The Coming Economic Collapse, by Stephen Leeb, PhD
“When we examined the relationship between oil prices and these zigs and zags [recessions and periods of strong growth between 1973 and 2000], we discovered that economic downturns and bear markets were always preceded by rising oil prices In particular, whenever the price of oil doubled over a 12 month period, stock returns ranged from -27% to +4% over the following 18 months. On the other hand, whenever oil prices declined over a 12 month period, stocks returned anywhere from -1% to +30%.”
According to the book jacket, Stephen Leeb “edits the prestigious newsletter The Complete Investor. Renowned for consistently finishing among the leaders in the annual stock-picking contests of the Wall Street Journal and Forbes, he is the author of 5 previous books and holds a BA in economics, MS in mathematics, and a PhD in psychology.”
In the book, he explains that the media, government, and Wall Street is short sighted in not recognizing the oil shortage, and recommends investments that will outperform as inflation and energy costs rise.
Chris, the studies in your newsletter about a relationship between oil and stock prices are pretty short term. 3 of the studies looked at the effect of a change in oil prices on the stock performance the following day. The one study which looked at 12 – 67 day moving averages, found a mild connection. Investors consider the price of oil to be volatile, and therefore don’t base stock decisions on the movement of daily changes in the oil price. Rising oil prices are a problem for the stock market only when they are persistent, because then they are inflationary. A 1 week rise in oil prices doesn’t mean anything. Now with this logic, the past 2 years, where oil prices have been steadily rising, should be bad for earnings, and thus, stocks. The Fed has been raising rates for 2 years, and stocks have held up pretty well. So the mitigating factor is the global liqudity.
You and I have very different approaches to investing. My approach is based on the economy, yours on technical signals. I think when both approaches line up, there should be a much higher certainty of a win. But if you do not wish to discuss this any further, I will oblige.
