oil stocks-recession

Hard to tell. With a recession, folks may have less money, so they may drive less. But then again, the oil companies might be more profitable at some level of production less than what they are running at today. Factories normally have some sweet spot as far as output and profits. If you run lower than that, or higher than that, your profits may fall.

-john-

This group is about sound financial planning. Diversify. That means holding some oil stocks but many other industries' stocks, and for the long run. Then know that slow and easy wins the race. Remember that the upside of the recession in the 1970s was that dividends (and dividends did not take much, if any, of a hit then) were reinvested at bargain prices, and folks enjoyed exponential growth when the "recessionary years" ended.

If you're investing for the short run, hold no stocks.

Go to misc.invest.stocks or whatever group for specific stock recommendations.

"M.Balarama" wrote

In a worlwide recession the price of commodities falls because there is less manufacture and transport. This happened in 1998 when Russia and Asia (save China) went into recession. Oil fell to $8 in 1999 from around $16.

Yeah, what port in a storm? Depends what kind of storm... a false alarm, or a hardcore slowdown that takes fed rates way down, or a stagflation where the fed has to hold rates up? You could speculate now, or wait and see, or spread your bets now into generic diversification. My favorite is a little of each, but mainly catching onto what proves to work.

Diversification sounds nice, but so many old approaches rise and fall in lockstep. For instance much of geographical diversity seems to play follow (or even amplify) the leader. Bond values may go the same or opposite way as stocks. I used to do great with those diversifiers in the past, but now it seems harder to find the magic decoupled bullet. Other ideas?

It may be the "new" thing that isn't yet efficiently priced and understood. In 2001 era slowdown, you could do pretty good by selectively choosing hedge-like mutual funds, like buyout/arbitrage or long/short. Now those types seem wrung out. You could just watch what is weathering the storm, besides the obvious (overpriced?) things like oil/gold... I remember doing well with a fund of small cap mortgage issuers I think (maybe dead now). I only dimly understood they benefitted by the plunge of fed rates, but certainly could see results.

So keep your eyes open for the oblique plays, for instance "frontier" markets. Of course they are chancier than emerging, but look at the case of non-oil Arab stock exchanges like

. A tornado of oil money is flowing into their financial andconstruction industries. Won't this do better than the obvious andprobably highly priced healthcare or energy? I wish yahoo or someplacecould chart backwards further to show decades of trends. Oil has gonehigh, then way low. Japan is spectacularly lower than it was - there'ssome decoupling for you. Oil in particular shouldn't have such great prospects, since almost infinite tar and shale sources are feasible if barrel prices stay anywhere high. The Airforce which is one of the biggest US users of oil is ramping up cheap synthetic jet fuel from coal and gas-wells that should later be applicable to airlines. Supply is artificially constrained by the dysfunctional management and backwards technology of major nationalized oil companies. Consumption is artificially high in the very emerging countries that are driving up the world cost, because their gov't hugely subsidizes the local cost of oil so it isn't rationally used (China, Iran, etc.).

One possibility, seeing the run-up to oil, is to invest in natural gas which is trailing much far behind in prices compared to oil. If oil stays at current level, natural gas price is going to increase (to close the gap). If oil comes down, natural gas price is still going to increase (given the concern about global warming, it is a cleaner burning fuel, still need to heat the house, and the fact that it is produced/consumed locally rather than being imported like oil).

Oil has had a great run last year and it might or might not continue to do well. Natural gas might have a great run this year or in the coming years. I own a mutual fund in natural gas.

Also one poster above mentioned the profits from Middle-eastern nations being dumped back into financials/service industry in the 'frontier' markets. If you want to tap into that consider something like TRAMX - T Rowe Price Africa and Middle East Fund which started last year and has done great so far. I don't own any of it.

Also, you might want to look for an article on vanguard.com dated January 10 called "Recession and the Stock Market: Timing is Everything," which notes that the S&P 500 posted positive returns during five out of the last nine recessions.

"Andrew Koenig" wrote

Nice article, found quickly by typing "recession" into the Vanguard site's search engine. I too have been watching for articles that discuss historical recessions. This is a nice summary of the nine said to have occurred since 1953.

Given that four of the recessions posted negative S&P 500 returns, I continue to value the advice to keep reinvesting dividends, so as to pick up stocks at bargain prices.

One caveat to me remains that major banks are in "significant" trouble. "Significant" being debatable. I am responding largely to the dividend cuts (and other actions taken) at Citi and WaMu. This is the first time in at least

18 years since either failed to raise its dividend at least annually, if yahoo's records are reliable. I do not know how much to read into this. Either way, being a long term investor, the rules are to stay cool; maybe sell off any positions seeming to be wildly overpriced and buy other stocks cheap; take long term capital losses and buy back later; and reinvest dividends where one can.