“Contrarian” Investments for 2008

“Contrarian” Investments for 2008

December 30, 2007

Last year at this time, I suggested that it would be good to “invest” in a small collection of basic materials that would reduce one’s dependency on existing systems in the event of systemic breakdown. In short, the classic “escape backpack” in case urban/suburban areas became uninhabitable.

Doesn’t seem so kooky now, does it?

That advice stands for 2008. Although there wasn’t really any reason to put the “escape backpack” to use in 2007, nevertheless it hasn’t really fallen in value either, which is more than you can say of most investments during the year. This is insurance that you only pay for once. Maybe it is worth pointing out that the big score for 2007, namely long CDS on mortgage-related paper, is also a form of insurance. (Pros — if you are still long CDS, I’d suggest selling it back to your dealer while the dealer is still able to pay.)

Besides, the “escape backpack” is also handy for recreational backpacking as well.

This year’s “investment” is more of the same, although on a wider scale. How can you reduce your dependence on existing systems — whether your place of employment, water, electricity, or food and fuel delivery? I expect that during 2008, an overall theme will be that such systems deteriorate markedly.

As soon as February, the city of Atlanta may become uninhabitable due to a shortage of water. Of course there is still more than enough water to drink. People only drink a gallon a day or so. The problem is, if someone uses that gallon to flush their toilet or water their dying roses, then someone else’s tap could run dry. In short, the system doesn’t work. Who would have thought that Atlanta could be the New Orleans of drought? I would have put Phoenix higher on the list.

At the same time, I hear that local governments in Florida may be unable to pay government workers due to a freeze on assets held in a state-managed money market fund. Maybe trash won’t be picked up, or school bus service will be cut back. More deteriorating systems.

In California, we saw half a million people evacuated due to fires. There have always been fires in California, but rarely so large. What might have happened if the emergency teams hadn’t been paid in weeks due to a busted money-market fund?

The Pacific Northwest just got hit with a windstorm of epic proportions. Winds in excess of 150 mph were recorded on the western Olympic Peninsula. That’s not too common either. The accompanying rainstorms flooded I-5, which is used by 11,000 trucks per day. Someone’s inventory isn’t going to be replaced just-in-time.

I-5 underwater in Washington State

About 340,000 people were evacuated in Jakarta due to high tides. Not a tsunami. Not a storm surge. Just a tide that kept on getting higher, flooding several sections of the city. The same thing has been reported recently in India, Mexico, the U.K. and Vietnam. Tides are supposed to be predictable. They’ve become unpredictable.

Why is the water waist deep in Jakarta? No official explanation. When in doubt, blame global warming!

Eighty percent of the entire Mexican state of Tabasco ended up underwater recently.

Gasoline inventories were recently at rock-bottom, bumping against the “minimum operating levels” which basically represents the gasoline in the transportation pipe. Already there have been spot shortages at places at the “end of the pipe,” like North Dakota. If everyone got worried about the gasoline situation simultaneously, and filled their gas tank (nevermind extra storage tanks), the system would run dry in hours.

U.S. banks have begun to limit withdrawals from bank accounts. What if you need to transfer money quickly? What if your bank goes bust and your account is stuck in FDIC limbo? What if your broker goes bust and, in the confusion, you are unable to cash in your “safe” money market fund? More deteriorating systems. Keep a month’s worth of cash handy. And gold. Obviously.

I haven’t even touched on more dramatic scenarios, such as a quick melting of the Greenland ice cap (or Antarctica!), which scientists say is happening as we speak. Or a major earthquake along the New Madrid fault. Or something related to the fact that the moon and stars are still not in their correct locations. Is the earth wobbling?

As I mentioned last year, certain wealthy people have already started to make preparations. Tom Cruise recently spent $10 million on a Mogambo-style complex in Aspen, Colorado. Bill Gates’ foundation is spending $30 million, along with the Rockefeller Foundation, to create a giant seed bank on a Norwegian island. It has dual blast-proof doors, two airlocks, and steel-reinforced concrete walls a full meter thick, to provide protection to three million varieties of seeds. (Protection from what?) Ted Turner is buying millions of acres of land and reverting it to buffalo pasture, which is a sort of natural seed/animal bank. Is there something they’re not telling you in the media companies they own?

I could go on, but it is better to think of what people without a spare $10 million can do in the face of great uncertainty. You may be dependent on employment income to pay a mortgage or credit card bills, for example. There is no easy way to resolve this, but there is a quick way. If you are grossly over your head, look into legal means to resolve the issue in one stroke.

