Wed Jan 28, 2015
An alert student posed a good question yesterday. Why is it that lower oil prices are being blamed for a slower economy ? Sure that is a problem Texas or North Dakota, but surely the rest of the country benefits from lower energy prices?
Good question.The answer is two fold. I have urged you to subscribe to the WSU and we do have links to those articles. The lead in the WSJ today is Strong Dollar Squeezes US Firms.
When the dollar rises , the price of commodities measured in dollars falls. This has a two fold effect. Massive bets have been made on $100 oil. And they ripple through the economy. Here are other articles today that reflect this.
Tumbling Oil Prices Hit US Steel
The Heard on the Street column repots Proctor and Gamble, United Technologies, and duPont are al multi nationals hurt by a stronger dollar.
Oil is the premier commodity. As I demonstrated using stock charts in class yesterday, oil has only had about 24 months over $100. Yet the mood was such that investors thought this had become a permanent condition. Now that it is 2008 again, as predicted in my companion site Market Perspective, those bad bets have come to the surface.
Recall that Other Comprehensive Income OCI reports changes in four categories one of which is currency transactions. The Strong Dollar shows just how important this can be.
Professor Elam 
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