Mutual Finance

Oil price rebounds on Thursday October 5th, 2006 on the news that OPEC will cut 1 Million barrels per day production effective immediately. Saudi Arabia, the largest OPEC oil producer, will reduce its output by 300,000 barrels per day. Will this production cut help oil price? OPEC members certainly hope so.

In the short to medium term, I feel that it is a futile effort. For starters, after a nearly harmless hurricane season over the summer, winter is predicted to be warmer this year. As a result, energy consumption is expected to be less burdening.

Secondly, the US crude distillate stocks rose by 3.3 Million barrels last week. That signals the buildup in inventory which is bearish for oil price going forward. Furthermore, the rise of oil price this past year was accompanied with rising inventory, which is puzzling. Therefore, it is about time that oil price declines, no matter what the inventory figure is. That being said, it will take a lot of declining inventory to help prop up oil price.

Thirdly, the rise of oil price has triggered a new oil exploration that would otherwise will not be funded. This project will bear fruit after five to ten years. It is expected that the first batch of this new project will come online within the next one or two years. To recover the huge capital expenditure, it will be best for this new oil production field to keep producing oil. That will put pressure on oil price further.

Fourth, the federal fund interest rate is at 5.25% versus 1.00% several years ago. This would scale down speculations which we believe has contributed significantly to the rise of oil futures. When you can get 5.25% by doing nothing, you would be inclined to not borrow huge and simply put your money in the bank. Furthermore, the effect of interest rate change is felt 9 to 12 months ahead. The Federal Reserve started lifting its fed fund rate on June 30th 2004, until now. Therefore, the effect of 5.25% interest rate will still be felt around one year from now.

Fifth, housing market in the United States has slowed down considerably. Home builders had reported declining profit expectation in the midst of severe slowdown in some areas. There are some bold predictions that forecast a double digit decline in home price until 2009, however, even the most optimistic forecast still foresees a modest decline in home price. This is a picture of a slowing economy, which will dampen demand for oil.

Sixth, natural gas blown out by Amaranth hedge fund, showed how dangerous speculating in commodity market is. This will temper down speculative bet on oil, natural gas for quite some time. We feel that those speculative bet has helped prop up oil price in recent past. Further, the Amaranth blow out clearly shows that commodity price has many speculative excess that can burst anytime.

Seventh, natural gas price and other energy sources has declined sharply. Energy price will generally go hand in hand. If natural gas price has dropped by more than 60% while oil price dropped merely 25%, it brings us two possibilities. Either natural gas price will rise while oil stays constant, or natural gas price will stay constant while oil price will drop. With the action of OPEC members to hastily cut production immediately, we believe that it is the latter.

Eighth, technologies has helped companies getting smarter in locating oil patch. On September 5th, 2006, Chevron announced that it has successfully discovered oil in deep Gulf waters that boost US’s oil reserve by 50%. Yes, you heard it right. 50% more. While it will need billions of dollars to extract the oil and distribute it, it shows that high price of oil will stimulate more exploration and deep drilling. Therefore, oil price cannot rise indefinitely.

Ninth, OPEC members are as addicted to oil as we are to our SUV. They need the oil money. Who would oversee that OPEC members reallly abide by the production cut? In the past, some OPEC members will ‘cheat’ by overproducing and sell it on the black market. While price has dropped over the last two month, oil price by historical standards is still quite high.

Tenth, one of the culprit for high oil price is China, where it has been gulping up oil for its rapid economic growth. That may be true, but China’s economy has grown in the double digit each year way before oil price gets this high. We believe that the recent commodity sharp rise has anything to do with China hosting the Olympics on 2008. It built up its infrastructure ahead of the game and as 2007 approaches, I believe that the construction is almost complete and commodity demand will slacken in the next year, including oil.

In the long run, as oil is in limited supply, its price should rise. However, in the short to medium term, oil price may have taken a breather due to the ten reasons above. All these forces has made it extremely difficult for us to be in the bullish mode for oil, at least for the next twelve months or so.

Novice Investing is the online investing guide for beginners. You can also submit investing articles here.

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the second in a series taken from
How to Evaluate and Profit from a Business Opportunity

Going into business for yourself is a big decision, one that requires careful thought and a great deal of planning. Whether you decide to buy a business, or start one from an idea or a patent, you need to know yourself. In order to make the business successful, it has to be one you will like working in and its requirements have to match your skills, and attitude.

First, understand why you want to go in business for yourself. There are lots of reasons. Some people want to build an empire; others have an idea they passionately believe in. Some because they can’t find a job and by owning their own business they will have income to take care of their needs. Still others want control over their lifestyle while many want to pass on something to their heirs.

Knowing why you want to own your own business will help you avoid mistakes and let you focus on what’s right for you. A good match at the beginning will go a long way towards making you a successful business owner. We always do better at what we like.

As you start working on a self-assessment, remember that while it’s important to know what you are, it’s equally important to know what you aren’t. Do you learn new things easily, on your own, or do you find it tough to deal with change? What was the last new thing you learned? What are you looking forward to learning right now?

Can you teach others how to do things? Can you motivate people; are you good at critiquing, negotiating and reprimanding? If so you may want to stay away from a business that employees many people and experiences a high turnover.

