Connecting the Dots

This week, we will focus on tying together many of the main economic factors. When one factor changes, many times it will have an affect on others. Once you begin to see the relationships, you can have a very good indication of what will happen.

The first thing you have to understand is that oil is the currency of the world. Every 1st world country is heavily influenced by the price of oil because of its dependency on oil for energy, transportation, and manufacturing. How long could you or anyone you know last without filling up your car with gas? Most people's income are tied to gas because they need to travel to get to their job. Many of the products we use on a daily basis are produced by oil. All plastics are oil derivatives. When the price of oil goes up, everything else will as well. Inflation has always been linked directly to the price of oil.

After oil, the asset classes really begin to vary. Another mainstay has always been real estate, because it stays in one place. The cardinal rule of real estate has always been location, location, location. The price of real estate will always been determined by what attractions or aversions the property is located near. As proximity to the location increases, the price decreases. Ease of access such as roads, ports, rail lines, and airports are also key elements to the price of the real estate.

The other asset classes range from precious metals like gold and silver; to other natural resources such as crops, livestock, coal, and water; equity investment vehicles such as stocks; debt instruments such as bonds, mortgages, and loans; collectibles such as art, fine wine, and antique automobiles; and liquid instruments such as currency, checking, and money market accounts.

The key thing to remember that as one asset classes increases, other classes will either follow suit because they are linked, or act conversely because of the inverse relationship. A few will act independently, but those are the exception and are not common asset classes.

For example, I have been pointing out in recent posts that the US dollar has been plummeting in value for many reasons. This is driving up the price of gold and silver because the currency is losing value. Precious metals have always been a safe haven during times of economic instability.

We will focus more on these relationships this week. Stay tuned ...

All King Solomon's goblets were gold, and all the household articles in the Palace of the Forest of Lebanon were pure gold. Nothing was made of silver, because silver was considered of little value in Solomon's days. I Kings 10:21

If you have comments or questions, please feel free to contact me at the address below.
Email: DeltaInspire@panama-vo.com