Almost everyone is talking about the euphoric stock market. The big shots in Davos, Switzerland seem very bullish and optimistic about the economy every time they are interviewed on CNBC. The important and highly followed Dow Jones Industrial Average is now just 145.0 points from the 14,000 level. Please remember, the all time high for the Dow Jones Industrial Average is 14,198.10 made on October 11, 2007. So it is safe to say the bullish sentiment is growing by the day.
What most people do not realize is that gasoline prices are starting to creep up at the pump again. Whenever gasoline prices rise they become a direct tax on the U.S. consumer and that could slow down consumer spending. In fact, if you look at a chart of the United States Gasoline Fund (NYSEARCA:UGA) it is now approaching it’s September high at $61.95 a share. Very often, when gasoline prices become expensive the major stock indexes will usually stage a correction or at least a pullback in the near term.
Many people do not realize this, but when the value of the U.S. Dollar declines against other currencies it will often cause commodity prices to rise, especially oil and gasoline prices. Unfortunately, this is one of the side effects of printing money and it is going on in the United States, Japan, Europe, Asia, and Zimbabwe.
Recently, most tax payers in the United States received a tax hike as the fiscal cliff deal was partially settled by the politicians. Higher gasoline prices will simply be another added tax that will have a negative effect on consumer spending. Please understand, consumer spending accounts for roughly 70.0 percent of the GDP (gross domestic product) in the United States. If all of these bailouts and easy money policies are going to be effective the U.S. consumer is going to need to spend money.
Some other energy equities that will also rise on the back of a weaker dollar include the United States Oil Fund LP (NYSEARCA:USO), ProShares Ultra DJ-UBS Crude Oil (NASDAQ:UCO), and iPath Goldman Sachs Crude Oil Total Return Index ETN (NYSEARCA:OIL).