pennant. If your favorite TV show reaches its 100 episode milestone, you pop the champagne corks. If you’ve got 100 candles on your birthday cake, you’ve beaten the odds. But when the wholesale price of crude oil hits a hundred bucks, is it time to raise the white flag?

No! It’s time to change your investment strategy.

Yesterday’s historic close of the crude oil at a whopping $100.10, left the market breathless. Is this an anomaly, or is it the new reality?

In my view, we may be looking at oil in the $120-to-$150 area by the end of the year. It's not just oil; all commodities are moving higher. Soybeans are at $14 a bushel and platinum at $2,000 an ounce. Platinum, soybeans, gasoline and heating oil all reached records yesterday, as hedge-minded investors poured money into the commodity markets. Propelling this rise is a falling dollar which has lost 10 percent of its value against the euro over the past year as the Federal Reserve cut U.S. interest rates.

At this point, if you’re the Fed Chair, you can “pick your poisons.” The deepening housing slump is pushing the public perception of an impending recession. Yet with consumer prices on the rise --- up 0.4% since January on top of a similar increase from December --- the inflation genie may be out of the bottle.

As we approach the end of February, commodities are looking like the best bet in the investor marketplace. Last year, as the Fed cut rates and the dollar fell, gold surged 31%. With no rate hikes on the horizon, gold and other precious metals such as silver and platinum will likely continue to benefit.

In addition to precious metals, the commodities market is being led by the agricultural sector. There is no question that soybeans, corn and wheat will pull back from their historic highs as we approach the spring planting season. However, increased export demand combined with significant production decreases in overseas growing --- particularly in China --- and the prospect of escalating energy inputs, should drive prices higher. During this past week as the realities of severe weather and decreased domestic planting became apparent, the Chinese locked in soybean purchases at record levels. In the coming year, I think these supply and demand conditions will persist.

So, with oil prices settling into a new reality, is it time to surrender or is this an opportunity for those few individuals willing to alter their investment strategies? I say we pop the corks, waive the pennants and blow out the candles!

Check out this piece of monetary nostalgia. Simpler times --- a friendlier dollar.



To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.