This time last year, oil was $62 a barrel. On Friday, it finished at double that amount, with the national average for a gallon of gas hovering around $4. In the same time period, the dollar dropped 15% against the euro. Consequently, reports the NY Times, hedge funds, pension funds and other institutional investors are going short on oil to offset losses in stocks, bonds and other dollar-backed assets.

Are these speculators--and the traders who follow their lead--helping pump the pain? Some analysts say that based on adequate oil inventories and traditional fundamentals like the cost of finding, producing and shipping crude, the price should still be $60 a barrel.

As food shoppers know these days, other dollar-backed commodities like wheat and rice are also pricing up--are short-term investors to blame here, too? Something is going on--investment in commodities is up ten-fold over the past five years, going from $20 billion to $225 billion under management.

And now comes this: first-quarter retail numbers due this week could be down 15 percent, on the largest overall quarterly profit decline in almost a decade.

How to move product in a down market? Right-pricing to ride out the storm is one strategy; the magic ingredient, though, is astute leadership.

Former AIG chief Maurice "Hank" Greenberg said it best (and he should know, having amped the company's market value from $300 million to $173 billion over his 37-year tenure): "Whether rates are going up, down, or sideways, human behavior doesn't change. Experienced companies will come through any cycle well. The inexperienced ones, the ones that believe they are smarter than the rest, will fill the empty spots in the graveyard."

Jeff Heilman

5/12/08