March 8, 2012 Will Rising Oil Prices Put a Rope on Bob Brinker's Bull?

March 8, 2012....Bob Brinker's recent comments have had to do with the causes of rising oil prices, but he has not discussed how they may affect the stock market, economy or inflation.

I looked back at the archived summaries and thought you might want to know what he was saying when oil prices were rising in 2008 and the market was falling. 

July 12, 2008 Moneytalk, Bob Brinker said: "Oil prices are the wild card factor in the stock market, in my opinion, and I think that is what you are seeing play out....If they continue to make new highs, they are going to continue to make it very, very difficult for the stock market because of the reasons I just described..... 

Why is there this correlation between the price of a barrel of oil and what goes on in the stock market? I think the answer to that question is easy, and that is consumers wind up with less money to spend when they get pounded with these higher costs of energy, costs of gasoline, all the products in the energy complex. And that weakens the status of the consumer and also delays the potential for economic recovery.

Right now, Bob remains bullish on both the stock market and the economy. In the March 2012 Marketimer, Bob Brinker continues to estimate  ".....2012 real gross domestic product growth within a range of 1.5% to 2.5% with a midpoint of 2%," and he expects inflation to remain low in 2012. 

Perhaps Bob has read a recent study by a team of New Zealand academics that Mark Hulbert wrote about on  Barrons. Excerpts:

Hulbert on Markets | THURSDAY, MARCH 8, 2012
Will Rising Oil Prices Choke the Stock Market? By MARK HULBERT

           Will the rising price of crude oil and gasoline strangle a stock-market recovery?

That's a timely question to be asking as the price of oil has jumped 40% since early October, and the bull market for stocks has begun showing signs of fatigue after a solid run in recent months. 

The answer, according to a team of New Zealand academics, is that it depends on the underlying health of the global economy.  When the economy is strong, according to three researchers at New Zealand's Massey University, stocks more often than not react negatively to higher oil and gas prices. 

But when the economy is growing slowly, as it appears to be doing right now, those higher oil prices forecast stock-market strength rather than weakness.

Are you properly confused? Well here's the thinking: When the economy is weak, both oil and stocks have a common enemy—recession and the prospect of outright deflation. At such times, both asset classes tend to respond in unison to the same underlying economic factors.

So when the economy turns out to be stronger than expected, both oil and the stock market rise. And if and when it becomes clear that the economy is weaker than expected, then oil's price is a good leading indicator of a falling stock market.

For example, crude oil's price was cut by some 80% during the credit crunch and associated liquidity crisis, as significant chunks of economic activity simply evaporated and demand for oil dried up. Far from turning up in the wake of those lower oil prices, the stock market continued to plunge for quite a while longer.

It was only when the economy began to show signs of life in 2009 that oil's price also began to rise again—and, not surprisingly, the stock market did as well.

(Click here to download the New Zealand study.)

Tax Cost of a gallon of gasoline  by state.  Big surprise, California and New York are the highest.

Look at the price that I paid when I bought gasoline near Santa Cruz on Tuesday:

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