Thursday, 27 January 2011

How Will the BP Oil Spill Affect the Economy in Months to Come? - What it Means to the "Average Joe"

After several months now of the BP oil disaster, the general public seems to have numbed itself to the disaster as oil gushes into the ocean. At this point, what will the economic impact of this disaster be to the economy as a whole, and just what does it mean to your life.
Right now, indicators are heading the economy in the direction of a "double-dip" recession. A recession is usually defined as two or more quarters of negative GDP (Gross Domestic Product). This could be our second recession in the since 2007. Chaos and disaster from the oil spill is just more fuel to create more negativity in the market.
Obviously, the immediate economic impact of this disaster will dampen the gulf cost economy in many ways. The fishing industry, housing, local business and job markets will decline sharply and as the effects of this disaster unfold, some of the economy in this area may not return to normal at all, for many years. Sadly, the economic impact may dwarf the environmental impact by a factor of ten or a hundred
What does this disaster mean for oil and gas markets? Why have gas prices NOT gone up, when in many cases, whispers of reduced production have immediately increased oil and gas prices? This is just another case of market manipulation and soon enough the rug is going to be pulled from underneath an already economically "weak" general public with higher gas prices. This is part of a larger "macro" set of circumstances to complicated to cover in this article.
Because of this disaster, there are several things to keep on top of, as the disaster will usher in certain changes that will affect the "Average Joe" now and in the immediate future.
1. Watch oil and gas prices and listen to the chatter about supply issues and government regulation in late 2010 early 2011. My prediction is prices for fuel will go up to $3.50-$4.50, and the fall of the dollar along with the recession will accelerate discussion from the administration in regard to cap and trade legislation and new oil company reform policies in mid to late 2011. Enjoy low fuel prices now, and plan for increases in prices in the fall/winter season.
2. If you live in the southern states affected by the disaster, look now for ways you can hedge your income, in case a trickle down effect takes place, causing problems for many other businesses including the one you work for. This means taking stock of your current situation and learning how to become extremely self-sufficient in the case of a double-dip magnified in your local area. Find alternate income sources and make a long term plan for relocation if necessary.
3. The oil disaster is creating negative consumer confidence in the market. This strikes its first blow to retailers. If you are in the market for purchases of any kind, the next 3-6 months will reveal incredible deals in electronics, consumer goods and vehicles. Cash is king and as retailers struggle with lower sales revenues, they will begin offering extremely good sales. This is your opportunity to get a great deal!
4. The stock market is going to go through wild gyrations up and down. Do not consider this investment advice, but a down market is bound to yield stock bargains in large, established companies. Will it be a good time to buy? It will be unclear since stocks are still artificially inflated and will be until there is a true correction. This is hard to predict but look toward 2011 for some serious Wall Street problems to manifest. Remember, as the economy continues to struggle, Wall Street executives and insiders actually had a RECORD YEAR in 2009!
Mike George wants readers to prepare for the worst case economic scenario. You can read more information about financial defense strategies from the double dip recession that is coming at Recession Defense.