I would also point out that the deflation argument is all wrong. One needs to distinguish between deflation based on failing demand and deflation based on advancing technology. The price of energy is falling is based on advancing energy technologies applying price pressure on fossil fuels. This is an incredibly good thing for the global economy. Lower cost energy in fact increases labor productivity. So declining unemployment and increasing wages are entirely consistent with declining energy costs.
So market bears are trying to paint this picture that deflation is coming because demand is falling. This is not even true for oil, much less the rest of the economy.
According to the IEA, global oil consumption rose 1.7 mb/d in 2015. This is plenty of demand. The problem was that producers increased production 2.4 mb/d in 2014 and 2.6 mb/d in 2015. Oil producers have created their own mess, but they are trying to pin their woes on consumers. So now $50 discount on the price of a barrel crude on 95 mb/d consumption represents a $1.73 trillion per year transfer of wealth from oil producers back to consumers. This is about 2.2% of the global GDP flowing back to consumers. This kind of flow is bound to distort stock prices, especially as funds like Saudi sovereign wealth liquidate stock holdings to cover shortfalls in oil revenue. But for investors willing to think through the implications of this wealth transfer, it is a huge opportunity to buy stocks that are on the positive receiving end and to avoid stocks that are on the losing end.
Tesla benefits enormously from lower energy and commity prices. Just consider the mineral cost of its batteries. Low commodity prices are a huge boon. Also as employment and discretionary income increases, more consumers will buy Tesla products. The only thing problematic about low oil prices for Tesla is that it adversely impacts investor sentiment, but this sentiment problem as little to do with the actual business of Tesla.
So I'd encourage investors to go through this little though experiment for any stock they may own or might consider owning. Ask how does the underlying company benefit or fail to benefit from the wealth transfer from oil producers to consumers? For example, Disney, winner because operations are less costly while descretionary income favors Disney entertainment, parks and merchandise. Or CSX, loser, with cheap oil trains lose cost advantage over truckers, and oil and coal, significant freight revenue, may decline. So I sold all my CSX stock, but I am looking to accumulate more Disney stock. This is how I'm sorting out my investments, and it sure beats running scared about vague anxiety about deflation, bear market or recession. The oil wealth transfer is a huge opportunity.
