Oil: Learning to live with high-priced crude
Wall Street guffawed two years ago when analysts said crude prices could climb as high as $105 a barrel, said David Callaway in Market watch.com. “Oil was averaging around $50 a barrel at the time, well into the Iraq war, and there was not much reason to see it going any higher than $60.” Yet earlier this month, oil prices hit an all-time high of $90. Investors reacted harshly by dumping shares, but jumped back into stocks when oil prices subsided slightly. But the worst may not be over. Oil price increases haven’t been priced into corporate earnings of oil- and gas-dependent companies, such as airlines. Nor have they been fully reflected at the pump, though experts forecast gas spikes “in a matter of weeks, if not days.”
The price of home heating oil may also hit record highs this winter, said Jeffrey Strain in Thestreet.com. Fortunately, there are ways you can keep your heating costs in check. Obviously, one way to save on heat is to use less. That doesn’t mean suffering in the cold. Rather, conduct an “energy audit” to find leaks around windows, fireplaces, and doors. “Many utility companies offer this service at a low cost or even for free.” Homeowners should also be aware that, in many cases, “they may be able to shop for the best price on the fuel they use.” In markets with competing energy suppliers, consumers may be able to trim their bills by 10 percent.
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Once your house is in order, look to your portfolio, said Steve Hargreaves in CNNmoney.com. With all this talk of $100 oil, you may be tempted to plow money into the energy sector. That’s a risky bet. “The higher prices go, the greater the risk for downside potential,” said Fadel Gheit, a senior energy analyst at Oppenheimer. While oil prices have soared, stocks in U.S. oil companies and refineries are up only modestly—for good reason. The sector has already seen “impressive growth.” Share prices for Exxon, Conoco, and Chevron are three times what they were five years ago. And no one believes that prices will triple again in the next five years.
What the experts say
Companies roll out Roth 401(k) plans
Employers are teaching their retirement plans new tricks, said Janice Revell in Money. “A growing number of companies have started offering employees a choice between a standard 401(k) plan and a Roth 401(k).” A Roth 401(k) is a “mirror image of a regular 401(k)”—you don’t get upfront tax breaks on the contributions, but you pay no taxes on the money you withdraw. With a standard 401(k), by contrast, withdrawals are taxed as ordinary income. “For most people, the Roth 401(k) is the better choice,” particularly if you expect to be in a higher tax bracket when you retire. Young employees especially will like the Roth. But “if you’re close to retirement and fairly certain that your income will drop noticeably once you stop working,” skip it. Ditto if you live in a state with high income tax but plan to retire to a tax haven some day.
Unlikely flight to quality
“Emerging-market assets used to be viewed as highly risky investments suitable for only the bravest of investors,” said Joanna Chung in the Financial Times. Now, remarkably, they have “started to resemble a safe haven.” Weary of Western markets, international investors have scooped up everything from Brazilian bonds and Chinese shares to the South African rand. Some analysts believe this is more than a fad. Others worry that the rush to emerging markets could be the start of a speculative bubble. “Nonetheless, investors’ newfound confidence in emerging markets does reflect one reality, namely that many emerging economies are in far better shape than ever before to weather broader financial turmoil.”
Kickbacks for buyers’ agents
Sellers and builders are getting desperate, said Amy Hoak in Marketwatch.com. In markets with a glut of homes for sale, they are offering agents extra incentives for showing buyers their homes. “Mentions of cash bonuses, gift cards, and other incentives are attached to some listings,” and some lucky agents have scored $5,000 American Express gift cards and leases for BMWs. Buyers don’t usually know when such deals are in place. But they should know that agents are obligated to show them homes that best suit their needs, according to Michael Thiel, associate counsel for the National Association of Realtors. Sellers considering using such perks to sway agents should gauge the market. It may, in fact, be a “better move to appeal to the buyer’s pocketbook by agreeing to cover closing costs or cutting the sale price instead.”
