Insights & Advice


The biggest Black Friday sale of all

This year while shoppers scroll through the Internet, jockey for position at the sales counter, or wait in line hoping to be one of the first 100 through the door, the really big sale is staring us in the face. And this one requires no money down.

As I write this missive in the pre-opening of the market on Friday morning, crude oil prices in the United States had dipped below $70/bbl. That is a 6.9% drop in price since Wednesday, and we can thank Saudi Arabia for this gift.

Prior to the OPEC meeting in Vienna on Thanksgiving Day, oil producers, especially Russia and Venezuela, had petitioned middle east suppliers to support prices and halt the three-month, 30% decline in energy prices. But Saudi Arabia was having none of it. Claiming instead that producers should allow market forces to ultimately determine the equilibrium price of oil.

As a result, oil stocks, both here and abroad, were certainly having a bad hair day in the markets. However, anyone that is still in energy stocks at this point is well aware of the risks. Some might even be buying today, betting that the sell-off is over done. I am not one of them.

Commodities have a tendency to overshoot their fair value price both on the upside and the downside. Last week, I warned that some technical analysts believed the price of a barrel of oil could drop to as low as $40/bbl., as the extent to which the over supply of energy becomes apparent. No one knows where the bottom truly is, but I’ll let braver men than I test the waters before I jump in.

As oil plummeted, the U.S. dollar rose against a basket of energy country currencies such as Canada, Australia and most Gulf-oil nations. The Russian ruble wasn’t looking too good either. As I wrote last week, the real reason Saudi Arabia has stepped aside is far more political in nature than Americans perceive.

Pundits claim Saudi Arabia is deliberately allowing the price of oil to slide until shale oil production in the U.S. is no longer economical, thereby reducing U.S. competition. I view the price decline as an orchestrated move by the U.S. and its Middle Eastern ally, to cripple Russian ambitions in Ukraine. Russian threats to cut off energy supplies to Europe this winter become less meaningful in a country already reeling from lost oil revenues. A European energy embargo could bankrupt Russia at this point.

Overall, the week was a non-event in the markets. The snowstorm in the Northeast cleared out most traders by Tuesday evening, so a traditionally slow holiday-shortened week became even slower. And this year’s Black Friday sales are less meaningful than usual. The retail trade has conditioned consumers to expect lower prices straight through until Christmas, no matter what. So why buy today when tomorrow could see the same or lower prices?

Clearly consumers will be better off as gas prices continue to come down. Most of us should enjoy another big bump lower in the pump price in the coming weeks. Between that and the money we are saving on heating oil so far this winter, the consumer should be in fine shape to spend a little extra on this holiday season. That makes for a Happy Thanksgiving for all of us. Enjoy!

Posted in At the Market, The Retired Advisor