Wednesday, January 11, 2006

What will the effect of Peak Oil have on this country? Could it be that we will suffer a cataclysmic meltdown of our economy and social structure within the decade? Or will we see a more gradual slowing of the economy and loss of luxuries over a 40 year period of time?

Recently published articles by "experts" and blog postings by concerned citizens offer up both scenarios; some suggesting that the world economy will collapse rapidly, while others profess that the US economy will slow more gradually as the price of oil increases.

Political issues in Nigeria and Iran sent oil up again today. Fears that their 5 million barrels a day could be withheld from the markets have spooked traders, which will affect prices at the pumps within a few weeks.

I suspect the next 5 years (and beyond) are going to be economically difficult for Americans. Political posturing by goverments, increasing costs for everything we consume, and continuing conflict in the Middle East as we appropriate their oil will take its economic and emotional toll on us all.

I'm not being a doomsayer. I just feel that we are all looking at a radical shift in the way of life we have become accustomed to over the last century. It's going to hurt.

My objective is to get ahead of the investment curve by looking forward five years. Some of the industries I think are suffer the most (as well as their investors):

  • Airlines (expensive fuel will put them out of business)
  • Cruise Lines (same as above)
  • Automobiles (same as above)
  • Air Cargo (same as above)
  • Trucking Companies (same as above)
  • Consumer Electronics (high energy prices=less disposable income)
  • Restaurants (same as above)
  • Entertainment (same as above)
  • Retailers (same as above)
  • Home builders (more costly materials and energy costs will slow home building)

Industries that may not be as affected:

  • Oil Companies (those with proven reserves)
  • Oil Service Companies
  • Railroads (more freight will be shifted to low cost transportation)
  • Minerals
  • Ocean Freight

And of course:

  • Liquor and Cigarettes (people will try to dull the emotional impact of losing their toys)

As far as personal finance, I suggest the following:

  • Don't buy too much house too far from the city. Fuel costs getting back and forth to work are going to make the cost advantages of buying comparable property out of town moot.
  • Refinance ARMs to fixed rate loans.
  • Plan on getting rid of gas guzzlers soon. This includes boats, SUV's, motor homes, and snowmachines. As fuel becomes more expensive, the desirability of these toys will make resale value plunge.

Don't count on our government to be much help - they just can't bring themselves to tell the American people that we are about to face an incredibly difficult challenge. An economic downturn means loss of tax revenue and less services. In reality, what are they going to tell us, anyway? "Sorry folks, your way of life is going to change for the worst? We just couldn't bear to tell you 10 years ago?"

Monday, January 09, 2006

Is Richard Rainwater on to something? What is really going on in the oil patch? Is Hubbert for real?

These are some of the questions I started asking myself after reading "The Rainwater Prophecy" in Fortune magazine last week. Pretty disturbing stuff. I was so disturbed that I ordered "The End of Suburbia", which offers up more dismal visions of the coming crisis.

Not that I am hitting the panic button.......yet. But the conclusions offered by folks smarter than I am certainly has me worried about access to oil and the future value of my little retirement nestegg.

I don't think it is a matter of "if" we are going to suffer the economic and political instability of "peak oil", I think it is a matter of when.

Which leads me to the haunting question... what can be done now by small investors to hedge against (and possibly profit) from the aftermath of Hubbert's Peak???

I have been investing for some time in mutual funds such as Dodge and Cox, Mairs and Power, Fairholme Funds, and Vanguard. Last week I shifted some money to Tocqueville Gold, my first metals fund.

What else can be done? Invest in real estate? Where? Inner city? I don't think I want to invest in any property 40 miles from the city..... if gas gets progressively more expensive this year, it would seem to me that housing sales will cool even more in the outlying areas.

Bonds? Whose? What corporation will not suffer from more expensive petroleum? That means higher prices for their products and possibly less sales. Less sales means less revenue to service debt.

It goes on and on.

I'm racking my mind trying to figure what investments will hold their value over the next 15 years. Any suggestions?