The Downside of Cheaper Oil

This is by no means a bad thing. But, what is pushing oil down so much? I've had a tough time trying to find the "straw that broke this camel's back". There hasn't been one particular catalyst that is has pushed oil down almost $15.00 in a month.

If the move continues, the implications from the inflation standpoint are quite large. The Federal Reserve's number two concern is price growth derived from energy prices (it's first concern appears to be wage pressures). Bring down price growth too far, and we'll see some negative inflation rates. A welcome sign.... as long as it doesn't come with a kamikaze-style economy, ala Japan in the 1990's.

Think about this scenario for a second: We are seeing the price of energy move lower. Growth expectations are pointing lower, which would mean continued lower demand for energy. That lower demand will push world-wide supply levels up... pushing energy prices even lower. There's also another factor to weigh: What about real estate prices? With the real estate boom heading downward as well, it might be time to start using the word "price-delfation". Even gold broke below $600.00 today, a move I've been anticipating... but missed. Seems that assets as well are a likely candidate for moving lower if these scenarios work their way through.

Are we in for some dire times ahead?

I have a feeling that our Federal Reserve is more capable of handling price declines better than the 1990's Bank of Japan. Just a hunch. But, the landscape is eerily similar. If oil continues its slide, and real estate follows with any vigor, then it's possible that it will drag down equities as well as the U.S. enters a recession and price deflation.

It's possible. But, I'm not going to put any money on it just yet. I've been anticipating an equity market that moves up mildly over the next three months. I've also been anticipating energy demand to be about the same. But, with energy moving lower, maybe I should rethink my stance going forward.