Disclaimer

Lower Oil Price Stimulus Ending Soon

DYI:  One of the major reasons the U.S. market remaining in valuation nose bleed level oil prices have remained 40% to 50% less than they were five years ago.

 

This is similar to having a large tax decrease for the general public thus boosting savings and consumption.  As with any stimulus whether from Congressional spending or the Federal Reserve printing, overtime the stimulus will wear off.  In order to obtain the same amount of push to the economy [hence driving stock/bond prices higher] each stimulus requires more and more spending, Fed printing, or lower oil prices.  This is why DYI’s oil indicator is using the 5 year time frame for the effect of higher or lower prices to wear off its positive or negative effect upon the economy.  Within that 5 year window the last time oil prices were lower than today was on 12/1/14 at $69.86.

 

If oil prices continue to hoover around $70 or go higher the stimulus effect of lower oil prices will soon lose its effectiveness and stock/bond prices will lose their upward push.

So…With an overinflated stock/bond and to a lesser degree real estate this stimulus only has 8 months remaining compared to 60 month time frame.  This is not an exact science but a close estimation simply stated beware with stocks/bonds/real estate at these levels this rocket ship for prices could very well end soon. 

04/04/19
Updated Monthly

Oil Prices: 
04/01/14....$106.88

04/01/19......$70.27   

Down 41%(rounded)
(oil prices approximately five years earlier due to weekends & holidays)
ANS West Coast prices   

 OIL INDICATOR:  Positive  Oil indicator will remain positive until it's rise is greater than 75% from five years earlier.

Oil prices are well known for their volatility in the short term, longer term due to dwindling reserves energy prices are in a secular bull market.  Technologies such as fracking will extend the life of oil fields but major new discoveries arrive at a snails pace far slower than the world's growth.  

As long as prices rise in a slow and orderly pace our economy can adjust to those changes, however if prices spike (international tensions, war etc.) high energy costs behave as a massive deflationary tax. This will send our economy tumbling down and very possibly the U.S. stock market.

If oil prices rise greater than 75% from five years earlier, investors at that time should shift their portfolio geared towards deflationary times.  This would be an oil indicator as negative.

If oil prices rise from five years earlier less than 10% or drop then the inflationary play is in effect; a positive for economic growth along with possible higher stock prices.

Where to find five year earlier oil prices?  Alaska Department of Revenue    

Oil indicator positive              
  5%  High-Yield Corporate Bonds
10%  REIT's
10%  Energy
10%  P.M.'s
65%  Small Caps
  0%  Lt. Gov't Bonds

Oil indicator negative
  5%  REIT's
10%  Energy
10%  P.M's
10%  Small Caps
65%  Lt. Gov't Bonds

Vanguard Funds

REIT's
REIT Index Admiral  VGSLX

Energy
Energy Fund  VGENX

Precious Metals (P.M.'s)
Global Capital Cycles Fund VGPMX

Small Caps
Small Cap Value Index Admiral  VSIAX

High-Yield Corporate Bonds
High-Yield Corporate Bond Fund VWEHX

Long Term Government Bonds
Long-Term Government Bond Index Admiral  VLGSX

Disclaimer

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DYI