Tags: Forbes | Predicts | Oil | Bust | $35 | Next | Year

Forbes Predicts Oil Bust, $35 by Next Year

Wednesday, 31 August 2005 12:00 AM

Steve Forbes, editor-in-chief of Forbes magazine, predicts that skyrocketing oil prices are just temporary - and a massive price collapse will dwarf the Dot-Com crash that began in 2000.

In Sydney, Australia this week for a global conference of CEOs, the respected financial editor said that the price of oil has inflated into an unsustainable and speculative market bubble - and he says that when this bursts, it will make the Dot-Com crash "look like a picnic."

The paper quotes Forbes as saying that the price of oil (which rose above $70 this week) had been inflated by speculators and would soon begin a rapid slide.

"While there is a lot of talk in my country, the U.S., about the housing bubble, I think the real bubble, to be blunt, is in the price of oil," he said. 

"It's a huge bubble. I don't know what's going to pop it, but eventually it will pop. The price has to be brought down to earth, and when it does there's going to be a lot of yelping from the hedge fund managers."

Forbes said that speculation on oil hitting $100 a barrel was misplaced.

He also believes that the price of oil will decline significantly in 2006.

"I'll make a bold prediction: I think in 12 months, you're going to see oil down to $35, $40 a barrel," Forbes said. "In the meantime, it's a huge drain, more a psychological drain (on the economy), but it's not forever. This thing is not going to last."

Forbes blames the oil price spike on rising inflation and aggressive buying on the part of burgeoning Pacific Rim countries.

"China and India are buying more of the stuff. As the global economy expands, more energy will be consumed," he said. 

"But if you look at the price of oil three years ago, it was $20 or $25 a barrel. Supply and demand might have shot it up to $30, $35 a barrel. The rest of it is inflation."

Forbes spoke to The Australian just as news was drifting in regarding the damage sustained to the oil-rich Gulf of Mexico in the wake of Hurricane Katrina. Industry observers say that energy companies such as BP, Chevron and Shell have been forced to shut down offshore platforms, which account for 25% of U.S. domestic oil and gas output.

Thanks to a growing real estate bubble, a significant climb in oil prices and Americans' exasperating reliance on debt, some Wall Street experts say that, from an investment perspective, the remainder of 2005 should be a turbulent ride.

That's why it's more important than ever before to seek out quality investments, says Robert Lutts, president and chief investment officer of Cabot Money Management.

"We are currently in a cycle in which the economy could experience more stress than usual - which means a possible period of slowing growth or contraction in weaker parts of the economy," he says.

According to Lutts, sectors to be avoided right now include:

Among the sectors Lutts feels "have the goods" right now:

AND

"It is critical to emphasize real growth in companies poised to grow from the demographic trends of other real-growth drivers," says Lutts.

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3. Make Monster Profits From the Market's Hottest Sectors

You can build incredible wealth riding the top monster profit trends in the coming year. One of the best ways to capture these gains is through sector investing. 

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Our Financial Intelligence Report has long touted the use of sector investing to ride these powerful profit waves. It's no wonder subscribers in our favorite sectors are making a ton of money. 

For example, we invested in the energy sector when oil was just $29.41 a barrel, and since then we have realized gains of as much as 52%. 

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We've bagged some tidy profits in the other big sectors, including:

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4. Total U.S. ETF Assets up 36% to $242B

Index-tracking is hardly new on Wall Street.

Companies like Vanguard have made their bones by creating funds that track industry benchmarks. But exchange-traded funds (ETFs) are taking index investing to a whole new level.

According to an August 2005 report from the Investment Company Institute (ICI), the combined assets of U.S. ETFs grew to just over $242 billion in June - a 36% increase from June 2004, when ETF assets stood at $178.5 billion.

The news for ETFs was fairly solid across the board.

Equity index ETF assets increased by $3.8 billion to $230.24 billion, while bond index ETF assets increased by $464 million to $12.42 billion. Assets of domestic equity ETFs increased by $1.39 billion, and international equity ETF assets increased by $2.41 billion.

The ICI also reports that the 119 ETFs that tracked domestic stock indices in June held assets of $189.51 billion. And some 46 ETFs tracked international equity indices and held assets of $40.73 billion.

Investors are warming to ETFs because of their low cost, tax efficiency and transparency. A recent AP article says that ETFs "are considered the wave of the future by many financial professionals."

And better marketing has helped fuel their rising popularity.

According to Meg Richards, author of the AP article, ETFs "are no longer market oddities with funny names like Spiders, Diamonds and Qubes."

Apparently, investors have learned that ETFs in any stripe offer the potential for solid investment gains without the higher fees and tax unfriendliness of mutual funds.

"There is a very good trend happening in the marketplace, where people are recognizing it's an admirable goal to earn the market return. And by definition, that's what ETFs allow you to do," says Robert R. Johnson, managing director of the CFA program division at the CFA Institute, a nonprofit group that certifies financial analysts.

He told the AP that "for smaller retail investors who perhaps don't have the requisite asset base to have professional help ... investing in a broad-index ETF is a very sound strategy."

The very first ETF - Standard & Poor's 500 ETF (SPDRs) - was launched in 1993 and accounts for over one-third of ETF-held assets in the United States.

Diamonds (DIA) rolled out in 1998 and is another investor favorite. It follows the 30 stocks that make up the Dow Jones Industrial Average and it has net assets of more than $7.5 billion.

The most heavily traded ETF is the QQQQ, or Qubes, (QQQ). This one tracks 100 large-cap issues on the technology-dominated Nasdaq Stock Exchange. First issued in 1999, the Qubes holds $19.83 billion in net assets.

According to ETFguide.com, which tracks ETFs on a daily basis, these investment vehicles have become a popular choice for many reasons. Here are just a few of the advantages:

As the AP story points out, whether ETFs will ever dominate traditional mutual funds remains to be seen.

The next phase of their evolution probably depends on whether they can make a substantial dent in the retirement market, says Ronald L. DeLegge, publisher and editor of ETFguide.com.

They're already popping up in 401(k) plans, and chances are they'll be more widely available within a few years. Still, he adds, making the switch is not a no-brainer.

"I look at ETFs as an extension of the whole concept of indexing - a newer generation of the trend that started in the '70s," says DeLegge.

"In any fair analysis of ETFs versus traditional mutual funds, you have to look at the entire spectrum of costs and expenses associated with the decision, including your transaction costs, your ongoing management fees and your tax liabilities."

Recently NewsMax's Financial Intelligence Report and its premium SectorTrade service have made recommendations that are up over 50% on an annualized basis. Find out how to protect your investments and profit from the coming recession - Go Here Now.

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Steve Forbes, editor-in-chief of Forbes magazine, predicts that skyrocketing oil prices are just temporary - and a massive price collapse will dwarf the Dot-Com crash that began in 2000.In Sydney, Australia this week for a global conference of CEOs, the respected financial...
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Wednesday, 31 August 2005 12:00 AM
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