Avoid Oil, Wait for the Fed Before You Buy

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Oil prices have become completely disconnected from fundamentals, demand has never been stronger this summer, yet oil prices plummeted. If crude oil prices can fall 40 percent when demand is at its strongest, what’s going to happen when demand falls to this weakest part of the year? Plus, North American oil refineries will be closing in the fall for some overdue maintenance which will increase oil inventories and put more downward pressure on prices.

Saudi Arabia gave oil traders some hope last week, saying that they are open to talking about cuts in production. OPEC talking about cuts and actually making cuts are quite different. Setting quotes among members in the past has been the easy part but stopping OPEC members from cheating has been impossible. Non members, like Russia also have to agree to quotes and there is nothing stopping American frackers from increasing production.

I am still avoiding the oil patch. For more information as to why, here are two of my older posts that you should consider reading.

Warren Buffett Dumps US$3.7 Billion Exxon Mobil Stake

Is $70 Oil Still in the Cards? Think Again!

The Fed can crash Wall Street

The Fed has done a good job on reducing unemployment and keeping inflation in check. The government last week revised second-quarter gross domestic product to show GDP expanding at a 3.7 percent annual pace instead of the 2.3 percent rate it had initially estimated.

U.S. non-farm productivity increased at its strongest pace in 1-1/2 years in the second quarter, keeping wage inflation subdued for now. The Labor Department on Wednesday revised productivity to show it rising at a 3.3 percent annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3 percent pace reported last month.

However, history has shown us that September & October have been unkind for stock market returns. Add a possible rate hike to the mix and this temporary sell-off in the stock market will continue.

“In the 11 times since World War II that the market fell by 5% or more in August, it continued to fall in September 80% of the time, and did so an average of 4%,” said Sam Stovall, U.S. equity strategist at S&P Capital IQ.

The so-called “smart people” on Wall Street are actually dumb, they continue to make a big fuss over ONE small rate hike.  The Fed is smart enough to know that increasing interest rates will not only dampen economic growth in America but effect WORLD economic growth. The Fed has proven to be dovish, time and time again, no need to panic that the Fed will rapidly increase interest rates.

A big sell off of the Russell 2000 (IWM) is a perfect example on how dumb Wall Street is!  U.S. companies listed on the Russell 2000 sell their products and services within the U.S. domestic market. They don’t care about a slowdown in China or world economic growth. They only care about economic growth in America!

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During my 30 years of investing, I have seen many so-called “stock market experts” come and go. Forget all the noise, I believe that U.S. stocks are still a good bet.

 

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