Mutual Funds Lose $4.5 Billion on Oil’s Drop

Headlines (Scroll down for complete stories):
1. Mutual Funds Lose $4.5 Billion on Oil's Drop
2. Home Prices Fall for 1st Time in 11 Years
3. Oil Slides Below $60
4. Fed's Fisher: Inflation Biggest Risk

1. Mutual Funds Lose $4.5 Billion on Oil's Drop

Mutual funds have lost $4.5 billion in energy investments as oil prices cratered in the past two months, reports Bloomberg.

The Guinness Atkinson Global Energy Fund is down 14 percent. Fidelity Investment's Select Energy Portfolio, which has $2.7 billion under management, has lost 12 percent. U.S. Global Investors' Global Resources Fund, with $1.3 billion in assets, is down 12 percent.

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Tim Guinness, chairman of Guinness Atkinson Asset Management says to those wondering if oil is entering a bear market, "You must be joking. This is just a much-needed correction in a bull market that's going to go on for another five years."

Bloomberg says that mutual funds plowed $23.5 billion into energy investments in the 12 months ended July 31. Since then, mutual funds have lost $4.5 billion, according to Bloomberg's data.

Lou Holland, who oversees $2.4 billion at Holland Capital Management, likens today's energy market to the technology boom of the late 1990s. He says that anybody investing in energy mutual funds this year got in too late and could risk huge losses.

"The perception has been that the energy sector was a great performer, but in reality it peaked 13 months ago," James Paulson, who oversees $174 billion as chief investment strategist of Minneapolis-based Wells Capital Management, an adviser to mutual funds, pensions and endowments, tells Bloomberg. "There's going to be nowhere to hide on the way down."

"There's still a goodly number of bulls out there but I'm not one of them," says Paulson. He expects oil to fall to $45 or $50 a barrel.

Editor's Note:

Hedge Fund Investing's energy recommendations have pocketed gains of up to 198%. Go here now.

2. Home Prices Fall for 1st Time in 11 Years

Prices of existing homes fell for the first time in August, the first time that's happened in more than 11 years. At the same time, existing home sales tumbled for the fifth time in a row in August, says the National Association of Realtors.

The median price of an existing home dipped 1.7 percent from last year to $225,000 in August. Prices hadn't dropped year-over-year since April 1995. According to Marketwatch, that's the second largest decline in the NAR's 38-year survey. The record stands at a 2.1 percent drop in November 1990.

The number of existing homes sold dropped 0.5 percent, the fifth consecutive decline. There are now 6.3 million units on the market, estimates the NAR.

Meanwhile, the inventory of homes still on the market reached an all-time high of 3.92 million units, a 1.5 percent increase. That means it would take 7.5 months to sell all of those homes. The glut of homes on the market hasn't been this bad since April 1993.

David Lereah, chief economist of the NAR, says the home price decline is a welcome development and believes that home sales will now stabilize and begin to recover.

"We do expect an adjustment in home prices to last several months, as we work through a buildup in the inventory of homes on the market," said Lereah in a statement. "This is the price correction we've been expecting - with sales stabilizing, we should go back to positive price growth early next year."

Ian Sheperdson, chief U.S. economist with High Frequency Economics, tells The New York Times, "With inventory still rising, there is no chance of any short-term relief (for sellers). "Prices and volumes have a long way to fall yet."

Condo sales led the sales crunch in August. Sales of condominiums fell 3.5 percent to 793,000 while single-family homes were unchanged at a 5.51 million annual pace, according to Marketwatch.

Editor's Note:

Sir John Templeton first warned housing prices could crash 50%. Discover how to protect yourself and even profit from the housing crash. Go here now.

3. Oil Slides Below $60

The price of a barrel of crude is now nearly $19 below its mid-July high of $78.40 – the biggest fall in 15 years. Oil slid below $60 a barrel in trading in New York and London markets.

Analysts say that oil's slide is due to fear that the U.S. economy is slowing, a mild hurricane season, growing supplies in the U.S., BP's quick repair of a leaking pipeline, and easing tensions over a conflict with Iran.

"You have summer support unwinding, very bad product market support and on top of that the U.S. economic slowdown is becoming more compelling," said Eoin O'Callaghan of BNP Paribas to Reuters.

Today's data showing falling prices on existing homes add to the fear that the housing market slowdown will impact the rest of the economy.

Wednesday's inventory report of U.S. oil, distillates, and gasoline showed above average fuel stocks.

In addition, BP is adding an additional 150,000 barrels per day to production, upping the total to 400,000 bpd. That should help ease domestic prices because most of the oil produced goes to refineries in the Western U.S.

