Wednesday, September 12, 2007

OK, Now What?

The following was front page, lead article on Bloomberg News, Wall Streets primary news service:

Sept. 12 (Bloomberg) -- "Crude oil rose to a record $80.18 a barrel in New York after supplies dropped the most this year.

U.S. oil inventories fell a greater-than-expected 7.01 million barrels to 322.6 million last week, the Energy Department said today. Prices also rose after OPEC said yesterday it would increase production by 500,000 barrels a day, less than is needed to meet a seasonal rise in demand."

Peak Oil is here. Actually it has probably been here for 2 years – and we are just beginning to feel its effects. Now that Peak Oil is here… after the OPEC meeting of 9/11/07 (more on that in another post, but let’s just say that OPEC blinked while staring into the abyss. They recognize that they are no longer in control of increasing the supply of oil) and the production and inventory reports for 2005-2007, I am calling the Peak to have arrived somewhere between yesterday and mid 2005… now what?

For the past several years I have been doing my best to condense the data into understandable and sufferably short reports to help family, friends, and others who were interested in a rational co-examination of the facts of our energy situation. Although I have believed for several months that the peak probably had already occurred, I held my tongue on this until the preponderance of, actually the overwhelming preponderance of, market price signals and supply data which, to my mind, show that we have indeed reached the Peak. Once again - now what?

While I will continue to report the monthly production, exports, and reserve number on this blog, from this point forward I will discuss what I believe to be the implications of our new found circumstance on the American people, economics, financial markets, real estate, and anything else I think relevant to the discussion on a national, regional, and local level, now that our sources of energy available for consumption have entered permanent decline. As my crystal ball is broken and out for repairs, this is not a prediction service: if the data should change I will change my position forthwith. Lest you think me a pessimist, I am no such thing. The waves will still roll in for those inclined to surf, spring will be as lovely as it has always been, and a walk in the park will still be a walk in the park. Life will be good – at least for those who accept that the rules will be changing. For those insisting on the status quo… well, let’s just say that I am not so sanguine about their mental health prospects.

So, without further ado… (and at the risk of sounding like I am preaching)

Trumpets will not blare, nor fireballs come forth from the sky. Over the next year or so the impacts will barely be perceptible. Food prices will rise significantly, retail vacancies in your downtown district will begin to rise, inventories of houses for sale far from urban employment centers will build, and second home and resort markets will begin a permanent economic descent. Places like my home of South Florida will cease growing, with indicators like declining public school populations, and declining home prices, and rising commercial vacancy rates already presenting. There will be attempts by interested parties to manipulate you into believing that this is all temporary. It is not. It will accelerate over time. What to do?

Downsize your life, your overhead, and the distance you must travel to work and your kid’s school. Many will be left holding the bag – just make sure it isn’t you. Economize on all things, and save your shekels (just don’t hold them in U.S. dollars; gold, silver, farmland, etc… all would be preferable stores of value). You don’t need to buy a new, fuel-efficient car. Just drive the one you have less. Walk if possible, or ride a bike, maybe pack a lunch to save a drive to the deli… Not for politics, or to be green, but to get you used to the way you are going to live in the future, because YOU WILL BE DOWNSIZED – like it or not, so you might as well like it. On another note, take that vacation you have always wanted. Safaris might not be possible in the era of your retirement years.

If you are a business owner, stop trying to expand your business (unless you are in the various energy fields, or green building products, etc… or some other industry that will expand in an era of declining fossil fuels). The guys who CONTRACT their business, cut their overhead, and remove as much financial capital from their business NOW (provided you do the right thing with it) will be in much better shape than the guys who try to expand, spending precious capital and time in a futile effort – because in the aggregate the economy cannot expand unless its energy consumption rises. Of course there will be some winners of market share in the short term – but not in the long term. NAFC (Not a $#%#^ing chance).

Business will go on - people will need shoes, and dental care, and food, clothing & shelter – but it will contract. Consumerism is doomed. If that’s your life, change it now, for your own mental health as much as for how you are viewed by your own family and your community. You don’t want to be seen as another Leona “the Queen of Mean” Helmsley, do you?

The next year or two, maybe even 3, is for practice. After that, things will get a bit more serious. Remember those advertisements from the big mutual fund houses of future retirees - smiling (Thin!), healthy old people doing something absurd, like kayaking a 5 rated white water river? These and other tooth fairy fantasies will be dashed on the rocks of the Peak Oil storm. We weren’t misled (by others). We misled ourselves. Let’s stop it, and let us take responsibility for ourselves.

Check back soon. I got a lot to say.

Oh, and by the way... the U.S. dollar is doomed

Yours for a better world,

Mentatt (at) yahoo (dot) com

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