As the Dow Jones Industrial Average dropped nearly 1,000 points in December, many were quick to point fingers at depressed oil prices. This is odd, since lower oil prices are typically considered good for an economy and good for the stock market.
Yes, in this case, lower oil prices signal some negative aspects of the economy — namely, slowing demand around the world and a setback for one of our biggest recent growth spots in the U.S.
But I'm still a little surprised that the market would take low oil prices so negatively, especially since in the last few years it's taken just about everything as positive, or neutral at worst. But that seemed to change right around October of this year.
Let's see, what happened around that time?
No, not the Ebola outbreak. As I wrote at the time, the market in October wasn't sick with Ebola
. It was sick with lack of money printing. And that's still a problem, and I think that's a big part of the reason the stock market is reacting so poorly to low oil prices.
Back when the Fed was pumping up the stock market, it could shrug off any bad news, and use any good news to soar to new heights. But without that life support, any little tremor gets investors scared. Oil prices just happen to be the tremor of the moment.
Yes, positive talk from some officials at the Federal Reserve calmed the market at the end of October, but as I said then, words only go so far. Soon the Fed will have to commit to money printing to boost the market or else risk another big drop on the next bit of bad news — eventually a drop that could be much worse than what we've seen in December.
Once the money-printing machine gets cranking again, I think we'll see a much happier market, one that cheers low oil prices as a great sign for growth. Then again, by then it might be cheering rising oil prices as a great sign for growth. When money printing is plentiful, everyone wears rose-colored glasses.
If you want to know what turns the market, don't look at oil, or Ebola, or Russia or for that matter even jobs or manufacturing. Look at money printing. It's all about the money printing.
About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles.
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