Monday, October 8, 2007

o much said, but so little that makes sense…

The web is chock full of Peak Oil analysis: dates, decline rates, population impacts, energy prices, etc… 99% of which is doomer BS or attempted political manipulation.

Here is a hard truth: There is little to nothing that 95% (I pulled that number out of the air) of the American population can do to try and control their own destiny in post PO America. Some of the remaining 5% is so wealthy that it matters little what they do. It is the upper middle and professional classes that have the most to lose and the best opportunity to make adjustments.

First things first: If you are doing it, stop reading “doomer porn”. How does it help your position to read BS written by people who are HOPING for disaster? OK, I will admit they may eventually be proven correct. So what? How does that improve YOUR circumstances? No more so than knowing you have high cholesterol and high blood pressure… if you don’t/won’t do anything about it. I could make a good argument that it would be better to not know so that you could live the time you have left with peace of mind.

Action works. Planning works. Having the means makes life much easier.

If you have a few bucks and the capacity for abstract thought (these don’t always go together; I know a lot of successful folks that became successful precisely because they had zero capacity for abstract thought – sometimes sheer force of will carries the day) it is time to educate yourself in the commodities futures markets, precious metals, as well as agricultural land. I know, these have already risen a great deal, and no, you have not “missed the boat”. An understanding of the risks facing the US $ would help, too. I could give you my opinions and strategies, but then you would ignore these as just more BS from some huckster (and you may be correct), and besides I am on the learning curve here, too. No, you have to do the research yourself. Opportunities abound in the energy futures market. I am constantly amazed when I read postings from some of the smartest guys in the world on this issue – and then see that they have not taken a position in the market that will pay off in spades if they are correct. is full of these guys. They have been dead right on the price of oil for 3 years, and they should be multi-millionaires – but they forgot to put their money where their minds are. And they have excellent minds.

Many investors living in urban centers like my own South Florida wrongly assume that ALL real estate markets did a face plant. Farmland has been the number 1 performing asset class in real estate for at least the past 2 years, and maybe 3. Can you imagine the look on a Boca Raton local’s face when you told him you were buying cornfields back in 2005? He might have tried not to laugh in your face, but he probably would have failed. Still, the last laugh always belongs to the better-informed investor, because for every buyer there is a seller – and ONLY ONE OF THEM IS RIGHT.

So let’s talk about real estate/land investing. The hot spot for years and years has been the sun belt of the U.S. Southwest. We have built cities for millions of people in places that have no water. In the history of mankind, has this ever been done before? NEVER. From Mesopotamia to Egypt to London to New York … the one thing every major city (well, except maybe Atlanta) had in common is that it was built around a supply of water. We NEED water, among other things. In America, people have migrated over the past 40 years from arable, temperate, regions with adequate water to places that would not exist without air conditioning and significant food and water transportation inputs. Now while these inputs will likely be available for some time to come, their availability is going to contract, and that will affect the market price for those inputs that will stagger the occupants.

Let me digress for a moment to address those in doubt about this outcome. In any closed system, the consumption of all inputs is directly correlated to amount of energy available to create, transport, store, and consume the input, and it does not matter if it’s a clan of beavers in a mountain lake or 4 million inhabitants of metro Phoenix. For the beavers the energy input is solar evaporation bringing rain to higher elevations that replenish the lake. If less rain falls, the lake (a closed system) will contract. If aggregate BTU availability to North America (a closed system) contracts then inputs relying on energy (i.e. water, AC, sewage treatment, garbage removal) contract – no exceptions.

The man who bought my neighbor’s house in South Florida 2 years ago as an investment curses the day he ever saw the place. It has been vacant for most of the 2 years, he can’t sell it, and he can’t rent it for anything near his costs. I remember him walking around the property with pride on closing day. Markets are like that. The market is pricing good farmland in the Great Lakes region at a significant discount, and desert property at a significant premium because the market participants are not including in their calculations a significant energy shortage/crisis/problem/issue (in my not so humble opinion) and are overvaluing some amenities like the soon to be grassless golf course, and undervaluing other amenities, like access to sufficient fresh water (is that really an amenity?). Markets are like that (from the department of redundancy department).

Forget the Miami condo on Biscayne Bay – they are doomed, and irrespective of what you read in the local paper or hear from the media they are not coming back any time soon. Farmland can always be rented to farmers, and it holds its value even when the local currency does not. What was considered wealth before stocks, bonds, and other financial instruments? Land, livestock, precious metals, goods, timber, etc… much of this stuff still trades in the futures market, just in case you aren’t interested in having a herd of cattle in your backyard, and these futures, when liquidated, would likely hold their purchasing power in an environment of a declining U.S. $ (and you know how I feel about the U.S. $). Land does not trade like gold and oil so you will have to get your hands dirty here.

Real hiccups from energy indigestion could be felt at any moment, and then again, maybe not for a couple years. If I knew which day exactly I wouldn’t need my day gig. But, as I said before - “markets are like that” - things can change so fast that once the change begins, you can’t take advantage of it. And therein lies the rub.

Yours for a better world,

Mentatt (at) yahoo (dot) com

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