8679 Blue Flag Way  Naples, Florida  34109   Phone: 239-597-0880   Fax: 239-254-5096

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Finding Opportunity in a World of Unprecedented Risks

John Dessauer’s market review and update as of Wednesday September 20, 2017

             I call it Marilynn’s luck. For 25 years I have enjoyed the benefit of her good luck. We were on a cruise in Alaska when we learned that hurricane Irma was going to be a threat to Florida. We had reservations with Delta to fly home on September 13, four days after the cruise. It turned out that the 13th was the first day, after Irma struck, that Delta was able to fly to Fort Myers. That was truly good luck. Other cruisers from Naples had to scramble to find hotel rooms and wait for available flights. After landing in Fort Myers a taxi was able to get us to our house in Naples. A day earlier and that would not have been possible because of trees blocking roads. At home, we collected flashlights and candles because there was no electric power. We were warned before we flew home that power would likely be out until September 22. But as we were getting ready for bed our lights came on. We had air conditioning. It was 85-90 degrees outside. Our home internet network came up, working fine. We have damage to roof tiles, but no leaks. We have damage to our swimming pool cage, but can still swim. We feel very fortunate. Some of our neighbors lost their pool cages. Others have serious roof damage with leaks. The landscapers, roofers and pool repair businesses will have lots of work for months to come. That will be an economic positive from Irma.

There is a lot of hype when it comes to storms like Irma. Commentators tend to exaggerate the outcome, especially for individual investors. The following from Zack’s Investment Management puts Irma and the stock market in a proper perspective: Indeed, we tend to see a recurring theme of misaligning reality and expectations in particular when it comes to hurricanes and natural disasters. Again, the toll on local communities cannot be overlooked or taken lightly. But when it comes to the broader economy and the equities markets (which reflect the broader economy), these storms tend to have very small, measured impact. For investors worried over whether Irma and Harvey could cause serious ripples in the economy and the markets, I would encourage you to be at ease – and to remember to lean on history as your guide:

As you can see, the only negative post-hurricane year was 2008. And that was because of the global financial crisis and near depression. Whether stocks rise or fall in the coming twelve months will depend on fundamentals including sales and earnings growth far more than the aftermath of hurricanes Harvey and Irma.”

Residents of Naples and other Florida communities are learning a hard lesson - the importance of having electricity. We have been watching Facebook posts from people we know to be among the activists who oppose fracking and all other oil exploration efforts. Of course they don’t mention oil or natural gas. But using cell phones, they describe life in 90 degree Florida without electricity as a form of hell on earth. Their misery will soon end. Florida Power and Light is doing a remarkabke job getting the power back on for everyone. But, I fear that once the air conditioners are running again they will go right back to attacking the oil and gas producers. Instead, they should be thankful for American entrpeneurs who pioneered new technologies, including fracking and horizontal drilling, that have transformed the U.S. from a potential victim of “peak oil” to a nation enjoying energy abundance.

About ten years ago the general consensus was that Americans were heading for major economic trouble as world oil production peaked and began to decline. At one point the price for a barrel of oil was over $120. Prices for gasoline were so high that consumers’ household budgets were pinched. Consumers account for roughly two-thirds of our economy. That makes it easy to understand the seriousness of the “peak oil” threat. Had American entrepeneurs not come to the rescue with new technologies, our entire economy would have suffered. There might not have been enough electricity to run all the new air conditioners as more people moved to Florida. And the cost of electricity surely would have soared, hurting the most vulnerable.

The Permian Basin oil field erases any residual doubt about the reality of America’s new energy abundance. The EIA (U.S. Energy Information Administration) estimates that the Permian Basin is now producing more than 2.5 million barrels of oil a day. That is an annual rate of nearly one billion barrels. One oil expert and geophysicist talks about the Permian Basin as a “permanent, near infinite resource.” He assumes that over the really long term we will stop or nearly stop using oil and natural gas for energy production. That is how the word “infinite” comes into play.

The new energy abundance also shifts the balance of global energy power in our favor. In the 1970s, as American oil productin peaked and began to decline, we were held hostage to oil producers in the Middle East. OPEC was born and quickly became a threat to the U.S. economy. By 1970 the U.S. imported 21.5% of its oil needs. Over the next 35 years the balance continued to shift against the U.S. In 2005 we imported 60.3% of our oil needs. In 2005 that trend was expected to continue, leaving the country and our economy at the mercy of foreign oil producers. The federal government, for its part, not only played no role in developing the new technogies, it made the stituation worse by restricting where producers could look for oil.

Entrepeneurs in the private sector, on their own, took tremendous financial risks and were successful, first devloping new technologies and then using them to devlop new resources for America’s energy needs. As a result, American oil imports have fallen back to the 1970 level at 21.5% and will keep falling in the coming years. In  just 12 years we have gone from an economy at risk for lack of energy resurces to an economy enjoying energy abundance.

University of Michigan Pofessor Mark Perry said it eloquently “The game-changing importance of the amazing, revolutionary, “Made-in-the-USA” technologies that sparked America’s Shale Revolution, and especially the contribution of the creative genius of the US petropreneurs who were behind those innovative breakthroughs, really cannot be overstated.”

It is hard to be a pessimist in a country with such human and natural resources.

I will have the next market review and update for you one week from today on Wednesday, September 27, 2017.

All the best,

John Dessauer

© September 2017