The Long and Grinding Road

Are housing prices forcing people into the "exurbs" or is it the quality of life - less pollution, less people, more open space, bigger homes, etc.? Or both? But if one drives three to six hours per day to and from work, could that be measured as a good quality of life? I thought one needs to experience that lifestyle in order to enjoy it. Spending 18 to 30 hours a week in an automobile might detract from time spent in one's community, minimize time spent with family, etc. With gas prices climbing, it seems that people will not be deterred from the long drive.



'The rat race is turning into a marathon. Inside the lives of 'extreme commuters.'

By Keith Naughton
Newsweek


At 5:40 a.m., the alarm blares news-talk radio and Bill Small rolls out of bed. With a two-hour commute ahead of him, the Chicago doctor wastes little time. He showers, dresses and is out the door by 6. At this hour, his car is the only one navigating the winding streets of his upscale neighborhood in St. Charles, Ill., a quaint community nearly 50 miles west of the Chicago hospital where he works. Small's routine is so finely tuned that he won't stop for coffee if there are more than three cars in the drive-thru. Today there are just two, and he picks up an extra-large. But there's no time for a bathroom break, so Small, 41, won't allow himself a single sip for nearly an hour. At the halfway mark, he takes his first swig as he hits gridlock on the Eisenhower Expressway. With the sun rising over the Chicago skyline, he crawls along, placidly listening to sports radio. Finally, he arrives at exactly 8 a.m. Though he won't return home for 12 and a half hours, Small still says the killer commute to and from exurbia is worth it. "It's a nice place to raise kids," he says. "And it does feel like you're away."


The drive to get away from it all is turning us into a nation of nomads. As we're pushed to the edge of civilization by runaway home prices and a longing for wide-open spaces, the daily rat race is turning into a marathon. "Extreme commuters" who travel more than 90 minutes to work, one way, are the fastest-growing group of commuters, according to the U.S. Census Bureau. More than 3.4 million commuters take that long road to work every day, double the rate of extreme commuters in 1990. And the fastest-growing departure time is now between 5 and 6 a.m. Even $3-a-gallon gas and growing gridlock aren't slowing the rise of this group, which is changing the way we live as we spend more time in our cars and less time in our communities. This endless commute is becoming the defining characteristic of the 21st-century working stiff. So much of what we worry about today—volatile real-estate prices, sleeplessness, our overstressed lives—all merge together on the road, as we search for the elusive simple life in some suburban Shangri-La. "We're obsessed with the commute," says Joy Mander, 42, a nurse who drives 45 miles to work the over-night shift at Children's Hospital in Oakland, Calif. "How much is it worth to own your own home if you end up spending four hours on the road and not playing with your kids, not sleeping enough and rotting in traffic?"


It's apparently worth plenty, because more people than ever are willing to trade time in their car for the American Dream: big house, big yard. Nearly 10 million people now drive more than an hour to work, up 50 percent from 1990. The average commute today is 25 minutes, up 18 percent from two decades ago. What drives us to drive so far? Many are doing what California real-estate agents call "driving 'til you qualify." New-home prices have nearly tripled in the past 20 years and now average almost $300,000, according to the National Association of Home Builders. In places like southern California, each exit along the interstate saves you tens of thousands of dollars. That's why Chris Neelley, 43, lives in Lancaster, Calif., and drives 80 miles to L.A. every day. For $400,000 last year, he moved his family of five into a 3,000-square-foot home, twice the size of the place they used to have closer to the city. The trade-off: he now spends three to six hours a day on the road. "I love being out in the middle of nowhere," he says, "and seeing no people around."


But for many people, the long and winding road isn't leading to the exurban bliss. With everyone stuck in traffic, it turns out there's no one around to coach Little League or volunteer for the PTA, not to mention get dinner on the table. Robert Putnam, author of "Bowling Alone," found that every 10 minutes added to your commute decreases by 10 percent the time you dedicate to your family and community. And having parents so far from home creates logistical challenges for local officials. "We're really worried about what happens in an earthquake," says John Brooks, an economic analyst in Palmdale, Calif., a booming bedroom community 65 miles north of L.A. "All the parents are down below, and we've got tens of thousands of their kids up here to take care of."

