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282: Just as the recession ends it will begin again - it that oil again!


08-23-2009

propertyinvesting-net-logoPropertyInvesting.net team

 

Oil Prices Move Into Danger Territory: The oil price has just entered danger territory – over $70/bbl. This is absolutely no surprise to us, and we expect it to move far higher. The USA, UK and European economies will likely come out of recession in the next few months if they are not already out of recession, as manufacturing activity increases and consumer optimism improves. Unemployment may continue to rise until about Q1 2010 then stablize. There are now good indications the property market has stabilized in the UK and is property-investing-viennaentering a more stable period in the USA - indeed, there are some good signs that UK prices were moving higher from February to June 2009 until the normal mid July to early September summer holiday lull in the UK. One would be forgiven for thinking things are eventually getting back on track after the financial and economic crisis of July late 2008 to Feb 2009.

 

But just when things start to look okay, we believe things will again turn sour - when the oil price rises above $100/bbl. The western economies GDP growth will be controlled by the oil price – this we firmly believe. All oil importing nations will suffer. Oil exporting nations will be the beneficiaries. Nothing new – as per our guidance of the last five years. So please do not expect the “good old days” to come back like they used to – we have now entered a “Peak Oil World” (POW) were oil scarcity will drive up prices of all goods and services and lead to lower economic growth in western developed oil importing countries.

 

More Special Reports on Peak Oil and Energy:

 

277: Country Ranking in a Peak Oil World with Resources Scarcity

275: Cars - The Absurdity and Necessity

274: How susceptible are countries to high energy prices? Impact for property investors..

270: Turbulance in Property Markets Caused By Oil Price Spikes and Peak Oil

265: How to Profit from Peak Oil - USA, UK and Europe

264: Another oil price spike is just about to hit us...watch out

263: Investing in Property with Energy in Mind "post Peak Oil"

262: Electric Revolution, the Environment and the Next Energy Crisis

257: Property investing, the UK economic situation and oil & gas

251: Peak Everything!

249: What's next?

244: It's the oil price again - it caused the recession

243: Oil price crash sows seed for next massive oil spike

242: Oil, Cars & Property - what we'd do if we were UK Prime Minister

 

googleplex-transitPeak Oil Beneficiaries: According to our detail analysis and production-consumption modelling, the most at risk developed western countries to the negative ramifications of Peak Oil are:

 

The least at risk developed western countries to the negative affects of Peak Oibing bingl are:

 

Moderately at risk developed western countries to the negative affects of Peak Oil are:

 

Exposure: We have based this on an evaluation of the countries robustness to high oil prices. A country would ideally have large oil, gas, coal, wood and metals exports, plus much land and small but expanding population (Canada, Norway and Russia are good examples). Countries with large oil, gas, coal, wood imports plus not much land and a large population (particularly if aging) will be hit the hardest. Spain and Italy come bottom – they will struggle to find funds to develop any renewable resources – and their only currently viable renewable option is solar which is expensive. Water will also become an issue as climate change is expected to become more severe and affect southern European Mediterranean countries. The beginning of the end of low cost airline travel will also hit these countries hard – as international European tourism declines. Less disposable incomes, high taxes and higher airline fuel will make airline travel something for the rich – as it was in the 1960s.

 

Is It Bleak: This may sound a bit bleak – but we make no apology for giving guidance on this. We want to increase your returns. We firmly believe oil prices are heading far higher – well over $100/bbl. And when they do, if these countries are not severely affected after about 6 months, we would be very surprised. Airlines will close. Regional airports will become quiet again. High speed rail will be encouraged and fostered by governments. City living will become easier because it is less oil intensive than countryside living per unit GDP created. Far flung suburban areas with no rail communications will wither and communities on high speed rail lines will prosper. So for the UK, there is no better place for property investment in such a peak Oil environment than somewhere like Ebbsfleet-Gravesend-Stratford for example. High quality commuiting towns with outstanding rail links will also do well – Woking (22 mins to Waterloo), Ebbsfleet (15 mins St Pancras) and Chelmsford (40 mins Liverpool St) are three examples.

