Oil hits $100 per barrel, after seeing its price rise by 57% in 2007. Amid media hysteria, some important points are made. The rising cost of oil is "posing wrenching challenges for the world's poorest nations". And "the world's biggest investors of petrodollars -- including state-owned vehicles known as sovereign-wealth funds -- now manage as much as $3.8 trillion in assets. The Abu Dhabi Investment Authority, which McKinsey estimates manages $900 billion in assets, is today among the world's largest financial-market participants -- about the same size as the Bank of Japan" (WSJ; summary here).
The dollar fell again, presaging further rises in the price of oil. "The U.S. currency traded near the lowest in a month versus the euro as investors increased bets the Federal Reserve will cut interest rates in January by as much as a half-percentage point from 4.25 percent" (Bloomberg). The dollar's decline is driving up prices for most commodities, not just oil. In the best investment analysis of "The Commodities Super Cycle" I've seen (print it out and read it carefully), Gary Dorsch shows how the falling dollar is driving up prices of agricultural commodities, gold and, of course, oil.
Investment plays for $100-per-barrel oil. If you want to get richer as Abu Dhabi gets richer, you buy the Oil ETFs (click on the symbol for articles on each one): the U.S. Oil Fund (NYSEARCA:USO), PowerShares DB Oil Fund (NYSEARCA:DBO), Claymore MACROshares Oil Up Tradeable ETF (UCR), United States 12 Month Oil Fund, LP ETF (NYSEARCA:USL) and the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL). Chris Krasowski likes the drillers, particularly Transocean (NYSE:RIG).
Auto sales slump. Sales of cars and light trucks fell 3% in December. Here are the year over year numbers, by manufacturer: GM (NYSE:GM) down 4.4%, Ford (NYSE:F) down 8.9%, Chrysler up 0.5% (thanks to extended year-end rebates and incentives), Toyota down 1.7%. Explaining the connection between gas prices and car sales, the WSJ writes that "steep gasoline prices also threaten America's long love affair with the automobile, while putting strains on many lower-income people outside big cities, who must spend an increasing share of their budgets just on fuel to get to work". Toyota cut its 2008 forecast for U.S. sales growth, to a range of 1-2%, from an earlier forecast of 3%. Toyota's stock fell (in Japan) by 4.3%, Nissan's by 9.2% and Honda's by 4%.
Airlines are squeezed, so they squeeze their passengers. The price of jet fuel rose 58% in 2007. Says the Boston Globe: "The International Air Transport Association slashed its profit forecast for the airline industry last month, citing a "spike in fuel prices" and a slowdown in the economy. The trade group said that profit probably would fall from $5.6 billion in 2007 to $5 billion in 2008 worldwide, with most of the decline coming in North America, where many airplanes are older and guzzle more fuel." Airlines are reacting by reducing the number of flights to raise occupancy rates and raising ticket prices. "On Dec. 20, for instance, United Airlines doubled its airfare fuel surcharge to $10 each way, and other airlines quickly matched the increase." You don't want to own airline stocks, such as JetBlue (NASDAQ:JBLU), AMR (AMR) and Continental Airlines (NYSE:CAL) if the price of oil keeps rising. Meanwhile, passengers will keep wondering Why U.S. Airline Service is So Bad.
Full disclosure: no position in any of the stocks or ETFs mentioned.
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