Oil prices up again, inflation specter on the horizon

Today the oil price has breached its recent record and went up to US$ 143/barrell, which is no a little bit scary. Of course, this came as a reaction to the Iran’s threats of disrupting the supplies. However, it is not the only bad news for the daily investors.

The prices of the commodities raising means that inflation will be a big issue in 2008. Already most of the governments announced (upward) revised inflation rates. What does this mean for our investments?

First of all, that we need bigger yields from our investments, since we need to cover the higher costs of those investments. And that’s not the only issue – we also need to cope with riskier investments, since most of the companies are under market pressure in the current environment.

Secondly, inflation generates a higher weighted average cost of capital (a higher cost of financing for investing). This means that the margins from trading will be probably reduced, except for commodities maybe.

At last (but not at least), we will have to get to know better our investments in order to get rid of those going to underperform. How will we do it, this is another story. Anyhow, watch out for the bigger risks – and for the nicer trading opportunities.

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