The economy was in full bloom in March and April. The only dark cloud was a fast rising price inflation. As a result, the Federal Reserve decided it was time to slow and began raising its federal funds rate. The economy was hit with what Fed Chairman Alan Greenspan called a "slow patch."
Now that crude oil is above $50 a barrel, gas prices at the pump will be headed above $1.90 (national average). Much of the pressure for this unprecedented price for crude can be attributed to politics and terrorism.
Russia has cut back by two-thirds on its oil shipments to China. Nigeria is threatening an all-out war to gain some leveling of the economic playing field between the haves and the have-nots. The nastiest hurricane season in over a century slowed oil tankers in the Southeast area of the U.S. Finally, terrorists are starting to become more active in Saudi Arabia. And, if the dollar's value continues to slide, the price of crude will head even higher.
It should be noted that when the major news media talks about $50 dollar a barrel oil, it is referring to the futures market-what the price of oil is expected to be in several months.
Oil and gas stocks are soaring, as well as the mining shares (gold and silver). However, most of these shares are still below the highs they set in the beginning of 2004.
The following are oil and gas stocks and gold and silver mining stocks that are under accumulation (as of this writing) and poised to move higher:
Oil and Gas Stocks
Carrigo Oil & Gas Inc. (), $9.98 (10/7/04)
Provident Energy Trust (), $9.30 (10/7/04)
Statoil Asa (), $15.25 (10/7/04)
Gold and Silver Mining Stocks
Silver Standard Resource (), $15.85 (10/7/04)
Pan American Silver (), $17.35 (10/7/04)
Many people feel the Fed's announced intention to continue to raise interest rates over the next one to two years will cause oil and gas and gold and silver stocks to under perform. Nothing could be further from the truth. We are in that phase of the current business cycle where we can expect to see rising prices and dollar devaluation.
My advice is to buy carefully selected oil and gas and gold and silver stocks (especially on price dips). The only caveat is to watch the Fed's interest rate increases. If the Fed starts to panic and raises by 50 basis points, it means it fears a huge dollar collapse. Big interest rate hikes could then cause price inflation and dollar devaluation to reverse.
As always, monitor your investments closely. Set your stop loss point on both new purchases and profits for existing stocks. I usually set a stop loss point of 15% on new purchases and 25% on profits.
Kenneth Coleman
