Crude Economics

That’s the best title I could come up with today.  I’ve been looking for something significant and non-controversial to write about (as there is a lot of controversy in the news right now), and then I saw this on Yahoo Finance:



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So, which is it?  $80 or $26?  The answer: no one knows, and probably somewhere in between.  Until the attacks on Paris, I figured oil would stay within 15% of where it is, up or down, for a few months.  Now, there are two potential scenarios that have entered the picture: 1) conflict escalation, which would increase demand and drive prices higher, or 2) a purposeful oversupply of oil in order to drive the price down because a huge percentage of ISIS’s revenue comes from its own oil production.  The problem is that nothing happens in a vacuum, so the things that we learned in Economics 101 don’t always happen in real life.  These are only two potential scenarios in a much bigger picture (for example, the strengthening US dollar), and they are not mutually exclusive!

What this means to investors is that we can’t make bets on any one thing, at least not if we want to have a successful long-term strategy.  Diversification, and rebalancing to the asset mix that is best suited for your own risk tolerance, is the only way to ensure a healthy portfolio for the long term.  Gambling is fun, but not with your life savings.

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