Investorial

Jim Oberweis has written an article at Forbes.com to explain the economical impact of rising oil prices. I enjoy reading his explanation of how rising oil prices will have progressive effect on the economy. The 5 steps that Jim outlines reads like the theories of a course textbook, but is easily understandable by anyone.

I will briefly highlight here, the 5 oil pricing influences Jim outlined in his article.

1. Transfer of income from oil consumers to oil producers. People will buy less and it may lead to slower economic growth–maybe even a recession.
2. Cost of producing goods and services in the economy will rise, putting pressure on profit margins of companies.
3. Impact on price levels and inflation that also depends on monetary policy and the ability of the governments to maintain price stability.
4. The sum of these effects will stimulate (negatively) financial markets.
5. If the duration of the energy-price spike is not short, then the change in relative prices will create incentives for oil producers to maximize output and oil consumers to economize. Eventually dropping oil prices over the long term.

Jim also makes a few recommendations for sectors and companies to avoid, and keep track. Even though Jim runs a successful small cap investment newsletter, I feel the article is informative for everyone who wants to assess the economical impact by understanding but the advice is not necessarily suitable for everyone. Investors should not be rushing out to make changes to their portfolio just because somebody else says so. Investors who were already looking to make changes to their equity components in their portfolio, before reading this article, may find the tips more applicable.

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