Road Funding And Gas Prices Impacting Out Lives
It was quite a winter in the Northeast. We had our share of snow, howling winds, and sub-freezing temperatures. The maple sap boiling season was late as were the first flowers of the spring. We took all of this in stride, but what was tough to take were Mother Nature’s potholes. Some roads were closed. Cars and bicycles had blowouts and damaged rims. On some days, news channels’ first stories were about the potholes, but why?
True, it was a cold winter, and as spring came, there was a lot of thawing and freezing. Why weren’t they fixed? In the big picture of things, America’s infrastructure is falling apart, and a trip to Europe would reveal clean efficient airports and rail stations and clean picturesque towns. Yet is there someone to blame for our moon-scape roads?
Here in Massachusetts, the great majority of money to fix roads comes from what is called “Chapter 90”. These are federal funds that are funneled through the state government. These funds in turn are then apportioned out to cities and towns. Since the year 2000, federal taxes have decreased, and as a result, the amount of money going to the states has also decreased. In addition, because of inflation, the number of real dollars spent on domestic issues is now the lowest that it has been in decades.
One small town near our office in Springfield has about 150 miles of roads and streets. Experts who are knowledgeable about roads will tell you that roads should be repaved about every 14 years. Logically then, the town should repave about 10% of its roads every year (about 15 miles). The current Chapter 90 funding for this town provides enough funding to repave just one mile a year. At this rate, this town will have all of its roads repaved in 150 years. In addition, since this town’s DPW (Department of Public Works) was founded, it has had up to 40 employees in its Streets Division; it now has less than a third of that number. That explains why some roads look like highways in a war zone.
The next question is: Can we afford to drive on them?
There has been a glut of gasoline in stockpiles since 2011; the U.S. has been on an oil boom. The U.S. has had a positive net of petroleum products. In other words, more petroleum products have been exported than imported since 2011, the first time since 1949 according to the Energy Information Administration (EIA). Exports rose largely due to a strong global demand for diesel fuel. Many European cars and trucks run on diesel; in addition, an incentive to produce diesel fuel is greater because it has a larger profit margin than gasoline production.
Although there is a lot in the news now about whether or not the “Keystone Pipeline will be approved” in the heartland of the U.S., the TransCanada Corporation opened the southern leg of the Keystone Pipeline on January 22, 2014. This allows stockpiled oil at one of the nation’s largest crude-oil storage hubs in Cushing, Oklahoma to go to the refineries in the Gulf of Mexico; the refined products, both gasoline and diesel products, will then be shipped abroad to Mexico, Brazil, the Netherlands, and other countries. In the middle of April (2014), the total petroleum production (mostly diesel and gasoline fuel) was about 3.6 million barrels a day; that was an increase of 25% in comparison to last year. As a result, one might expect the markets for gasoline and diesel fuels to be more competitive, thus driving up prices here in the U.S. The Energy Information Agency (EIA) and the American Automobile Association (AAA) both expect the average price of gasoline at the pump to be at least between $3.55 and $3.75 a gallon this summer, and even higher as crude oil prices stay the same or get higher. U.S. gas pump prices will get increasingly dependent upon global demand.
The fierce and unusually frigid winter and the decrease in federally funded state and local funding have done a number on our streets and roads, with holes to dodge that sometimes remind us of driving a “bumper or dodgem car” at a local county fair. The “other hole” we will be facing will be in our pockets as the price of gasoline goes up at the pump, leaving us with less to spend on other things. In addition, the price of fuel means that it will cost even more for truckers to fill their tanks when they deliver to the shelves at Walmart or your local supermarket. The prices at Walmart will then inch up, the cost of food items will inch up, and those large trucks will continue to chew up our streets and roads that we don’t have enough money to repair and repave.
The economy is on a very slow and steady climb after the uncertainties of the last few years. Although international politics or domestic political inaction might alter that trajectory, the question is, all things being equal, “How do we as your investment advisor strategize to offset the loss of that ‘little extra’ that was going to be in your pocket now that more must spent to rising gas prices, increasing town taxes, and increasing food prices?”
More importantly, as long-term investors, how do we strategize in this environment?
To preserve and grow your portfolios in now what is more than ever a challenging marketplace, we at Heaphy Investments LLC strategize by systematically researching and investing in large well-run, creative domestic and international companies and short term fixed income. Each client has her or his special needs, concerns, and sense of risk with his or her portfolio (“Risk Assessment” being the “mix” or the percentage of stocks to the percentage of short-term fixed income that a client feels comfortable having in a portfolio).
Right now, many are feeling the pinch between the cost of fixing potholes that affect them and their communities and the cost of rising prices. We understand that, and we keep that in mind when we invest your money carefully and conservatively.
DISCLOSURES: Investment advisory services provided through Heaphy Investments, LLC. Heaphy Investments, LLC is an investment adviser registered with the Commonwealth of Massachusetts. You should not assume that any discussion or information contained in this website serves as the receipt of, or as a substitute for, personalized investment advice from Heaphy Investments, LLC. It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise. To the extent that a reader has questions regarding the applicability of any specific issue discussed herein to their individual situation, they are encouraged to consult with the professional advisor of their choosing. A copy of our written disclosure statement regarding our advisory services and fees is available upon request. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.
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