Some Investment Strategies

This article addresses how your investments should be positioned once inflation hits, and how investors can add capital to the alternative energy sector. It’s assumed that inflation will be aided by rising energy costs. The author claims that oil is the only resource that faces a supply and demand problem. Perhaps this is true in the short term relative to other resources, but I have read that silver and copper are also approaching short supply. Much of these metals find their way into landfills. The article also outlines the possible impact of Peak Oil on different asset classes, such as stocks, bonds, and real estate.


Individual Investments Based on Peak Oil Will Contribute to the Development of Alternative Energy Sources

Source: Ciovacco Capital Management
[Apr 02, 2006]

ATLANTA, GA -- Peak Oil can be an overwhelming and depressing topic. Visions of a global oil shortage can spark a defeatist attitude toward our own fate. While there are many ways for an individual to positively react to Peak Oil, using an investment strategy based on Peak Oil is often overlooked.

There are at least two significant reasons for individuals, institutions, corporations, and governments to invest using the concept of Peak Oil as a guide:

R&D: Capital invested in alternative energy companies, as well as traditional oil companies, drives the stock prices of those companies higher. As the stock prices of these companies rise, so does their financial strength and ability to increase research and development activities that are critical to reducing the severity of the impact of Peak Oil. The act of investing in energy stocks, or physical oil via options contracts, indirectly draws attention (people will notice when gas is at $5.00 a gallon) to the problems associated with Peak Oil. As oil prices rise, so will the profile of Peak Oil.

Life goes on: Even in the worst-case scenarios, such as a severe global recession, people will still have to exist, eat, and provide shelter for themselves and their family. Obviously, access to additional financial resources would be helpful in any time of economic downturn or crisis.
In the event that you agree with these positions, how does an individual or institution allocate their investment capital to (a) create a profitable portfolio, and (b) encourage more research and development of alternative energy sources?

Before we can attempt to answer that question, it is important to understand some basic concepts that may shape the investing landscape in the event of a global energy shortage.

Inflation: Rising energy prices push the prices of all goods and services higher. Energy is consumed to produce all goods (even food). As the cost of inputs increase, so do prices on the shelves. Even service providers, such as consultants, will incur higher costs in travel, office supplies, etc.

Economic weakness: High energy costs and rising inflation will hurt economic activity globally. Enough said.

Monetary policy: When economic times get tough, central bankers (like our Federal Reserve or FED) lower interest rates and print more money in an effort to stimulate economic activity (see policies post 9/11). These “easy credit” policies are also inflationary. We have all seen easy monetary policy contribute to rising stock, real estate, and now commodity prices. After the deflationary disaster in Japan from 1990 to the present, global central bankers will use all weapons in their arsenal to fight deflation, which in turn may result in inflation. Between high energy prices and easy monetary policy, we may see hyper inflation sometime in the next 10 years. For those in the deflationary camp, recent central bank policies and the writings of Ben Bernanke point toward inflation first, possibly followed by deflation.

Weak U.S. dollar: The U.S. dollar has not been backed by gold since Nixon closed the gold window in 1971. The U.S. dollar is backed by the full faith and credit of the U.S. government. The dollar is simply an IOU. Between the trade deficit, budget deficits, Social Security, Medicare, and high consumer debt, the full faith and credit of the U.S. government is becoming more questionable each year. If our FED combats weak economic conditions by lowering interest rates and printing more money, this will only contribute to the increasing lack of confidence in holding U.S. debt and U.S. dollar denominated assets (stocks, bonds, real estate, etc.)

Higher interest rates: Inflation, excessive money printing, economic weakness, and high levels of debt, will put upward pressure on interest rates.