 

Energy Inflation: As oil prices rise, so to will gas prices, petrol prices, diesel prices, coal prices and electricity prices. Agriculture will be more expensive. Remember each calorie of food takes 8 calories of energy to deliver – a hugely ineffective process. Yes, this has led to massive consumer variety (apples flown in from South Africa, strawberries from Israel, flowers from Kenya) but we have now entered a period of energy scarcity – as Peak Oil occurred in July 2008. Environmental and planning constraints we believe will hold back electricity developments – so electricity shortages will become more common and renewable energy projects will be slowed as will Nuclear power projects.

 

Cars Still Do 33 mpg: The average car now uses the same amount of fuel as iDavid Beckham Audi Q7n the 1970s – it’s just that the cars have bigger engines, are twice as powerful and are about 50+% larger than the Morris Marina of the early 1970s. Instead of a 1.3 litre car delivering 60 BHP, we’re all driving far larger 2.0 litre turbo Volvos and Toyota’s that have 170 BHP and do the same 33 mpg. Conservation (efficiency) has led to consumption (increase in size and power). Car still weigh more than they did in the early 1970s despite using lighter materials – they car a lot faster though. US refuge trucks do 3 mpg even though they could easily be electric powered. Film star drive Hummers. Cars are status symbols - big cars = big status - so it would seem.

 

All Electric No Time Soon: If you think conversion to electric cars will help – the electricity will have to be generated. If oil is running short, gas production start declining (we expect this in 2015) and no nuclear power plants are being built – there are two options. Coal fired power – but this is CO2 polluting. Or renewables – but this is so far expensive and investment is challenging delays are common (ref: UK’s only wind turbine manufacturer based on the Isle of Wight was allowed to fold last month). As one can see, it all points to higher energy prices. This will then fuel higher inflation, higher interest rates, declining currency value, lower property prices and lower GDP growth rates as western oil importing nations stumble through the economic quagmire. Not how UK inflation has stalled out at 1.8% CPI – a very worrying early sign. Despite GDP recession of -3% per annum, inflation is still 1.8%! Whether this is because of all the printing of money or higher oil prices is debatable.     

 

london-ladiesPeak Oil Sector To Benefit:  So to properly hedge yourself as an property experienced investor, we believe the following sectors will benefit from Peak Oil:

 

Peak Oil Sectors To Avoid: 

 

Northern UK areas:  In the UK, there are some interesting areas in the North that might see benefits from regeneration and improved rail links that are worth mentioning:Northbank East

 

 

We won’t cover London in this Special Report - instead we point you to the Special Reports below that cover London and the South-East regeneration (plus Olympics 2012) and developments in detail:

 team-gb

280: London Villages - Hotspots for the Future

266: London Olympics Regeneration and Infra-structure Boom

267: UK Property Update

256: London regeneration update for property investors

254: London 2012 Olympic Regeneration - Property Investor's Update

248: Cornwall - demographics and direction

247: London property investing - hotspots 2010-2012

234: London Olympic Games - impact on London property

231: UK inflation, house prices and growth for the next 2 years

227: Importance of Tube and Metros to European City Property Investment

226: London Property Hotspots - Tube, Olympics, Regeneration

219: Property investors - socio-economic trend update - hotspots

217: UK massive housing shortage 2010 onwards

213: East London regeneration and infra-structure update for property investors

212: UK property hotspots 2008 for a 2-3 year timeframe

 

 

London Property Hotspots  - regeneration rail-tube-Eurostar links and Olympic affect

property-hotspots-london-map-propertyinvesting-net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recession Again:  As we dip into another recession as oil prices skyrocket past ca. $120/bbl in the next year or so, make sure you have ample cash reserves in case occupancy drops and/or interest rates stay high. Don’t take monumental risk during this uncertain period. Avoid new builds that would normally transfer margins from the investor to the developer, unless you see a magnificent bargain. Do not be surprised to see inflation rising sharply to 5% again in 2010 with interest rates rising sharply with it – before another recession kicks in. And always look for area that are regenerating or improving with good rail links, jobs and tenancy demand. Good school and low crime also help of course. Any property with refurbishment (or development) potential will be benefits (e.g. loft conversion, ceIan Wright Audi R8 Londonllar conversion, garage extension).

