Fisher Investments’ Founder Discusses Oil and How It Impacts Markets

Title screen appears, “Ken Fisher Provides His 2021 Inflation Forecast.”

A man appears on the screen Wearing A navy suit, sitting in front of a fireplace.

He begins to speak.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher doing hand gestures time to time explaining.

Ken Fisher: In a time like this,

we're in the aftermath of the putrid Putin invasion of Ukraine and all of the gyrations about energy that have come from that, including the sanctions. It's natural that people would think, boy oh boy, energy is likely to be a big problem for the economy. I am not about to tell you that it is not a problem for the economy. I'm going to tell you that it's measurably small.

Ken Fisher: The first question to ask yourself, which is always one, is what percentage of total GDP in the US. And the world? And the world's more important than America is overall, is all of energy. And then secondarily is oil-based energy. Now, you can see this several different ways. One of them is that if you look at history in the long term, the number of barrels of energy that it's taken oil equivalents to produce $1,000 of GDP has been falling steadily, steadily, steadily, steadily, for decades and decades because we've become more energy efficient steadily and other parts of the economy have grown more.

Ken Fisher: The current number is half a barrel. And at $113 a barrel as I speak, that gives you something a little under $60 out of 1000, which gives you a percentage of how important this is to the economy. It's not negligible, but it's not huge the way you think. We all tend to have residences that have some heating in them and some air conditioning, and we all tend to use some form of transportation that uses energy and so many other things we have use energy. So, we think it's more important than it actually is as a percentage of the economy and its negative impact. Rising prices do have a negative impact on the desire to consume and GDP are real.

Ken Fisher: But I want to point out, that there's counterbalances to all these features and there's ones that people don't think about at a time like this. Rising energy prices inherently create a greater desire on a global basis to invest in energy in the ground or other ways. And there's a fairly long history that’s shows that that's a tight correlation. And what that does is it buoys the economy some. The fundamental feature is that partly when the price of energy is up, people choose to do maybe something that they wouldn't do otherwise, maybe drive a little less, maybe do something else. But in doing that, they also are still spending money. To the extent that they suffer the consequences of the price of energy. The counterbalance is that somebody somewhere is investing in creating more energy and that's helping somebody. So, if I were to look at this, I'd say it's less than a 6% factor. And in thinking of it as less than a 6% factor overall, I'd say that the rising price on that 6% factor is a negative. But then you want to put that into perspective of GDP, because if, as is the case right now, we've got a slow growing GDP with, as is the case right now, high inflation.

Ken Fisher: Let's say that's two and eight. Well, that's 10% nominal GDP. And if you had energy prices up 30% on 6%, well, that'll be 1.8. And that 1.8 would be a negative offset to the ten. And is that bad? Yeah, it's negative. Is it overwhelming? No. It might knock out four fifths of what would normally happen. It's bad, but it's not a killer bad. And that's the point that people don't metric in their head. They don't think their way through. And people have a hard time in a yes but world that's focused on negatives and fixated because of the drop in sentiment driven by the bear market to actually get a handle on the fact that it's bad, but it's not overwhelming. Thank you for listening to me.

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A Series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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