Kass: Oil at a Tipping Point?

This blog post originally appeared on RealMoney Silver on June 25 at 8:08 a.m. EDT.

The key to winning in the stock market over the long term is to keep breathing. In other words, if you can keep the money during the downtick, you can win on the uptick, but you have to keep breathing.

It is for that reason that I have advised traders/investors to err on the side of conservatism over the last year.

To be sure, investors and middle-class Americans, have been pressured by many of the negative influences that I listed yesterday. Above all, the price of energy products has weighed down stock prices and consumer confidence and spending.

The importance of the future price of energy products was underscored yesterday in lynx-eyed economist Ed Hyman's summary on the U.S. economy and in his attendant strategy. In that assessment, the price of oil weighed heavily on both calls.

Hyman says that we are not yet in a recession but he sees actual growth in the economy as increasing by only about a 1% over the next year. Hyman sees oil at a tipping point as the rate of decline in worldwide economic growth decelerates. (European growth will slow demonstrably.) Accordingly, he expects oil to drop to $100 per barrel, and if it stays there, the domestic economy can avoid a recession as headline inflation declines (coincident with the price of energy products) and the Fed eases.

If Hyman is correct on the price of crude oil -- and my guess is that he may be -- there will be a change in leadership and profound implications for sector investing in the second half of 2008. This is particularly true in light of portfolio managers' apparent recent window dressing, as they throw out the financials and buy the dot-corn (agriculture), energy (and other commodities) and infrastructure sectors, all of which have maintained their strong relative performance.

My positive view of the large money center banks is well known by now, and I have continued to add to the group in the recent weakness. And against my financial longs, which include the Ultra Financials ProShares (UYG Quote), Citigroup (C Quote), Bank of America (BAC Quote), Wells Fargo (WFC Quote) KeyCorp (KEY Quote), I have been shorting energy, with a long in the UltraShort Oil & Gas ProShares (DUG Quote).

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass' daily trading diary, please click here.