I had a recent post about the worth of stock market analysts, and a report released yesterday by Merrill Lynch just reinforced my opinion. Their analyst just issued an opinion that crude oil prices may drop as low as $50 per barrel. Huh? Was it not just three or four months ago that the same analysts were predicting with much confidence and certainty that oil prices were going to $200 per barrel?
While they may argue that the world economies are going to slow down because of the recent financial turmoil arising from the North American economy, their original assessment of the projected $200 price was based on the burgeoning economies of developing nations such as China and India. While China may be more affected by the American situation than India, since they export more to the US, collectively these two countries account for more than 2 billion of the world's inhabitants that are quickly increasing their standard of living, and are also living in countries where home and car ownership rates are still extremely low. Not only that, but these are two countries where cheap cars such as the Tata Nano and the Geely provide an affordable entry for the fast-growing middle-class to car ownership. So, while there will be a noticeable impact from a worldwide slowdown, the average Chinese or Indian will still see an improvement in their living standards, and while the rate of growth may slow down, a $50 per barrel price is almost assuming no growth at all which I think is unrealistic.
My point is, again, that these analysts tend to use whatever excuse possible to justify a retraction of their earlier incorrect opinion. In order words, they are trying to explain the market which reacts to investor sentiment. Thus, I still don't think these analysts have any better knowledge of what is going to happen in the future than the market itself.
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