Peter Yastrow's Blog

Market Update: Wednesday March 8th:

Gasoline prices are going higher. This is going to have dramatic consequences on our economy. As prices at the pump begin to exceed the $4.00 per gallon level we will see consumers cut back on discretionary purchases, and other non-essentials. The impact will be quite dramatic on equity prices as well.
The last time oil prices exceeded the $100 /barrel threshold was back in March of 2008, when the Dow Jones Industrial was trading about 12,500. 6 months later, stocks were 2,500 lower. Then oil prices dropped back under $100, and the bottom was in.
I am way too educated in statistics to try to claim that one observation makes a trend, but the causation is very clear; Higher oil prices means less money for other items. This is not inflationary, but should be viewed as a tax on all of us who use petroleum products. Petroleum is used in everything, from gasoline to vinyl, and is an input in hundreds of chemical processes. So it really hits across many sectors of our economy.
The impact of oil will be huge. We need to be prepared for a major pull back in equities as the new price level in oil is felt across the manufacturing sector as well as at the gas pump. Bernanke has warned us in prior speeches that higher energy prices would be a burden on already strapped consumers. He did not say that without reason. He knows that the headwinds are not going to abate anytime soon.
GET DEFENSIVE- take some profits.

Joy to the world

peter