So has this recent weakness been a dip, or is it the beginning of real downward bear market or years of stagnation? Trick question. I Dunno, and neither does anyone else. But I still need to invest to grow my savings over the next 10-20 years or maybe more, so I’m still willing to buy stocks when they look attractively priced.
It’s been a year plus of oil and China panic, so I thought I’d share my thoughts on those quickly so you have some idea of my perspective… and it so happens that a few of the stocks I’ve covered for you (and own personally) fall into these categories and I do have some decisions to make about those, so I’ve got some sells and other updates to share this week as well.
Oil is still on our minds as investors, as is China, but I think it’s worth remembering that oil is a smaller part of the real economy than it is of the US stock market (even though the differential has narrowed over the last 18 months). The direct business of energy and mineral extraction (including mining for coal and iron ore, not just oil and gas), which is where the most commodity sensitivity is (refiners don’t necessarily process less oil when it’s cheaper), is substantially less than 5% of the US economy, maybe as low as 2%, and low energy prices are a real negative primarily for energy producers and their service companies (they’re generally a positive for most others, and for the economy as a whole). The energy sector is about 7% of the broad stock market in the US, down from about 17% at the peak before the 2008 crash (back when oil was spiking to $140).
The market, in my opinion, tends to overreact to energy prices — partly because they are so volatile and so widely followed, and because oil has created so many compelling fortunes in past decades. The rising dollar’s impact on industrial production and exports is a bigger deal than oil prices, I think, and energy prices will probably recover at some point if and when OPEC gets its act together and feels it’s taken back enough market share — not many folks outside of OPEC can make a profit at $20-30 oil.
In the middle of that, of course, we got the gift of ...