It is winter now in southern New England, where I live. Nothing is growing for a thousand miles in any direction. Traditionally, this was a time when people consumed the preserved foods they had stockpiled over the harvest season. Today, people just assume that the shipments from Mexico, Argentina and California will keep coming. Do you have enough food to make it to the first crops in June?

You’d be surprised how inexpensive six months of food is. Rice, beans, pasta, flour, corn meal and the like can be purchased for well under a dollar a pound. Canned food, from peaches to tomatoes to chili, is also very cheap. There is no reason to use freeze-dried or other specialty products. The stuff at your supermarket works fine and tastes better. Even if the supermarkets remain well-stocked, it might be a good opportunity to learn how to kick the meat and processed-foods habit and make tasty and nutritious food for almost nothing. Both your accountant and doctor would approve.

Keep twenty gallons of gas in your garage. (Be careful — it’s flammable!) And how about a bike?

Electricity is totemic. People imagine that losing electricity means a return to a caveman level of existence. And yet, the cathedrals of Europe and Mozart’s symphonies were created without electricity. Probably the highest-value use of electricity is to provide light. You can buy a simple LED-based mountaineering headlamp for about $40. (www.campmor.com) If you look, you can find little solar AA battery chargers that are about as big as a paperback book, for another $30 or so. Add some rechargeable batteries, and you’ve got a completely self-contained electrical lighting system that weighs under two pounds and costs less than $100.

Kerosene lanterns, which can run on heating oil, jet fuel or diesel fuel (three other names for kerosene), cost less than $20 each at www.lehmans.com. Candles — the big ones that burn for a looong time — can be picked up cheaply at Ikea (ikea.com).

A Berkey gravity water filter/purifier allows you to make drinking water out of collected rainwater or water from a local creek. One set of filters will process 6,000 gallons, which is enough for four people for three years. No electricity required. (www.berkeyfilters.com) Personally, I prefer the stainless steel models.

To collect rainwater (yo Atlanta!), try therainwell.com. You can set up a simple rainbarrel off your rain gutter downspout for less than $100. A 55-gallon drum of rainwater would last two people a month, if you had to stretch it.

Bathing can be done with a simple sponge bath (used in all hospitals), or a Sun Shower-type system ($25, campmor.com). One spring, I bathed while standing on the frozen Yukon river in 35 degree weather, using two liters of hot water made from melting snow over a campfire. There’s no excuse for not bathing.

The ambitious might even look into alternatives for long-term shelter. The military has long experience in using tents for extended use. Remember the TV show M.A.S.H.? A decent canvas tent and woodstove can be had for under $500. Try www.armytents.com. Tent cities have already begun to pop up in California. Have the nicest tent on the block.

Coleman makes camp stoves that run on propane or automobile gasoline. They work about as well as a normal kitchen stove. www.campmor.com.

You can “flush” a toilet simply by pouring water in the bowl, but if water is scarce or there are sewage problems, you can look into “humanure” composting. All you need is “humanure” and some cellulosic material, like sawdust, grass clippings or dead leaves.

Humanure Tips

Around here, when the electricity went out for a few days a couple years ago, that took out the water pump, heater, and electric range all at once. The heating pipes then froze, disabling the heater even after the power came back on, until the weather warmed up. At least the pipes didn’t break. Talk about a fragile system! Try to keep everything independent and redundant — multiple sources of light (kerosene lamps, candles, headlamps), multiple sources of heat and cooking (Coleman stove, propane burner, fireplace, kerosene space heater), multiple sources of water (well, local creek, rainbarrel), etc., none of which depends on the functioning of another system.

There is no reason to be silly about it. With a $1000 budget, you can go a long way towards releasing your dependency on external systems. That’s about the cost of a single gold coin. Which is going to do you more good? Then go back to your normal life.

For the skeptics: Look, I know how much this sort of thing is appreciated — not one damn bit. I’m putting it here so that nobody says “you should have told us!” I told you. You had your chance.

* * *

One system that isn’t working so hot right now (is that a pun?) is people’s home heating systems. In the Northeast, heating oil costs are just too high for many people to go on along with the system they used to use. (Natgas users are gloating now, but you’re going to get it good and hard too, eventually.) This is another system that many people now need to say goodbye to. What is the purpose of home heating? To heat your home? No, it’s to heat your body. You can only get so far by “conserving,” such as turning down the thermostat to 65 degrees and putting on a sweater. You can’t really go much below 63 degrees, as it starts to get very uncomfortable. That might lower your fuel bill from $600 a month to $500. The trick is not to “conserve,” but to use less — in other words, adopt a new system which inherently has no need for the amount of fuel required by the old system. For our own house, we added insulation to the attic (an easy job you can do yourself) and limited the space we heat to just the upstairs. The downstairs is left at 50 degrees. The result: 50% less heating oil burned, but the heated upstairs is now warmer than it was before. What if we wanted to reduce our heating oil use by another 50% for a total of 75%? I would disable the downstairs heating system altogether, and keep the plumbing pipes warm by insulating them and adding electric pipe tape. (Put the pipe tape on a timer so it only runs during the night.) Then, I would add insulated curtains to all the windows, and close them at night. Also, I would add an automated thermostat that lowers the temperature to 50 degrees during the night, and add more blankets to the bed.

