Begun?

September 8, 2005

In my column last Friday on my web site, (click on Don's Column), I hypothecated that the hurricane might trigger a terrible situation in America, and could possibly be the beginning of a collapse. Over Labor Day, the wife and I traveled to Silverton with our new (used, old, cheap, but works fine) motor home, to spend some time in our favorite mountain retreat. I used to be in business in Silverton, and in a big way. I had three hotels, with a combined 70 rooms, so I know what the Labor Day weekend brings, under normal conditions. Jammed, crowded, and a lot of money being spent. Last year on Labor Day, it snowed in Silverton, but that didn't dampen the crowds. Labor Day, July 4th, and the entire 'season' from Memorial Day to late September, is when the merchants and business people sink or swim in Silverton. I closed my hotels seven months a year, because it is cold and snowy there, and the town is empty.

Labor Day 2005 in Silverton, was a disaster. Not a single "No Vacancy" sign was posted on any lodging place, and the campgrounds were virtually empty. We usually go to a little ghost town called Eureka, a few miles north of Silverton, and it was truly a ghost town, with no campers to speak of, and therein lies the story I wish to tell. In Silverton, the season is so short, that it is difficult to make a living from the tourists. Anything to interrupt the season, can spell disaster with all capital letters for a businessman. The season was already pretty weak, but when gas and diesel prices took a sudden dollar per gallon jump, thanks to the hurricane, people simply stayed home. Ouray, 23 miles north, was the same. (As an aside, in the early 1950's, Ayn Rand went through Ouray, (pronounced U-Ray), and that is the place that gave her the idea of "Galt's Gulch" in "Atlas Shrugged." You need to READ THAT BOOK).

Here then, we see high fuel prices killing business in a tiny town in Colorado. Did this kill other businesses, which are tourist oriented also? Yes. The famous Durango-Silverton narrow gauge train was way down, and may cancel winter runs. Other tourism places are way down throughout the entire 50 states. In other words, a lot of people are being laid off in the tourist industry. A lot less fuel is being consumed, fewer rooms rented, and fewer employees selling fewer souvenirs. When the orders for souvenirs (we used to call them 'rubber tomahawks') are placed at the gift shows next spring, smaller orders will be placed. This means that fewer employees will be used to make the souvenirs. Fewer shipments will be made, less shipping fees paid, and less raw materials used to make them. So much for tourism, which happens to be a major business in America, no matter where it may be. People love to travel, but it has become too expensive it seems, at least as of now.

Now look at who uses gasoline and diesel, and who will be affected by a dollar per gallon increase in price. Workers? You bet. Compared to a couple of years ago, maybe $300 a month in increased fuel prices, if one uses but five gallons per day. The average Wal Mart worker makes less than $9 per hour before deductions, which are perhaps 25%, making a net of $6.35 per hour. Two gallons for an hour's work? When I was a kid, an hour's work bought four gallons of gas. Everything is delivered by diesel fuel, be it by rail or truck. With diesel costing more, everything will go up in dollar prices, if for no other reason, than because it costs more to get the stuff into stores, raw materials into factories, fuel for farm tractors which produce food, and fuel for generators which produce the electricity used in farms, factories, stores, and homes. Natural gas prices are up by many percentage points as well. Some say up 70% by winter's beginning.

In states which were crippled by the hurricane, hundreds of thousands are unemployed, homeless, broke, ruined, and know not what will happen to them. How tragic! Who will help? Who will rebuild? Government will undoubtedly shell out far more to ruined cities and people, than has ever been thought of in Iraq. If everyone who has been ruined by the weather were paid what the families of those killed in 9/11 were paid, it would be in the trillions. Whose fault is it that New Orleans is under water? The Army Corps of Engineers, who own the levees. Who gets sued? Who pays? Trillions of bucks will be printed, in other words, making them buy ever so much less. How many insurance companies will go bankrupt? New Orleans is a major transportation hub, both highway, rail, and especially the Port of New Orleans, which no longer exists. Most US grain, and billions of barrels of oil come and go through the Port of New Orleans. Shipments delayed and costly, costing huge sums. More bucks for stuff, and less stuff coming in and going out.

The chain will continue throughout the world, but especially the U.S. Hundreds of thousands of refugees will cripple state budgets caring for them. SUV's, and big, powerful cars are now a dreg on the market, and all dealers are over-stocked. Detroit has yet to make decent, small, efficient, well built autos, as have the Japanese and Koreans. These will be in demand, causing huge layoffs in the auto industry. American hybrid? Only Ford makes one, using outdated Japanese technology. Unemployment in the auto industry, in other words.

As winter comes upon America, heating oil's price will be astronomical. Over $2.25 per gallon? When I lived in Philly, fuel oil was 14 cents a gallon. Less money to spend for Christmas presents? Probably. Christmas buying has been off for several years already, but this time it may be far worse, due to the high fuel cost. High fuel prices, in other words, cripple the citizen's ability or desire to spend lavishly on vacations, gifts, re-decorating, or things not absolutely necessary for basic living.

It isn't hard to extrapolate the entire chain. Lower thermostat settings make fewer fuel oil deliveries in the northeast, resulting in laid off drivers of trucks. Decreased consumer spending, means fewer truckers, clerks, ski lift operators, hotel chambermaids, and the entire retinue of employees, will be employed. The movie industry is down 12% this year so far, and that figure was before the dollar increase in gas. Unemployed workers go on welfare, which causes more dollars to be printed.. I haven't even touched on real estate yet, but let's go back to good old Silverton Colorado, shall we?

Of late, Silverton real estate prices have been going up so fast, as to make one's head spin. According to Judy Zimmerman, the County Assessor, 41% in the last year alone! Twenty five-foot lots going for close to $100,000? Absurd. Much of this, is because of wealthy people wanting a vacation home in the mountains, plus the over-flow from Telluride. I believe that all vacation homes and condos will be unwanted, and difficult to sell, regardless of where they are, because of the huge cost of getting there. I predict that real estate prices, already at a bubble stage in many places, will go down, down, down. This means that construction of new homes, and even businesses, will come to a shuddering halt, or hopefully, a decent slow-down. Think then of the millions of construction workers who will be laid off, which I have already mentioned in the past when writing about the housing situation. Silverton's prices by spring, I predict, will be down close to 30%, and still not selling.

Depressions are caused by unemployment. When people aren't working, they can't, or won't buy. This causes more to be unemployed, and the chain reaction continues, till the bottom of the economic system is reached. From 1929 till FDR got us into WWII, a severe depression existed. That war put everyone to work again, and the depression was over. It did cost us 362,000 dead, and a doubling of prices, but it fixed the depression. A hurricane named Katrina, possibly has been a trigger, which can be the beginning of a chain of events, which are beyond anyone's control. When 20 oil rigs are floating aimlessly in the Gulf of Mexico, not producing a thing, plus refineries under water, fuel prices have gone up, and there's nothing anyone can do about it. No one can change the hundreds of billions of damage, and hundreds of thousands unemployed and adrift. Did the chain of decline begin with the hurricane? Had it already begun, with housing topping out? It's topped out even in my small town, and even declined a bit…so far. Is there a decline in real estate everywhere? As the title of this says, has it "begun?" No one knows what the future will bring, even a day away. We can only act on what we see. Just hope that the terrorists don't do their thing, because of they do, it might be curtains for our economy. Then, and even now, all the protecting yourself, of which I always write, will make you protected in a big way. Or do you think that all tangibles will go up in dollar prices, but not gold and silver? When pigs fly. Protect yourself now…if you have any sense.

 

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.