Gas Prices Soon Below $2.00 a Gallon. Happy days are here again. With gas prices down, consumers will soon be driving to the mall again and spending their money. The stock market will soon go back to 14,000 and we can stop worrying. NOT!! The reason oil has dropped more than 50% is a massive world-wide recession, the depth of which we still don't know. While the rise in oil prices didn't cause this recession by itself, it was a major contributor. It scared the dickens out of a lot of us who figured we would have to cut back in other areas in order to afford to continue to afford sufficient fuel to take us to places we need to go. Even with gas prices below $2.00 a gallon, the memory of $65.00 fill ups are fresh in every one's mind. Even the most optimistic among us believe prices will rise when, and if, the economy starts to grow again. Every one told me that prices wouldn't drop this time like they did in the late 80's because it was different this time. I agreed that it was different this time but guess what? It's different every time. Petroleum exporting countries need to sell a lot of oil and anything that causes a reduction in sales will result in a drop in prices so they can keep the revenue coming in but prices will rebound as soon as they believe the market will allow it.
Renewable Energy Will Save us. If you believe that, we should talk about this condo I have to sell. We have 250 million cars in this country that run on gasoline. There is no way we can cut our dependence on fossil fuels overnight. Tuning up our cars and putting more air in our tires won't save us either. I believe T. Boone Pickens statement that "we can't drill our way out of this". President-elect Obama grabbed onto that one in a hurry but he didn't give us the full benefit of Mr. Pickens statement that we still need to "drill, drill, drill" while we are developing renewable energy technology. I don't believe that "The Answer is Blowing In The Wind" either.
Mr. Pickens wants to put up a whole host of windmills to power our utility plants. Then he wants to use natural gas to power our cars. I believe we should work on this; however, the problems of establishing a nationwide system of outlets to fill our tanks with natural gas is immense. The cost of modifying our cars to use this fuel is also expensive, if not economically prohibitive. High pressure natural gas lines will be difficult for consumers to handle and their are safety issues with putting our cars on the highway with pressurized gas tanks.
I Sound Like A Pessimist, But I'm Not. I believe answers to our energy crisis are available. I just don't know what they are and I have no confidence that anyone else does either. One thing I do know is that we can't sit around and do nothing. We have to try several things at once. I still don't know whether or not climate change is a legitimate issue but I believe it will eventually take a back seat to the more serious issue of how we can maintain a reasonable standard of living in the wake of a shortage of affordable energy.
There are Opportunities Out There. Look at Colorado residential real estate. Prices are down but sales are up and inventories are shrinking. A recent piece in the Denver Business Journal states that October single-family sales are up over 14% from a year or so ago. The rental market is still strong and you can get a break-even before tax cash flow. While it takes considerable skill to enter the "fix and flip" market, you should be able to get excellent returns on a long-term basis. It is possible to buy lower-end properties for less than $150K that would have sold in the $190's two years ago. If you sold out of the stock market, this might be a good place to deploy some capital. With inventories shrinking and builder activity at a minimum, the seeds of a recovery are well in place.
Stocks Are On Sale Also. Because our asset management clients are so risk averse right now, we are not aggressively pursuing stock market investments in those accounts. I am however, being somewhat more aggressive in my own accounts. My last investment was in an industrial REIT called Prologis. I bought in at $9.85 a share. That is about half of the value of the underlying real estate they own. The dividend is in excess of 21%. While I suspect that this will eventually need to be cut, I think that is already priced into the shares. Just to hedge my bet, I sold the option to buy it from me at $10 a share in December. I got $1.75 for this which makes my acquisition price $8.1 a share. I like this so well that I also bought the preferred stock that yields 11+%. I plan to hold the preferred as a long-term investment. If the price of the common rises above $10 a share, I will have to sell it but a profit of 23% for a little less than 2 months is good enough for me. Win or lose I will let you know how this investment performs.
Back In Texas. I made it back here about a week or so and have been busy cleaning up after hurricane Ike. I'm pretty sure a tornado came with it and blew down some 100 year old Magnolia trees. Oh well, I still have 16 left and the reduced shade will make my hibiscus bloom better.
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