September 13, 2005

By John Dietz, Senior Advisor, Trustmakers

Well, I think it’s safe to say that the U.S. has seen the highest gas prices for the year. Maybe a bump up from here, but it will go back down. However, if you’re a U.S. citizen, consider yourself lucky: Europeans are paying up to three times the price of gas as U.S. customers. France’s gas tax alone is $6.77 per gallon. Asia is not fairing much better either.

Also, in the northern hemisphere it’s winter oil heating season, so you know where that price is going to go. We have certainly been in a commodities bull market, and it doesn’t look like the steam is going to run out anytime soon. The press points to growing demands in China, and while that may be true, the U.S. and European consumption has been on an uptrend.

The irony of it is that since the last oil crisis in the 70s, slowly and surely cars have increased in size and stature. Many high-end cars today only use 93 plus octane. I think it’s safe to say that the oil companies have figured it out. They seem to quietly and patiently wait in the wings for just the right time to pounce on the consumer.

It’s true that technology has developed bigger cars that get better gas mileage, however, this was all well and good, till actor turned governor, Arnold Schwarzenegger, drove up to a movie premier in a Hummer. The message that resonated to the masses is that bigger and stronger is sexier. It was no longer palatable for the soccer mom to drive a small van when she could have a Sport Utility Vehicle. With the power of advertising, a closed-up pickup truck is now the sexy SUV even if it gets 7 miles to the gallon.

Most of you may remember gas lines in the 70s, but do you remember alternative fuel ideas? In fact, all of these ideas are coming in vogue again; take a look at the Clean Energy Power Shares (ticker symbol PBW) for the last 30 days. All of the sudden, people are again interested in alternative fuel such as power cells, solar, hydrogen, wind mills and you name it.

Let’s start grass roots efforts for alternative fuel. Get every scientist and engineer on the band wagon and start inventing cars that will get you 100 miles to the gallon; by the way in the early 80s I was in such a car. The answers are out there, but that’s not the point. The minute that oil companies see some progress, the price of gas will come down to a level below what it will cost to create and manufacture alternative fuels. You and I will get busy with life, and the next thing you know, ethanol will go the way of the dodo.

This is the cycle of markets. The only change to this rat race is the occasional paradigm shift that comes from inefficient markets or very greedy corporations. Remember the railroads? They used to take humans from place to place. In fact, in Europe and Asia they still do. Why don’t they in the U.S.? You may have been lead to believe that Americans love their cars too much. If they do, it may have nothing to do with transportation, and a whole lot more with a quick and easy identifiable status symbol.

I don’t know about you, but the best way to travel in my mind is when someone else is driving the bus, car, airplane, ship or whatever to get me there. Americans don’t drive; they putter along at an average of 55 miles per hour. Anyone that’s driven on the autobahn with no speed limits will tell you about real driving. The misnomer of European cars with no cup holders is that there aren’t as many Starbucks in Germany. The truth is that when you drive at 200 kilometers per hour, your hands don’t move from 10 and 2 o’clock.

Paradigm Shifts
The demise of the railroads became a windfall for the trucking companies. It’s hard to believe that market forces drive the world like a spinning top. Would we have Microsoft in its current state had IBM not had the hubris to turn down Bill Gates? Would we have the price of housing if the interest rates were much higher? Right now I would take 15% mortgages any day of the week to buy at 1980 real estate prices.

As high as gas prices are, I still have not heard too much about alternative fuels, which leads me to believe the oil brethren have not spilled enough blood. This could go on for some time, but the minute you buy a more economical car or a hybrid, high gas prices will be all but a memory, and your friends will ask why you are driving something you need to plug into the wall. Some day we will have a paradigm shift with fuel. My suspicions are when that shift takes place; you won’t be driving a car as you know it.

Where is this all going?

Your friends don’t care what you drive; your co-workers don’t care what kind of house you have. Your buddies don’t care which club you belong to (unless you’re inviting them). And I hate to tell you this one, but most of the time they don’t care about your children.

Hurricane Katrina has once again reminded us that people and not things are the moral imperative. This can be a great release from the chains that may bind you. Ask yourself this question: If no one was watching, would you live different? So drive a car that fits your needs, live in a house that is suitable, go on vacations that turn you on, and most of all, enjoy your family now (even the black sheep) because they won’t be around forever.

So how does this relate to protecting your wealth?

It’s simple: Don’t spend one minute worrying about the price of things. Figure out what economic chess game is being played out and take advantage of it. Remember that the greatest investors have all said “there’s a bull market somewhere.” Today it's commodities and real estate, tomorrow who knows…Just make a lot of money, pay your taxes, and then protect the rest. The irony is that if you follow this simple philosophy, there’s a pretty good chance that nobody will sue you…they won’t think you have any money!

Until next time,

John

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