 

So who makes the money? The smart investor! A recession never stopped the smart from making money. Our aim is to share our experiences and knowledge to help you either stay a smart investor or to become a smart investor. We share this with our 5 million annual website visitors and thousands of Newsletter subscribers. We hope you have found these insights helpful in shaping your investment strategies, with the objective of improving your returns. If you have any comments or views, please contact us on enquiries@propertyinvesting.net

 

 

 

Appendix

 

Country Ranking

What we have prepared are two tables. The first table is a Pure Peak Oil Profits table that ranks each country on:

The rating is intuitive and qualitative - using our experience and judgement. You may not agree with all of the criteria ratings - however, we believe its a fairly measure of the countries that will do well from Peak Oil and those that will suffer the most fron Peak Oil. No surprise that Norway and Canada come top. These two countries have huge oil and gas deposits, growing but relatively small populations (or oil revenue per person) and are very politically stable with excellent security. Expect their currencies and property prices to rise as oil prices rise.

Peak Oil Susceptibility

 

Oil

Gas

Demographics

Stability

Overall

Norway

10

10

8

10

38

Canada

10

8

8

10

36

Brunei

10

10

8

8

36

Australia

6

10

8

10

34

UAE/Dubai

10

8

7

6

31

Algeria

8

10

8

5

31

UK

7

7

7

9

30

Russia

10

10

3

6

29

Saudi Arabia

10

8

7

4

29

Brazil

7

7

7

7

28

USA

2

9

7

9

27

China

5

6

7

5

23

India

4

4

8

4

20

Korea

0

0

7

7

14

South Africa

0

2

7

3

12

Portugal

0

0

4

8

12

Japan

0

0

3

8

11

Spain

0

0

3

8

11

Italy

0

0

3

8

11

Greece

0

0

3

8

11

 

Legend
Big opportunity - positive  
Opportunity - positive  
Neutral - hedged  
Threat - negative  
Severe threat - very negative  

Peak Oil Overall Resoruces and Industry Susceptibility

 

Oil

Gas

Coal

Metals

Finance

Manufa-cturing

Agricul-ture

Know-ledge

Demo-graphics

Stability

Overall

Canada

10

8

9

9

9

5

8

10

8

10

86

Australia

6

10

10

10

9

5

8

10

8

10

86

USA

2

9

10

8

10

5

10

10

7

9

80

China

5

6

10

8

8

10

7

8

7

5

74

Brazil

7

7

7

9

7

7

9

7

7

7

74

Russia

10

10

9

8

7

5

6

7

3

6

71

Norway

10

10

0

0

7

5

4

9

8

10

63

UK

7

7

1

1

10

4

7

9

7

9

62

India

4

4

9

5

7

7

4

8

8

4

60

Brunei

10

10

0

0

6

2

4

7

8

8

55

UAE/Dubai

10

8

0

0

8

5

1

8

7

6

53

South Africa

0

2

10

10

3

5

6

5

7

3

51

Japan

0

0

4

2

8

10

5

10

3

8

50

Algeria

8

10

2

2

4

3

2

4

8

5

48

Saudi Arabia

10

8

0

0

7

3

1

6

7

4

46

Korea

0

0

4

0

7

10

3

8

7

7

46

Spain

0

0

0

1

8

4

8

8

3

8

40

Italy

0

0

0

1

7

3

7

8

3

8

37

Greece

0

0

0

1

6

4

6

7

3

8

35

Portugal

0

0

0

1

5

4

7

6

4

8

35

 

 Peak_Oil_PropertyInvesting_NetPeak Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Special Appendix - courtesy of Transition Town's. This organisation is the non profit making entity that works on transitioning from a Peak Oil hydrocarbon age, to a oil scarcity age. For your information, in case it interests you. Here you can learn more about how communities are working together to position for (expected) oil and hydrocarbon scarcity.  (We are not a member of this well known entity. This progressive organisation may be of interest to some of you)

 

 

Extract from their wesbite:

http://transitiontowns.org

It's official...