Listed above is a small sample of issues to consider when building a portfolio for Peak Oil. Next, let’s discuss some asset classes and how you may want to approach them in the environment outlined above.

U.S. stocks: The average stock will most likely drop. You may want to consider finding a manager who can purchase “insurance” against falling stock prices. This is done via options contracts. If things get really bad, you may want to have a manager who has experience selling stocks short. Be very careful shorting stocks. As of this writing, I would not advocate that the average Joe go short. You do have to be rich to access these investment strategies. They are available to even modest investors. On the other hand, in an easy credit and inflationary environment, stocks may surprise on the upside especially in the early stages of a new FED easing cycle. I would be careful becoming wedded to either the bullish or bearish case for stocks in the next few years. Let the market be your guide and you won’t stray too far.

Foreign stocks: As a way to combat possible future weakness in the U.S. dollar, it does make sense to consider moving some of your stock investments outside the United States. This is something that you may want to consider right now. It may help your returns in the early stages of a downturn, but ultimately, Peak Oil will not be good for global stocks. Hedging with options will most likely become important here as well.

U.S. bonds: As interest rates rise, bond funds can be a very unattractive place to be. If you own bond funds, use funds that hold bonds with shorter maturities. Avoid bond funds that invest in long maturity bonds in a rising interest rate environment. A small portion of inflation protected bonds (know as TIPS) may be a good idea.

Global bonds: If the U.S. dollar does continue to weaken vs. other currencies, you can get a “double return” in select foreign bonds. For example, if I own Brazilian bonds and Brazil’s currency appreciates vs. the U.S. dollar, I get my interest payment and I also get a 2nd gain when the interest is converted back to U.S. dollars. Keep your maturities medium to short.

Gold & silver: Since no major world currency is backed by gold or silver, gold and silver remain the world’s only true currencies. Owning physical gold, physical silver, or stocks in precious metals companies can help you combat a falling U.S. dollar and rising inflation. These are the primary reasons why precious metals have seen increased buying interest in recent years. People are getting nervous about the vulnerability of the U.S. dollar. With the new gold ETFs (exchange traded funds), owning an investment backed by physical gold is easier than ever.

Energy & energy stocks: As stated above, investments in this area will improve the probability that alternative energy sources can be developed which may be able to lessen the blow of Peak Oil. Unfortunately, unless something miraculous happens, it is unlikely that any alternative energy source can be brought to market in time to improve our situation in the next few years. However, capital invested in alternative and traditional energy, will improve the somewhat slim chances of a miracle. Regardless of how fast new technologies can be brought to market, energy investments will help shorten that window. Ultimately, we need to find alternatives.

Other commodities: Oil is not the only natural resource that is facing a possible supply and demand problem. Due to still inflated U.S. stock valuations, rising inflation, and a weakening U.S. dollar, diversifying a portion of your assets into physical commodities and commodity related stocks could help reduce your correlation to movements in stock and bond prices.

Real estate: While there is no question that U.S. residential real estate is expensive vs. historical norms, real estate does perform well in an inflationary environment. Like all the asset classes discussed here, diversification is very important. Since most of us own real estate in the U.S. in the form of our homes, placing a small portion of your assets in global real estate has some merits on several fronts. This can be accomplished via stocks, or even in a small number of mutual funds.

In closing, I am far from an expert on Peak Oil. While I have been a professional investor for over a dozen years, I also realize the importance of keeping an open mind in our ever changing world. Our current investment strategy is diversified across several different asset classes and remains flexible based on what actually happens in the coming years. Investors should be developing an investment game plan, specific to their needs, that works in today’s world while having a contingency plan in which to migrate to as the investment landscape inevitably changes in the coming years. Getting help, in the form of a money manager or via mutual funds, may be crucial to navigating successfully in the coming years.

Ciovacco Capital Management, LLC (www.ciovaccocapital.com) is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios.