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| Adrian Mastracci, president of KCM Wealth Management, says “Investors who purchased their energy related investments, say a couple of years ago, may want to review the wisdom of reducing some of their position." |
For Immediate Release
Vancouver, BC (August 30, 2005): It seems that oil headlines have taken top billing. Everywhere we turn, there is another oil story. Yesterday it was hurricane Katrina’s turn to cause untold havoc and involve oil in the process. A storm for the record books.
Our thoughts are with the families of those who lost their lives, were hurt and had their property devastated. Those who live in Katrina’s path will need much resolve to weather the aftermath of this catastrophe.
The pictures of the affected areas are vivid and telling. I can only imagine what it feels like. The rebuilding will be long and grueling. The astounding destruction has changed lives and landscapes forever.
Adrian Mastracci, investment counsel at Vancouver's “fee-only” KCM Wealth Management, comments, “Let’s put the oil part in perspective. The price of crude oil rose 33.6% from US $32.52 per barrel on December 31, 2003 to $43.45 on December 31, 2004. Not to be outdone, we’re now at about $69.50 for a sizzling rise of another 60% in 2005.”
The high for yesterday’s oil price was actually $70.80 at one point and was there again today. Volatility is the understatement with a $5 oil price swing in one day.
Every one of us is feeling a bigger bite in our wallets. The price of crude oil affects just about everything in the economy we live in. Pundits say that we’re not finished paying the prices.
Let's step back for a moment. Oil is essential to run factories. It's a component of many products that we buy and is required for virtually all modes of transportation. Not to mention home heating for some.
The biggest visible reminder of the oil price impact is at the gasoline pump. No doubt, the driving vacationers will be happy to see the season end.
The amazing oil price rise is not something that everyone can endure without some pain. Perhaps, the more interesting question is how many people do we know that have had an income raise in the last two years similar to oil prices?
These oil prices demonstrate the significant impacts inflicted on consumers in a short time. No wonder the markets can get rattled from one day to the next. Clearly, they don't like the uncertainty for the global economic pulse.
Just picture being at the helm of an airline company trying to cope with jet fuel prices of today. In addition, consumers unwilling to pay much more for the ticket price.
Natural gas is delivering a similar fate to oil. In late 2004, the unit price hovered around the $6 area. Yesterday, it spiked some 15% to about $11.30 before it fell back to the $10.50 area.
Today natural gas is around the $11.70 area. And the home heating season is about to unleash another surprise for natural gas users.
Oil price fluctuations dominate the markets. This has affected, and will continue to affect, all investment portfolios.
Some in a positive way, such as the price rise of energy related stocks and indices. On the other hand, the billions that insurance companies will be paying out will have an affect on future insurance premiums and may alter availability of coverage.
Economic guidance going forward is becoming a little muddled. Getting market traction to stick is a tough grind. The economy could enter a slowdown mode.
Investors want results in near term. But, there is a need for playing defense, especially if the markets zig and zag.
I anticipate market volatility to continue for the foreseeable future. If we get a break from this, it will be a welcome bonus.
There is no simple fix for this uncertainty. I offer these six comments for investment plans:
- Review your investment expectations.
- Revisit your investment policies and strategies to reach the chosen destination.
- Get well acquainted with your asset mix suitable for the situation.
- Be comfortable with the energy component of your total portfolio.
- Stay with quality wherever possible, on both the equity and fixed income components.
- Make portfolio diversification and periodic rebalancing your friend.
Oil prices could move in either direction with little fundamental reason to support it. We are into a period of uncertainty. Possibly one of long uncertainty.
Investors who purchased their energy related investments, say a couple of years ago, may want to review the wisdom of reducing some of their position. Selling high and redeploying some profits.
Of course, income tax may apply. Staying focused on the long-term goal of the investing exercise is vital for the success of the game plan.
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