The following communities have been officially designated Transition Towns (or cities, districts, villages and even a forest!)

To join them, you'll need to work on the checklist items in the list of criteria. These should tell you whether you're ready to embark on this journey, or whether there are a few initial things left to be done or considered.

We've introduced this slightly more formal approach to registering Transition Initiatives for a couple of key reasons:

  • Our trustees and funders want to make sure that while we actively nurture embryonic projects, we only promote to "official" status those communities we feel are ready to move into the awareness raising stage. This status confers additional levels of support such as speakers, trainings, wiki and forums that we're currently rolling out
  • In order to establish coordinated programmes (such as combined funding bids to the National Lottery) we need a formally established category of Transition Initiatives that we're fully confident can support and deliver against such programmes.
  • We've seen at least one community stall because they didn't have the right mindset or a suitable group of people, and didn't really understand what they were letting themselves in for.

There are also quite a lot more communities thinking hard about whether they're ready for this journey.

Who's next...?

In date order

  1. Totnes, England
  2. Penwith, England
  3. Kinsale, Ireland
  4. Ivybridge, England
  5. Falmouth, England
  6. Moretonhampstead, England
  7. Lewes, England
  8. Stroud, England
  9. Ashburton, England
  10. Ottery St. Mary, England
  11. Bristol, England
  12. Brixton, England
  13. Forest Row, England
  14. Mayfield, England
  15. Glastonbury, England
  16. Lostwithiel, England
  17. Forest of Dean, England
  18. Nottingham, England
  19. Wrington, England
  20. Brighton&Hove, England
  21. Portobello, Scotland
  22. Market Harborough, England
  23. Sunshine Coast, Australia
  24. West Kirby, England
  25. Llandeilo, Wales
  26. Bro Ddyfi, Wales
  27. Whitstable, England
  28. Marsden & Slaithwaite, England
  29. Frome, England
  30. Brampton, England
  31. Isle of Wight, England
  32. Waiheke Island, New Zealand
  33. Orewa, New Zealand
  34. Dunbar, Scotland
  35. Rhayader, Wales
  36. Seaton, England
  37. Bath, England
  38. Exeter, England
  39. Isle of Man
  40. Canterbury, England
  41. Kapiti District, New Zealand
  42. Carbon Neutral Biggar, a Transition Town, Scotland
  43. Presteigne, Wales
  44. Wolverton, England
  45. Leicester, England
  46. Holywood, Northern Ireland
  47. Westcliff-on-Sea, England
  48. Isles of Scilly
  49. Liverpool South, England
  50. Norwich, England
  51. Tring, England
  52. Crediton, England
  53. Boulder County, CO, USA
  54. North Howe, Scotland
  55. Lampeter, Wales
  56. South Petherton, England
  57. Armidale, NSW, Australia
  58. Chichester, England
  59. Bell, VIC, Australia
  60. Bellingen, NSW, Australia
  61. Berkhamsted, England
  62. Forres, Scotland
  63. Sandpoint, ID, USA
  64. Opotiki Coast, New Zealand
  65. Newcastle, NSW, Australia
  66. Chepstow, Wales
  67. Coventry, England
  68. Bungay, England
  69. Nelson, New Zealand
  70. Hervey Bay, QLD, Australia
  71. Dorchester, England
  72. New Forest, England
  73. Mersea Island, England
  74. Maidenhead, England
  75. Ladock & Grampound Road, England
  76. Leek, England
  77. Horsham, England
  78. Tynedale, England
  79. Stafford, England
  80. Chester, England
  81. Exmouth, England
  82. Cambridge, England
