Market Review: So…What's Plan B?

Commuters all across the country are driving 50-100 miles a day to get to and from their jobs. In highly populated areas, like New York and Maryland, some commuters spend 90 minutes driving each way to work.

Why do people put up with this? Well, as we pointed out last week, 50% of Americans live in the suburbs, often nowhere near their jobs. After WWII, America took its postwar wealth and invested it in suburbia. Miles away from the city, tree-lined streets and practically identical three-bedroom homes were popping up everywhere. You could find doctors living next to house painters; the lines between the working and middle class were blurred…everyone fit nicely together in the suburbs.

And while this man-made utopia sounds nice, the values in which these communities were built upon are being broken down. The Delphi and GM debacles have signaled something very important: the separation of classes. The labor force may have to relinquish more than half of their hourly earnings so the automakers and auto parts industry – the industry that was pivotal in the creation of suburbia – can stay afloat.

[Ed. Note: All signs point to the destruction of suburbia – consumers will start making less, start consuming less, and suddenly, we’re all affected.

This does not look good for any American…no matter where you live.

Cheap oil – the main pillar that suburbia was built upon, the reason that the suburbs were possible in the first place, is crumbling before our eyes. The American lifestyle relies heavily on cheap, plentiful and dependable fossil fuels, and unfortunately for us, those days are over.

As the Post Carbon Institutes documentary, "The End of Suburbia" explains, (and M. King Hubbert predicted over 30 years ago) we are at the peak where the world is producing the most oil it will ever produce. After the peak, we will hit an arc of decline, and cheap oil will never be possible again.

The oil we will be pumping will take more work, be of lesser quality and be more expensive.

Some experts say we have already reached the peak; others say not yet, but within a few years. The truth is, no one will know for sure until after the fact. Just as no one can be positive about how much oil there is in Saudi Arabia. Matthew Simmons, energy investment banker and key adviser to Cheney’s 2001 energy task force, believes that Saudi Arabia has peaked. If they have peaked, he says, then the world has peaked.

So – what’s our back-up plan? Why isn’t Peak Oil a major story in the news? Why haven’t we been paying attention to the warning signs – like the Blackout of 2003? 57 million people across the country were without power for days…and it seems that no one really learned anything from it.

As scarce and more expensive fossil fuels make the suburban way of life increasingly difficult, Americans will attempt to keep up the façade of suburbia for as long as they can – no matter how silly it seems. Suburbia and cheap oil are birthrights in America, but eventually, suburbanites will have to succumb to skyrocketing gas and food prices. We just hope we’re not completely ill equipped to handle the change in lifestyle.

Kate Incontrera
The Daily Reckoning

October 23, 2005

P.S. This struggle for oil is not going away anytime soon…as Dick Cheney said, it’s "a war that won’t end in our lifetime." What do you think, dear reader, are possible solutions? What should we be doing as a country, or as communities to prepare for this impending oil shock? Let us know, write your ideas or comments to DR@dailyreckoning.com.

P.P.S. About a year ago, our team here at The Daily Reckoning were being called "sensationalists" for calling for $40 a barrel oil…and look at where we are now. Doesn’t seem too unrealistic, does it? In fact, $40 oil would be a welcome change compared to the highs crude has been reaching.

— Daily Reckoning Book of the Week —

The Oil Factor: How Oil Controls the Economy and Your Financial Future
by Stephen Leeb

A storm is coming – an inflationary "perfect storm" whipped up by skyrocketing oil prices that will lay waste to millions of portfolios if investors don’t prepare. Renowned financial analyst Stephen Leeb asserts that in this perilous period, oil prices will drive all other economic indicators. This book will show you how to diversify yourself away from potential disaster!

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THIS WEEK in THE DAILY RECKONING: Did you miss an issue of The Daily Reckoning this week? Never fear – we have them all catalogued for you,below…

The Iraq War – Part II
by Bill Bonner10/21/05

"The best way to win a war, said Sun Tzu, is to let your enemy defeat himself. That is roughly what U.S. forces are doing in Iraq. They are helping to destroy the great Anglo-Saxon commercial empire."

Inflating the Numbers10/20/05
by John Mauldin

"Is inflation running at a 9.4% clip, a 5.6% rate of just over 2%? The correct answer is all both. It just depends upon how you want to calculate the numbers and over what time period you want to calculate them."

Where to Wait Out the Bird Flu10/19/05
by Bill Bonner

"We have a special treat for you today, dear reader – an essay from Bill in the middle of the week. This topic is so interesting and timely that it simply couldn’t wait until Friday."

Shadows of Foreign Debt10/18/05
by Hans Sennholz

"The U.S. government itself is suffering huge budget deficits that amount to several hundred billion dollars annually…"A poor man’s debt makes a great noise; a rich man’s debt makes no sound."

The World’s Greatest Central Banker10/17/05
by The Mogambo Guru

"What else could they say about the guy, when they were all there at Jackson Hole to pay homage to the damned man. But it was a little overboard for me, so I will attack them without mercy!"

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FLOTSAM AND JETSAM: Resource Trader Alert’s Kevin Kerr recently returned from a trip to Estonia, from which his wife hails. He shares with us some interesting tidbits from his vacation below…

Avian Flu Hits Closer to Home
by Kevin Kerr

The home my wife Katrin and I own in Estonia is on several acres of farmland, and while it’s not filled with poultry, mainly sheep, it’s a farm nonetheless. We still felt compelled to say ‘no’ anyway to the officers that asked us if we had visited a farm in Estonia or Russia as we went through immigration. I am afraid of what a ‘yes’ answer might have entailed.

We did, however, explain to them that we are among the lucky few to have been vaccinated with the HSN1 vaccine because Katrin’s mom is a doctor and got a priority batch since she is a healthcare worker. She injected us all, the whole family. Personally, I was just fine with that, especially after the recent findings of dead birds along various Russian borders, first Siberia, now closer to home. Bottom Line: the flu is spreading, and fast. While in Estonia and Russia we didn’t eat poultry of any kind, not once. Most people there aren’t either, and fear is growing. In Italy and elsewhere consumption is down already but not yet in the United States, just wait.

Katrin’s mom left me with this chilling news for all of you: "Remember influenza viruses are always changing. The body’s immune system is able to adapt to small, gradual changes by producing new antibodies after an infection. But when the virus mutates dramatically, it leaves most people without protection and creates the possibility for a pandemic." On that cheery note we said our goodbyes and came back here to the good old U.S.A.

My confidence in the U.S. government and Homeland Security to stop the import of the virus is very low. I am bullish on the meat complex for other reasons as well, so this whole pandemic scenario just helps support my argument more, whether it comes to pass or not.

Regards,

Kevin Kerr
for The Daily Reckoning

P.S. Ever hear the slogan the pork industry uses to combat theft of market share by poultry: "Pork – the other white meat"? Well, in my opinion when the first case of Avian flu makes it’s way to the United States you better hope you’re short KFC stock, and Purdue, because they won’t be able to give that stuff away. That’s why, at Resource Trader Alert, we recently added live cattle calls and I have also personally added a large hog and PB spread positions to my personal portfolios.