SmartMoney suggestions to avoid the pitfalls of falling oil prices

Posted Jun 13th 2008 3:51PM by Eliza Popescu
Filed under: Forecasts, Toyota Motor Corp. (TM), Economic Data, Oil

With the soaring oil prices, oil bulls have been benefiting from nice gains lately but there are some pessimistic signs that this may be about to change. The Fed's comments related to inflation stirred some worries among investors that interest rates could be lifted soon. A boost in interest rates will immediately lead to a stronger dollar, and could (and should) result in a sell off in crude.

Talking about this circumstance, SmartMoney is thinking about the best way to protect ourselves against losing money. As a first step, SmartMoney suggests that we reduce commodities and increase our allocation in stocks. To back up this idea, the article cites Simeon Hyman, equity strategist of the portfolio advisory group at Lehman Brothers' private investment management unit, who said the company is currently lighter on commodities and "fully invested" in stocks.

David Reilly, director of portfolio strategies at Rydex Investments, is taking into account the possibility of investing in Japan, which "is the most oil-dependent of all major economies. Reilly cites companies such as Toyota Motor (NYSE: TM) and Canon (NYSE: CAJ) which could benefit from investors' attention due to declines in crude oil prices.

Scott Wren, senior equity strategist at Wachovia Securities, believes that "commodities are likely to be flat to down over the next year or so, and falling oil prices are going to help the better economic scenario we're projecting." As a piece of advice, he recommends investors to buy stocks like UltraShort Oil & Gas ProShares (AMEX: DUG).

On the other hand, one analyst at Morningstar, Jeffrey Ptak, is totally opposed to these beliefs. "You're doubling down, getting 200% exposure. For a certain kind of very aggressive, high-conviction investor a strategy like that might make sense, but they're not for the vast majority," Ptak stated. He points out to another strategy that could help oil bears and this might be to short a basic oil ETF such as United States Oil (AMEX: USO).

Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.

Tags: caj, Canon, dug, inthenews, invest, oil, tm, Toyota Motor, ToyotaMotor, UltraShort Oil Gas ProShares, UltrashortOilGasProshares, United States Oil, UnitedStatesOil, uso

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Reader Comments (Page 1 of 1)

6-13-2008 @ 4:00PM

John said...

If they want to reduce oil prices by killing the economy with an interest hike, then they're stupid idiot morons. The second the economy recovers, oil will start going up aggressively. What's gained?

The new price levels cannot be stopped.

Commodities are moving up, and anybody who gets between them and their eventual equilibrium is going to get crushed.