Lowering Oil/Gas Prices Is the Right Move

by: MyHappyTrading

Recently jobless claims came in higher than expected. The market quickly fell lower. But, buyers started to come in after the first hour of trading. Energy stocks were very weak. Oil gapped down at open and only recovered slightly. The U.S. and the International Energy Agency jointly announced that 60 million barrels of oil will be released into the oil markets from the reserves. Just this weekend, when I was talking with Bagger Vance about what could help the economy, I told Bagger that global governments should jointly release oil from their reserves to lower the price of oil and gas. While the "easy" monetary policy from the Fed may help the banks, the average American can hardly feel it. Even if the stock market keeps going higher, it only helps the high-middle and upper class, as they are the ones with money to invest. What can immediately help the average person is lower gas prices. When gas is cheap, people will have more money in their pockets and they will be more likely to spend.

Remember the 1990s? When the government had trillions of dollars of surplus? When the stock market was booming and the middle class was growing? Do you know what the oil and gas prices were back then? Take a look at the charts below.

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Yeah, that's right! Oil was under $20 in the 1990s.

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Regular unleaded gasoline was between $1 to $1.4 for most of the 1990s!

Just imagine $1 gas! If you fill up your tank, say 10 gallons, at $4/gallon, that's $40 a pop. With $1 gas, it'll be only $10!! Ten bucks! You'll have $30 more in your pocket. If you fill up twice a month, that's $60 bucks! You could perhaps take your family out to dinner or a movie, or buy more music from iTune, or watch more movies on NetFlix (NASDAQ:NFLX), or go to the mall and buy a nice pair of jeans ... etc.

Although energy sectors may suffer from lower oil, these sectors are still at historic high prices. Take a look at XLE, the energy ETF:

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As you can see, in the 1990s and early 2000s, XLE was mostly in the $20s, and no more than $35! Even after the sharp fall in 2008, XLE has basically risen back up to its all-time high, and it's still triple the price back in the 1990s. The energy stocks can sustain another 20% drop and they'll be just fine.

Some people think that if the energy stocks fall, the stock market might fall. I disagree. Money would just go elsewhere. Let's compare XLE to SOXX, ie. compare the energy stocks to semiconductors (or the heart of tech stocks):

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Do you remember the tech boom in the late 1990s? The purple line represents SOXX (the semiconductor index). At the height of that boom, SOXX was up about +280%. It fell all the way back down to -40%, and, its now barely back in the positive territory. Ironically, at the height of the energy boom, XLE also rose about +280%. It is still more than 200% up! From 2002 to 2004, we see the switch from tech-dominated market environment to energy-dominated market environment. Can we see a switch back to tech-dominated market environment? Well, we know that Internet sectors are catching on again, especially the Chinese Internet stocks. In the U.S., NetFlix, Priceline (NASDAQ:PCLN) and OpenTable (NASDAQ:OPEN) have been booming. Mobile Internet is now the driving force and Apple (NASDAQ:AAPL) has been a beneficiary and leader. We all hear so much about social networks and look forward to Facebook's IPO, after LinkedIn's (NYSE:LNKD) superb results. It also brings us to cloud computing, and, we see Salesforce.com (NYSE:CRM), VMWare (NYSE:VMW), F5 Networks (NASDAQ:FFIV), Riverbed (NASDAQ:RVBD) and the likes keep rising.

So, do not fear lower oil/gas prices, and do not fear the downturn of energy stocks. I applaud the decision of global leaders to drive the oil prices down. There's no good reason for oil to be trading at $90, $80, or even $50. Drive oil down and let the money to be better used elsewhere!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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