Welcome to 1933: A Forecast For Infrastructure
Thank goodness I’m heading to the dentist, I thought to myself last week. Not often that happens, eh?
I just received a call from a co-worker, that my morning commute was set for a hellish twist. What was normally a quick 20-30 minute commute was set to take over an hour and a half!
Luckily, though, I wasn’t heading in to the office until later that day so the commute from hell was avoided.
The reason for the delay, however, is sparking a new resource trend I want to bring to your attention. Here’s what happened…
Turns out a 60 inch water main broke in uptown Baltimore.
Raging rapids filled a multi-block area. Traffic ground to a halt and businesses were shut down.
The first task, once emergency crews secured the area, was locating the center of the problem.
You see, to shut down a 60 inch water main the engineers must first locate the problem in the web of underground piping (in this case 17ft underground.) Next they have to turn it off.
You’d think turning off a pipe would be as easy as flipping a switch, but you’d be wrong. As one Department of Public Works (DPW) representative led on, there are multiple sections of pipe that need to be turned off, each of which has a large valve that has to be physically turned shut. I can’t even begin to imagine what kind of spigot-knob a 5ft diameter pipe has!
But that’s not the surprising part. The big surprise was what I heard next…
According to the DPW representative in Baltimore, the 60 inch water main was forged in 1913 and installed in the early 1920’s. Add it up and the water main was over 90 years old – geez, no wonder it gave way!
That’s the point, much of America’s infrastructure is old and ailing. Just take a walk around any large North East city in the U.S. The decrepit state of bridges, pipes, electricity systems, subways and other vital infrastructure is palpable.
The rest of the country has its set of problems, too. Indeed, from coast to coast this ailing infrastructure problem is common place.
Remember the bridge collapse in Minnesota in 2007? 13 people were killed and 145 injured when a bridge spanning the Mississippi River gave way. This led to a race for every major city in the U.S. to make sure their major bridges were structurally sound. But since 2007 the gusto has surely worn off.
Today, I see a convergence of trends that will start the next wave of infrastructure improvements…and lead to our next profit opportunity.
A Four-Year Prediction…
Looking at this situation from another angle, let’s say you’re a president who just got re-elected…
From the get-go of your first inauguration you didn’t care too much for America’s fossil fuel industry. In fact, at one point, as our friend Byron King points out often, you even made an enormous mistake calling oil “yesterday’s energy.”
But here’s the rub. You’re in the middle of what could be America’s next great depression and you’re being beat over the head with a fossil fuel-fueled renaissance like America hasn’t seen in decades. The cheap energy is staring you in the face.
That’s where Obama finds himself today.
A borderline socialist president, dealing with a poor economy and high unemployment? All at the same time America’s renaissance is gearing up?
Well, while some geologic pressure forms carbon into coal and some forms carbon into diamonds, I believe this convergence of factors will squeeze Obama into utilizing America’s newfound energy bonanza.
In fact, if my strong suspicion is correct this will lead to a mega infrastructure project, second only to Franklin D. Roosevelt’s creation of the Civilian Conservation Corps (CCC) in 1933.
Remember, back when FDR created the CCC the U.S. was in a situation much like today – a shaky economy, high unemployment, and a citizenship looking for direction.
Only back then they had plenty of able hands ready to pick up a shovel and get to work. Today’s infrastructure overhaul will surely use a lot of manpower but it’ll also take a load of cheap energy, which we’ve got!
“Our [oil and gas] industry has done a great job of getting us cheap energy” prolific oilman T. Boone Pickens said last week in an interview.
Pickens also went on to show exactly how much of an advantage America actually has. Oil is at a 15% discount to the rest of the world. Gasoline is at a 50% discount to the rest of the world. And Natural gas is at a whopping 75% discount to the rest of the world.
With cost advantages like that it’s only a matter of time before the U.S. gets back on its feet. And the way that I see it, one of our first steps towards a recovery starts with infrastructure.
To be clear, this isn’t the “broken window” fallacy you’ve heard much about lately with Hurricane Sandy. These are vital pieces of America’s infrastructure that have done their duty. The 90-year old water main referenced above doesn’t owe a debt to you me or Lord Baltimore.
Truly, it’s a new round of infrastructure improvement that will replace America’s elderly infrastructure system. And all of a sudden there’s reason to produce as much cheap energy as we can, spur manufacturing (energy, chemicals, steel, etc.) and get a lot more Americans back to work.
Whether the government should have its grubby hands in the kitty is a whole ‘nother debate – which we won’t get into today.
But rest assure that this situation – much like a lot of the action in the 30’s and 40’s — will have a very positive outcome for private sector companies in the infrastructure and energy business. More to come on that point…
Keep your boots muddy,
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