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Don’t Worry About Rising Oil Prices, Altucher Says: “The Economy Will Shift” Not Stop

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

Stocks are surging midday Monday but so are oil prices. Recent history suggests the combination of higher oil and higher stock prices is unlikely to persist for very long.

But a longer scan of history suggests higher oil prices are not as big a threat to the economy as you think, according to James Altucher, managing director of Formula Capital.

First, Altucher says the economy today is far stronger than it was in 2008, when a financial crisis and housing market implosion combined with surging crude prices to tip the global economy into recession.

"We couldn't quite handle $150 oil [in 2008] but now we're definitely able to," he says. "We don't have any of these crises and we have QE2 to buffer what happens. "

Second, he says oil prices can't maintain higher levels unless demand increases too.

Third, as painful as higher energy prices may be for American consumers, we spend less on energy today as a percentage of income vs. 50 years ago.

"In 1960, we spent 7.5 cents from even dollar in income on oil. Right now we spend 5 cents," he writes at Forbes. "So, in that math, it appears we can absorb at least a 50% move higher in oil. But that's not the entire picture. In 1960, we spent 5 cents of every dollar of income on healthcare and today we spend 17 cents of every dollar on healthcare. So an important point here is that rising healthcare has never tipped us into an economic depression so not sure how oil going from 5 cents to 10 cents of our income will tip us over either."

Rather than come to a screeching halt because of higher energy prices, "the economy will shift on its axis," Altucher says, suggesting. "No one wants to spend more buying gas at the pump [but] spending is spending."

In other words, money spent on gas instead of, say, dinner at a restaurant, still circulates through the economy. "The energy sector will definitely grow...and the thousands of companies related to energy infrastructure will prosper," he says.

On his blog, Altucher recommends Exxon, Plains Exploration and Noble Energy as top picks in the sector.

In the accompanying video, he recommends CVS because of its leadership position in the growing field of retail-run health-care clinics.

Aaron Task is the host of Tech Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com