  83. Hereford, England
  84. Kingston-upon-Thames, England
  85. Buxton, England
  86. Taunton, England
  87. Eudlo, QLD, Australia
  88. Ketchum, ID, USA
  89. Kildare, Scotland
  90. Cotati, CA, USA
  91. El Manzano, Chile
  92. Sydney, NSW
  93. Lyons, CO, USA
  94. Whanganui, New Zealand
  95. Langport, England
  96. Sidmouth, England
  97. York, England
  98. Transition Blue Mountains, NSW, Australia
  99. Louth, England
  100. Fujino, Japan
  101. Santa Cruz, CA, USA
  102. Monteveglio, Italy
  103. Arran & Holy Isle, Scotland
  104. Ely, England
  105. Monmouth, Wales
  106. Sampford Peverell, England
  107. Berlin, Friedrichshain Kreuzberg, Germany
  108. Tunbridge Wells, England
  109. Hastings, England
  110. Deventer, Netherlands
  111. Brooklyn, New Zealand
  112. Kilkenny, Ireland
  113. Wingecarribee, NSW, Australia
  114. Kenmore, QLD, Australia
  115. Newton Abbot, England
  116. Peterborough, ON, Canada
  117. Montpelier, VT, USA
  118. Portland, ME, USA
  119. Belsize, London, England
  120. High Wycombe, England
  121. Lancaster, England
  122. Sebastopol, CA, USA
  123. Bassingbourn, England
  124. Leamington Spa, England
  125. Sevenoaks, England
  126. Chesterfield, England
  127. Sheffield, England
  128. Woodbridge, England
  129. Laguna Beach, CA, USA
  130. Pine Mountain, CA, USA
  131. Ashland, OR, USA
  132. Kirkbymoorside, England
  133. Downham Market and Villages, England
  134. Berea, KY, USA
  135. Pima, AZ USA
  136. Dorking, England
  137. Hawick, Scotland
  138. Los Angeles, CA, USA
  139. Cooran, QLD, Australia
  140. Castle Ward, Bedford, England
  141. Tayport, Scotland
  142. Bro Ffestiniog, Wales
  143. Redland, Bristol England
  144. Barraba, NSW, Australia
  145. Denver, CO, USA
  146. Newent, England
  147. Whatcom, WA, USA
  148. Mount Shasta, CA, USA
  149. NE Seattle, WA USA
  150. Louisville, CO, USA
  151. Newburyport, MA, USA
  152. Omagh, Northern Ireland
  153. Oxford, England
  154. Thornbury, England
  155. Bro Gwaun, Wales
  156. Farnham, England
  157. Paso Robles, CA, USA
  158. Portland (PDX), OR, USA
  159. San Luis Obispo, CA, USA
  160. Hohenwald, TN, USA
  161. Ann Arbor, MI, USA
  162. Oklahoma City, OK, USA
  163. Guelph, ON, Canada
  164. Diss, England
  165. Maleny, QLD, Australia
  166. Llantwit Major, Wales
  167. Wigan, England
  168. Ashtead, England
  169. Helston and District, England
  170. Kurilpa, QLD, Australia
  171. West Marin, CA, USA
  172. Tucson, AZ, USA
  173. Greater New Haven, CT, USA
  174. Santa Barbara, CA, USA
  175. Trawsnewid Bangor Transition, Wales
  176. Downton, England
  177. Wivenhoe, Essex
  178. Dundas, ON, Canada
  179. Anglesea, VIC, Australia
  180. Siirtymäliike Hämeenkyrö, Finland
  181. Victoria, BC, Canada
  182. Stelle, IL, USA
  183. Hancock County, ME, USA
  184. Torquay, VIC, Australia
  185. Malvern Hills, Worcs, England
  186. Hardwick Area, VT, USA
  187. Whidbey, WA, USA
  188. Andover, England
  189. Brisbane East, QLD, Australia
  190. Nelson, BC, Canada
  191. Finsbury Park, London, England
  192. Liskeard, England
  193. Culver City, CA, USA
  194. Sunnyside Neighborhood, Portland, OR, USA
  195. Media, PA, USA
  196. St Albans, England
  197. Weymouth and Portland, England
  198. Horncastle, England
  199. Thorncombe, England
  200. Marlow, England
  201. Sherborne, England
  202. Letchworth, England
  203. Lavenham, England
  204. Timaru, New Zealand

By Country

** Sturminster Newton, England

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