Goldman vs. Merrill on Oil – Who Should You Believe?

tdp2664
InvestorPlace
The big guns are drawn over oil prices (and inflation). Tuesday, Goldman Sachs Group (NYSE: GS ) came out with a broad-based sell signal for commodities , calling specifically for a 13% drop in crude. Merrill Lynch immediately returned fire , predicting that Brent crude — the European benchmark — could soar as high as $160 a barrel this year. So who’s right? The argument boils down to two basic issues: 1. How long will Libya’s production — currently down by 1 million barrels a day — remain stunted? 2 Will the recent rapid run-up in prices suppress global oil consumption? Truth be told, nobody really knows the answer to these questions. However, a lot of speculators think they know — and that’s valuable information in itself. Polls show that trading advisers are now more bullish on oil than at any time since the manic peak in June 2008. Moreover, in the futures pits, the net long position by public speculators is four times as large as it was in the spring of 2008. Whatever happens to oil in the long run, the theory of contrary opinion suggests that too many people are betting on a rise right now. Oil is a “crowded trade,” and a drop of some significance is needed to relieve the congestion. Traders, stay with your U.S. Oil Fund (NYSE: USO ) shorts I recently recommended , but don’t add to your stake. And I suggest you lower your stop to the April 8 high at $45.20. If you bought the U.S. Short Oil Fund (NYSE: DNO ) I also recommended, raise your stop to $33.84, the April 8 low. Again, I wouldn’t add to the position at this time. Consumer Staples Stocks Beating Inflation On Wall Street, the stock market recovered from an early bout of inflation anxiety to close mixed Thursday. Consumer staples, represented by the exchange-traded fund (ETF) Consumer Staples Select Sector SPDR (NYSE: XLP ), posted a solid gain, closing at a new all-time high. Research from Merrill Lynch indicates that staples stocks (foods, beverages, household products, etc.) have outperformed the market averages in 99% of the rolling 10-year periods since 1982. Slow, steady, stodgy and safe wins the race! The best stock pick in this space right now is Procter & Gamble (NYSE: PG ), which just declared a nifty 9% dividend increase, and is yielding 3.3%. PG has now exactly tripled its dividend the past 10 years — an inflation-beating record if I ever saw one.