Market Gravitates to Survival Stocks

I’ve watched the market reaction to the mortgage meltdown. The investors are migrating to the survival sector of the market. These companies support the daily needs of survival against the impulse purchases exhibited by over exuberance.

Everyone needs to eat and protect his or her health and hygiene in order to survive. Take a healthy assessment and consider the things that “you can not live without”. At the individual level, people will repair before replacing. If repair does not fit into the budget and is not absolutely necessary, maintenance will be deferred. It may translate to driving the family car for a few more years or washing dishes by hand. This may sound ridiculous until it expands into all sectors and multiplied by millions of households.

Obviously, in light of recent developments, finance investments are taking a big hit. Not so obvious is petroleum prices dropping due to reduced demand. Families had 2 years and roughly a 200 percent increase in gasoline and home heating costs to try and adjust. Commuting practices have changed and many households have converted to zone heating or alternative sources of energy to heat high use living areas within the house.

Oil companies have reaped record profits with the increase of crude oil prices. A simple explanation is oil companies have used the same formula for pricing their product for too long. There have been no new refineries, no new bulk storage areas, limited adjustments due to labor, and minimal maintenance on facilities. If the oil companies are not spending significantly more on production, then the 400 percent mark-up between the price of crude and the finished product is profit. You would think it would be a safe place to invest, but driving habits and consumption for home heating has reduced demand. Recommendations were made in 2006 to implement a Windfall Profit Tax to the oil companies for excessively high profits.