Downturn

FIRST PERSON

- ALEX MAGNO

There is a reason why oil prices have come down: people are expecting a global economic downturn. When global economic growth slows, demand for fuel declines. This puts downward pressure on the price of oil.

With a lower oil price regime, oil exporters will want to sell more oil to meet their own funding needs. OPEC is expected to hike production next month. This will feed into the downward trajectory of fuel prices.

The Trump II administration is pursuing a cheap energy policy by encouraging more production of fossil fuels. US energy officials are looking to bring down oil prices to between $50 and $60 per barrel. Currently, West Texas oil is selling in the high 60s per barrel.

Prospects for further softening of oil prices will help reduce inflation levels. Lower inflation, however, does not automatically translate into higher growth. The more pessimistic analysts are forecasting a period of "stagflation."

Some big banks are predicting a bout of recession for the US economy. Should this happen, the rest of the global economy will inevitably be dragged down. You have heard that aphorism: when the US sneezes, the rest of the world catches the cold.

Months ago, legendary investor Warren Buffett began selling down stocks, accumulating a huge cash stockpile. With the cash, he invested in fixed income securities.

Over the last two weeks, the US stock market suffered sharp declines. Tesla's market capital, for instance, is estimated to have lost $800 billion because of the drop in stock prices. More people now understand why the 93-year-old Buffett has become such a wealthy man. He consistently reads market trends correctly.