Unfortunately, if your use falls in half and prices double, you’re just jogging in place in terms of total expenses. (Note: oil prices will probably double again.) Need to go farther? I would choose one room of the house — in my case one of the two living rooms — and add six inches of styrofoam insulation to the walls and ceiling. This adds about R-30 for a total of about R-45 for the exterior walls. Of course, we would use insulated curtains as well. This is about a 375 square foot space and includes a fireplace. I would add a high-efficiency woodstove to the fireplace (free standing, not an insert). I would also add two layers of reflective foam-foil insulation to the floor under this room, which is accessed by the basement. Then, I would paint all the walls with Thermoshield paint, which reflects infrared radiation. (If this sounds like too much work and expense, forget about the added insulation on the walls and ceiling and just use the paint. If you want quick/cheap insulation, just staple foam/foil to the walls and ceiling. It looks like hell, though.) In the end, you’d have a very tightly insulated single 375 square foot room, which you could easily heat with the woodstove on its lowest setting. (If you can’t use a woodstove, consider a vented single-room heater that runs on natgas or propane. You can also add an oil dripper to a woodstove so that it runs on heating oil.) Disconnect the heating system altogether and drain all the heating-related pipes so they don’t freeze. Keep bathrooms and other plumbing warm with pipe insulation, pipe tape, and small electric heaters set at 45 degrees in bathrooms, under the kitchen sink, etc. You might still need the basement heater for hot water — or, consider a tankless heater (uses 30%-50% less fuel) running on propane or natgas.

Unvented space heaters, which run on kerosene or natgas/propane also work quite well, although you have to be careful regarding the buildup of exhaust fumes in the room. For this reason, they are unpopular in the US, but they are used quite often in Japan. I used an unvented natural gas heater for several winters myself.

Well, we just disconnected that darn heater altogether, replacing it with a small single-room heater running on wood, natgas, heating oil or propane. In the hundreds of years before 1950 or so, this is how people always spent the winter — in a single room, around the fireplace. (Note: open fireplaces are horribly inefficient. Use a woodstove.) Do you think the 19th century farmers burned heating oil refined from Saudi crude?

Modern woodstoves — built after 1990 or so — are now required to burn much more cleanly than the older versions, which were really just iron boxes. They produce much less smoke and smell outside, create more heat per pound of wood, and are appropriate for more densely populated areas. Don’t bother with a used stove from before 1990 or so.

Want to go farther? Then consider a small room, like 10×12. Add R-40+ insulation to the walls, ceiling and floor, plus Thermoshield paint and insulated curtains as previously noted. With this level of insulation and a small space, you could probably heat it quite nicely with a 100 watt lightbulb. This is plenty of space for a table, desk and an easy chair or two. If you want to be simple and cheap about it, insulate the attic above your chosen room to R-60, and paint the room with Thermoshield paint.

I think electric blankets are unhealthy, but you can do a lot to make your bed comfy even if the bedroom is at zero degrees (as it might be if it is unheated). Pile on the down comforters of course, but also wear pajamas and, if necessary, a nightcap. Four-poster beds were developed to enclose and insulate the sleeper, and some people have experimented with small enclosed sleeping chambers. This is the way people got by in the chilly Northeast, until about sixty years ago.

Want to go still farther? How much farther can you go? Since you’re trying to heat your body not your house, you could try these electrically heated jacket and pants, designed for winter motorcyclists. They run on about 100 watts on the highest setting, which is good enough for riding a motorcycle at sixty mles per hour in subzero weather. Probably you could do fine on a lower setting, of about 30 watts or so. If you use it for 16 hours a day at 30 watts, that’s 480 watt/hours. At $0.20 per kilowatt hour, you’re talking about $0.10 a day or $3.00 a month. That would be pretty silly, but we can see that the “need” to throw $600 per month up the chimney in after-tax heating costs is really an imaginary “need” created by a system that is now obsolete.

I know people are going to have a thousand complaints. “I can’t do that because….” There is only one reason why they “can’t do that.” The reason is: “because nobody else is doing that yet.” My suggestion?

Get up off your knees!