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Dow Roller-Coaster Ride Continues
Thursday +213 Pts, Friday -394 Pts

Friday's Dive Brings More Talk of Recession

June 7, 2008       Leave a Comment
By: Jerry Cole - Retirement, Investment

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Last week we were talking about inflation, what with durable goods orders coming in better than expected and both personal income and personal spending up 0.2% from the month before. Things looked pretty good too on Thursday of this past week when the market gained 213.97 points on the strength of good retail sales reports. But after Friday's dive of 394.6 points in the Dow Jones Industrial Average, we are back to talking about recession.


Many analysts will give you all sorts of reasons why we should have seen Friday's drop in the market coming. The truth is I don't think anyone could have predicted oil would jump $10.75 a barrel in one day! In fact, oil hit over $140 a barrel during the day before finally closing at $138.54 on the New York Mercantile Exchange.

Oil is now up more than 44% so far this year, and some fear prices could ratchet still higher. This would put a severe squeeze on many economies around the world, especially those who import oil .....like the U.S. So, despite weeks of news that the U.S. may be skirting a recession, the oil debacle will reignite fears that we are in one already or heading for one.

Adding to the negative mood on Friday was the report that unemployment rose sharply, jumping to 5.5% from 5%. Whether this was due to a large number of people re-entering the labor force and being counted as unemployed or some aberration in the data, it is difficult to tell. A 10% change in one month however, does raise some question.

How to account for oil's dramatic rise is the topic of much discussion. Obviously there is no one simple answer. You do, however have to consider the fundamental importance of supply and demand. On the demand side, global consumption continues to rise. The consumption rate in China, Russia , India and the Middle East is rising due to increases in living standards. It is also aided by government subsidies in those countries. In Iran for example where gas costs 42 cents a gallon, consumption is up 4.5%

According to the Department of Energy, consumption of oil in the U.S. has grown by more than 30 percent since 1985.U.S.production of oil in that period has fallen approximately 40 percent. However, it is unlikely we could drill our way out of our addiction to oil even if the restrictions on drilling were to suddenly be lifted. It seems we have to hasten the pace of transition to other energy sources, go to more fuel-efficient cars and make greater use of public transportation.We could also make better use of good old fashioned foot power.

In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.

I invite your questions.

Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)



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Jerry Cole - Retirement, Investment

Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC.
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