Iran is open to discuss "everything'" if the U.S. stops threats of sanctions, said President Mahmoud Ahmadinejad in an interview published yesterday in the Washington Post. The conciliatory talk is helping to ease fears of supply interruptions.

There is one question mark behind oil: OPEC. There is recent speculation that OPEC will cut production when it next meets, if not sooner.

"It's too early at the moment, but we are monitoring it," says an OPEC source when asked about plans to meet ahead of the next scheduled meeting, reports Reuters.

In related news, gasoline prices fell for the sixth week in a row to $2.42 a gallon. Gas prices have fallen 66 cents on average over the past six weeks, according to the Lundberg Survey.

Editor's Note:

In April 2004, Financial Intelligence Report predicted that oil prices would skyrocket from $29 per barrel to over $60 within a year. That forecast was dead-on. Our investors made a fortune on that advice. Since then FIR has been warning that oil prices would collapse in the next 12 months and could go as low as $40 per barrel. Discover the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.

4. Fed's Fisher: Inflation Biggest Risk

A top Federal Reserve official expressed concern Monday about the ongoing risks of inflation, even as he remained confident that price pressures will likely cool over time.

"As I sit at the (Federal Open Market Committee) table, I continue to fret more about inflation than I do about growth," Federal Reserve Bank of Dallas President Richard Fisher said in comments prepared for delivery before a group in Monterrey, Mexico. Despite all the factors that could slow growth "the 'balance of risk,' in my book, is still tilted to the inflation side of the equation," Fisher said.

The official said "the most reliable indicators of inflationary pressure are not yet comforting" and "inflation remains elevated." As such, the current environment "leaves us small choice but to remain vigilant," Fisher said.

Fisher isn't currently a voting member of the interest rate setting Federal Open Market Committee. The group met last week to deliberate on monetary policy and decided to hold rates steady for a second straight gathering, citing moderating economic growth and an expectation elevated inflation trends will cool.

The bank president said he agrees with the FOMC outlook, and noted "the recent tempering of U.S. economic growth to a more sustainable rate" joined with the lagged impact of past Fed rate hikes "should act to lower the inflation rate over time." He added "if this proves not to be the case, appropriate action will have to be taken."

Fisher warned that if current inflation rates were to be sustained "it would seriously debauch the dollar," and "I don't know a soul on the FOMC who would accept that kind of erosion in the purchasing power of our currency."

Although a good deal of Fisher's speech was fixed on the inflation environment, the central banker was generally upbeat about the economy's current state of affairs, and he said good overseas growth would aid the nation.

Fisher also said "we have a serious correction taking place in the housing sector" with "not insignificant consequences for the economy." Spurred by cheap financing -- he cites a "spigot of liquidity" -- the sector got too far ahead of itself and "the market for residential real estate had to adjust, and it is now doing so." He deemed the situation "hardly unique."

Still, "we are fortunate that the rest of the economy is healthy and robust," Fisher said. He pointed to still ample liquidity in the financial sector, solid corporate balance sheets and good rates of investment. Also, "consumers are getting a shot in the arm from lower gasoline and natural gas prices," Fisher said.

The official also pointed to some signs of tightness in labor markets, saying some of his business contacts now see difficulties in finding different types of specialized labor. "Companies are now voicing the kinds of complaints about labor shortages most often heard in a full employment economy," Fisher said.

Fisher's speech, which was delivered in Spanish, also spent some time on the rising interdependency of the U.S. and Mexican economies, which is largely the result of increased trade. He said the Mexican economy is enjoying greater price stability amid an excellent business environment.

Citing a turbulent political climate of late, Fisher said "Mexico's financial markets have proven remarkably resilient" during this period. But Fisher also offered that Mexico could still do much to improve its education system and to reduce corruption.

Editor's Note:

Contrary to what Bernanke says, he, the federal government, and politicians love insidious inflation. It is the easiest political way out of the massive private and public debt that hangs over the U.S. economy like an open noose. Go here now.

Editor's Notes:

Hedge Fund Investing's energy recommendations have pocketed gains of up to 198%. Go here now.
Sir John Templeton first warned housing prices could crash 50%. Discover how to protect yourself and even profit from the housing crash. Go here now.
In April 2004, Financial Intelligence Report predicted that oil prices would skyrocket from $29 per barrel to over $60 within a year. That forecast was dead-on. Our investors made a fortune on that advice. Since then FIR has been warning that oil prices would collapse in the next 12 months and could go as low as $40 per barrel. Discover the top 5 ways you can profit from the coming Oil Bust. It's already begun! Go Here Now.
Contrary to what Bernanke says, he, the federal government, and politicians love insidious inflation. It is the easiest political way out of the massive private and public debt that hangs over the U.S. economy like an open noose. Go here now.
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