"The Oil Factor" is an economic analysis of two parts.
Part 1 evaluates the effect of oil costs upon economic conditions. This analysis has determined that US economy has been a benefactor of low-cost energy, and thus has literally had the fuel for growth.
However, due to the effects of worldwide supply peaking in 2010+/-10, coupled with quickly rising demand (especially from China), the price of oil will soon start on a long uptrend that will create an inflationary cycle possibly a lot worse than the 1970s period.
Part 2 evaluates the effect that an inflationary cycle will have on asset valuations. The authors describe why this cycle will have the effect of driving down equity P/E ratios (from lower profits - the authors detail the reaons for this change). However, they also describe exactly what asset valuations will actually benefit from these changes, and offer specific recommendations of how, why, and when to adjust asset allocations.
The main component for the economic evaluation, and resulting asset protection mechanism is a formula that the authors call "the oil indicator". This indicator is intended to provide a simple and clear "positive signal" or "negative signal", and certain assets should be re-allocated at the time these indicators signal future economic results.
I believe that these authors are absolutely correct on the economics of oil, especially as to future dramatic price rises and the results of high inflation. Also, the resulting investment advice is soundly backed by economic and political analyses.
This book is an easy read, and not technically based. If you are
looking for the statistics underlying the economic analysis of oil you will not find it in this book. Rather, the authors are presenting the big picture of finished analysis.
Investors are strongly advised to read and retain this volume.
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