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Why Invest in Energy?
(Published: Fall 1999) Historically, during times when stocks and bonds have declined, energy prices have risen. Because of this relationship, energy investments can help create a well-balanced portfolio by serving as a hedge against recession and inflation. What causes this inverse relationship? When energy prices rise, general inflation in the economy typically increases, causing the inflation-adjusted performance of stocks and bonds to decline. Oftentimes, this leads to a recession. The sharp rise in oil prices in the mid-1970s, which caused inflation to spike to high levels and led to a national recession, is a prime example. What makes energy prices so important? Virtually every major industry relies on energy, and a change in energy prices reverberates throughout the economy. Consider a simple loaf of bread: energy is required to sow and harvest the wheat, to grind the flour, to bake the bread, and to transport the bread to the grocery store. A rise in energy prices, then, can affect a single product multiple times. Which energy resources are the most significant? Oil and natural gas account for two-thirds of the energy used to power our modern economy, and their role is expected to expand even more in the future.
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This page was last updated on Saturday, February 08, 2003, at 07:21:42 PM. Copyright © 1994-2008 by Swift Energy Company.
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