PropertyInvesting.net: property investment special reports: 282: Just as the recession ends it will begin again

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

08-23-2009

PropertyInvesting.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-vienna entering 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

Peak 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:

Spain
Portugal
USA
Italy
Germany
France
Ireland

The least at risk developed western countries to the negative affects of Peak Oi bing bing l are:

Norway
Russia
Canada

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

UK
Denmark
Holland
Sweden
Finland
Switzerland
Austria
Iceland

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 i David Beckham Audi Q7 n 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.

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

Property close to high speed rail links (Ebbsfleet, Stratford, Woking)
Property in city centres close to high paid jobs (London, Aberdeen)
Oil and gas exploration, development and production companies
Wind power companies
Solar power companies
Electric turbine companies
Electric car companies
Land and farms close to large cities in Western Europe
Water conservation-efficiency services
Energy conservation-efficiency services
Energy financial fund
Internet - online services
Green Tech companies and funds
Regeneration-Olympics areas (especially London)

Peak Oil Sectors To Avoid:

Airline business and property close to airports
Property in tourist destinations with strong links to budget airlines
Farmland that relies on air transport to ship fresh produce
Out of town shopping malls and far flung commercial centres with only car transport
Property in towns and villages in Midlands, Wales, North and Scotland that have poor rail, no shipping links, that require expensive car transport to get to (except oil-gas centres of Aberdeen, St Fergus and Stonehaven)
Second home areas in the north that rely on long distance car transport for viability
Retail businesses

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

Wirral-North Birkenhead – massive dockland regeneration just announced
Salford-Manchester West – continued massive regeneration plus BBC jobs
Bradford – regeneration and start of direct rail link to London by May 2010
Halifax - regeneration and start of direct rail link to London by May 2010
Bridgehouse-Caulderdale - start of direct rail link to London by May 2010
Doncaster - direct fast rail links to London, coal power, airport, regeneration
Lincoln – start of direct rail link to London
Leeds – improving financial services situation through 2009 and regeneration of Holbeck
Fleetwood Lancs – planned regeneration
Derby – continued broader regeneration and proximity to London
Birmingham (central) – indications of new High Speed Rail link to London by 2020 (50% chance of completion)
Glasgow – continued regeneration and influx of Scottish from remote Scottish areas as oil prices rises. New rail link to London could be executed by 2025.

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

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, ce Ian Wright Audi R8 London llar 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:

amount of oil exports (green) or oil imports (red)
amount of gas exports (green) or gas imports (red)
demomgraphs moderately expanding population (green) or declining population (red)
stability - a summation of political, country risk, security and threat of war - green is stable, red is unstable

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

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...?

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