“…bubbling crude; oil that is, black gold, Texas tea.”
The decline in oil prices accelerated during the
fourth quarter of 2014. The main culprit was a supply and demand imbalance. Increased
production in the United States, which is currently the biggest oil producer in
the world, means there is an ample supply of oil. However, slowing growth in
China and other countries, along with relatively warm winter weather in the United
States, has lowered demand.
Oil prices are also affected by expectations. The
Organization of Petroleum Exporting Countries’ (OPEC’s) fourth-quarter decision to maintain production levels and market share (rather
than lowering production and pushing prices higher) has created an expectation
that prices may remain low for some time.
Low oil prices are expected to be a boon for the world
economy, consumers, and countries (like India) that are heavily dependent on
oil imports. However, low prices are a detriment to countries that are heavily
dependent on oil exports and could result in financial crises and geopolitical
upheaval. The Economist reported analysts
believe Russia needs oil to be priced at $100 a barrel to meet its 2015 budget.
Venezuela, which was in financial trouble before oil prices fell, needs oil at
$120 a barrel to finance its spending, and Iran needs prices even higher, at
$136 a barrel.
Big trouble
in Russia
Like Mentos® and soda pop, a currency
crisis fizzed up in Russia during the fourth quarter. The Economist said:
“In the world of central banking slow, steady, and
predictable decisions are the aim. So when bankers meet in the dead of night
and raise interest rates by a massive 6.5 percentage points it suggests
something is going very wrong. It is: the Russian currency crisis many feared
is now a reality… and the mood in Moscow close to panic. Russians are right to
worry: they are heading for a lethal combination of deep recession and runaway
inflation.”
Retailers have begun re-pricing their goods daily and ruble
jokes are proliferating, according to The
Moscow Times. One example, “I’m investing my life savings in the Euro.”
“Don’t you mean Euros?” “No, just one Euro. It’s all I can afford.”
Déjà vu
Greece
The potential for a Euro crisis reared its ugly head (again).
Greek markets took a decidedly pessimistic turn when the country’s government
decided to hold elections. At issue are promises Alexis Tsipras, presidential
candidate of the Syriza party, made about rolling back austerity measures and
cancelling a portion of Greek debt. If Tsipras is elected, Greece might leave
the Euro.
Signs of
volatility in U.S. markets
Markets sparked and popped a bit in the United States
during the fourth quarter. Investors, who had been unconcerned about the
possibility of short-term market volatility for much of 2014, had a change of
heart during October – the same month the Federal Reserve ended quantitative
easing.
The Chicago Board Options Exchange's Volatility Index
(VIX), which is also known as Wall Street’s fear gauge, rose into the 20s (above
its long-term historic average of 19.6) for several days. Stock markets
experienced big swings, too, and then things settled back down. The VIX shot
higher for a few days in December, as well. Experts say these microbursts may
continue into 2015.
When you were younger, you may have heard older relatives marvel over the
high cost of everything from automobiles to aluminum foil. It’s worth taking a
look back, once in a while, and acknowledging exactly how significantly the
world has changed.
Let’s begin by
picturing the United States at the beginning of the twentieth century. One-quarter
of households had running water and outhouses were more prevalent than flush
toilets. Few people owned homes. Less than 10 percent of households had gas or
electric lights, 5 percent had telephones, about 1 percent owned a car, and
nobody owned a television because they didn’t exist yet.
Approximate household income:
·
1901: Average household income was about $750 a year. Almost 96 percent
of households had income earned by men, 8.5 percent had income earned by women,
and 23 percent had income earned by children.
·
1960-61: Average household income was about $6,691 a year. Almost
34 percent of women were working and 83.3 percent were men. Almost 39 percent
of heads of household were craftsmen and machine operators, and 27 percent were
professionals, managers, or proprietors.
·
2013: The mean after-tax household income in the United States
was $56,352.
Approximate household expenses:
·
1901: The average family spent
about $769 a year: $327 on food, $108 on clothing, $179 on housing, and $155 on
anything else. On average, households spent 2.5 percent more than they earned. Just
19 percent of families owned homes; 81 percent rented.
·
1960-61: The average family spent
about $5,390 a year: $1,310 on food, $561 on clothing, and $1,590 on housing.
Almost three-fourths of Americans owned cars. Fifty-three percent of families
owned homes.
·
2013: Mean household spending was
about $51,100: $17,148 was spent on housing; $9,004 on transportation; $6,602
on food; $3,737 on utilities, fuels, and public services; $3,631 on healthcare;
$1,604 went to clothing; and so on. About 64 percent of households owned homes.
It’s
true. Times really have changed.
Weekly Focus –
Think About It
"A
bird doesn't sing because it has an answer, it sings because it has a song.”
--Maya Angelou, American
author and poet
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