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Whenever the average consumer hears of rising oil prices, the first thing that comes to mind is the fear of high gas prices and the impact on their wallet. Yet, while high oil prices do have a large impact on the economy as a whole, they also serve to fuel foreign investment in the markets and can help drive the economy. For instance, the recent credit situation has constrained many investors. However, investors with large cash reserves, such as oil rich nations possess the necessary liquidity to be risk averse to the credit markets. Thus, allowing them to invest when an opportunity presents itself and capitalize on a poorly performing mergers and acquisitions market.

Consistently high oil prices have amplified the cash reserves of oil rich nations and the impact of their wealth is now being felt around the globe more than ever. According to the Wall Street Journal, middle-eastern firms and funds shopping around the globe have spent $64 billion so far this year, compared with $30.8 billion in 2005 and just $4.5 billion in 2004. Additionally, of the $64 billion spent so far this year, more than half of the acquisitions were in the U.S. and Britain. Considering the trouble in the U.S. credit markets was not fully realized prior to August, the number of foreign investments could be even higher in the coming months. So, while high oil prices may be a pain at the pump, they can also play an important role in the strength of our economy.

Category(s): Valuation Thoughts
Posted by Jon Grupp at 08:57 PM | Permalink | Comments (0) | TrackBacks (0)