Liz Ann Sonders of Charles Schwab is taking the other side of a popular concern, saying that high oil prices won’t derail the recovery unless prices move much higher:
“At some point, a continued surge would be a risk to the positive market and economic outlook I’ve had for some time, but at this stage it’s not a deal-breaker for the recovery. For one thing, in the past century, the real price of gasoline has spent almost all its time between $2 and $4 (in current dollars), and we’re within that range today.
Yes, oil price spikes preceded the 1973, 1980, 1991, 2001 and 2007 recessions, but the spike in early 2011 did not lead to one, and I believe the current spike will also be an exception. US consumers are now much better positioned to weather higher energy prices, with well-improved job growth and consumer confidence, credit growth picking up, aggressive Fed stimulus and record-low natural gas prices. Most important is the fact that energy price inflation last year was largely spurred by the second round of quantitative easing by the Fed (QE2), whereas today’s driver is global growth.
As well, in the United States, spending on energy overall as a percentage of disposable personal income is less than 6% currently, down from the 8% of the early 1980s.”
Ironically, she says the cure for higher prices is “higher prices”. So maybe we need higher prices to cause a downturn that brings in lower prices???
Source: Charles Schwab
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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