How about your personal lifestyle; is being home for dinner with the family important, or spending time with the kids on weekends? If so a retail business might not be right for you. Its time demands could be a conflict which causes many problems.

If you like tinkering with tools and equipment instead of sitting at a desk, you probably should consider some type of light manufacturing or assembly business. Besides being able to help your employees deal with the occasional machine breakdown, you may very well find new ways to do things, maybe even design a new process or tool which you can market.

Are you a detail person or do you always seem to grasp the bigger picture? As the owner you will have to be both, but knowing how a business makes money (a topic for a later article) will let you begin spending more of your time on the activities you like.

Do you enjoy making people happy, bringing a smile to their faces? Maybe you’ve always had an itch to go on the stage. If so perhaps you should look for a restaurant that serves great food but all the people out front add nothing to the fun of the dinning experience. Perhaps the owner/chef really knows how to cook but lacks people skills and would be willing to take in a partner who would be the out-front person. If you know accounting, you can also take over the bookkeeping functions and free the creative genius in the kitchen expand the culinary offerings.

Always remember you don’t have to own it all to be in business for yourself.

At the end of Chapter Two in my book How to Evaluate and Profit from a Business Opportunity - The Entrepreneur’s Guide there is a twenty- nine questions self assessment quiz which will help you learn more about yourself.

www.artconsoli.com

Art Consoli held eight corporate positions with Johnson & Johnson before starting his first business. He went on to build over twenty businesses from patents or ideas or from businesses others couldn’t make successful. These ranged from starting a veterinarian drug company to taking over a steel fabricating company to developing the first manufactured home subdivision to qualify for every private and government assisted mortgage program in Arizona. He also did ten workouts for lenders and owners; the last was a $30 million, 300 employee, precision parts manufacturing plant that made parts for the auto industry. Consoli’s unique background and skills allow him to speak and write about how someone with limited experience can do a self-evaluation which will let him decide which business opportunity is best, how to evaluate opportunities and gain control over the one which offers the greatest potential and then manage that business to success. Readers of his book call and write to tell him how much his book has helped their lives and improved their business.

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Our materialistic society promotes a model of the lifestyle that we are seemingly expected to achieve and maintain. Advertising in every form imaginable keeps our desire for things peaked causing us to become master consumers. Striving to acquire the things that help us live up to these worldly expectations most people spend all that they earn then borrow to obtain even more possessions. As a result we have become our possessions and MONEY has become the measure of man. Sadly even Christians evaluate others by how much they have and how successful they are in worldly terms.

The endless stream of marketing around us preys on our emotions. Pitching to us that we just don’t stack up unless we drive a certain kind of car, wear a particular pair of shoes, buy a special brand of soap, or take a dream vacation even if we have to mortgage the house to do it.

Little by little a pack of lies slip in. Over a period of time those lies are accepted as truth. Because of that we begin to develop money habits that conform to lies and we become a product of our environment. We develop a self-serving financial attitude. The world controls our thoughts therefore the world controls our finances.

Every day many good people with very good intentions suffer through financial problems. On the surface those problems may appear unexpected. But are they really? Usually a closer look reveals that current circumstances are a result of actions over an extended period of time. Our financial condition whether favorable or unfavorable is created slowly. If our condition is favorable then we should do a check up to make sure we are not headed some place that we don’t want to go in the future. If our circumstances are unfavorable we should not expect to change a situation overnight that took years to create.

Sometimes we have to look in the mirror and ask some tough questions. Is a job loss to blame for a financial struggle or has the job loss just magnified the much deeper problem that we didn’t establish a savings? Is a huge medical bill causing the problem or is it that instead of purchasing health insurance we directed our money toward something less important? Is our employer to blame because we are not paid enough or are we the problem because we don’t follow a budget?

Unless we want to spend our entire life repeating our current circumstances we have to work to solve problems instead of just continuously treating the symptoms of those problems. Symptoms of financial problems can be treated by a variety of quick fixes that society has to offer. Those quick fixes may provide temporary relief but they rarely offer a lasting cure. The permanent cure comes through having the right financial attitude.

What is the right financial attitude? The truth is that we are not the owners of our money or possessions. It all belongs to God. That is the attitude we should have toward money and things. We need to relinquish ownership of everything to its rightful owner, God.

We are only stewards of God’s property while we are here on the earth. He has entrusted us to use and manage His assets but we will never own them. It is God’s right to determine how our finances are used. It is our responsibility to be obedient and become good stewards of what has been entrusted to us.
“The earth is the LORD’s, and everything in it, the world, and all who live in it” (Psalm 24:1).

This understanding puts money and material things in their proper perspective. It causes us to be open to receiving guidance from the timeless financial principles found in scripture. There are many programs available that teach technique and show us ways to accomplish what scriptures say is good for us. Making use of them helps us shift our attitude and realign our values.

Shifting our attitude and reeducating ourselves about money is the key to freeing us from the stress of an adverse financial situation now and in the future. Simply put money naturally flows toward those that can manage it and away from those who can’t.

Kevin Farrar is the author of the Wisdom For Your Wallet personal financial program. Go to http://www.wisdomforyourwallet.com to learn more about this life changing program.

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