I owe the basis for the following insight to Science News magazine, which featured an article in summer of 2006 about the U.S. gasoline supply and its worldwide implications. I studied out some of these implications over the next few years and pondered them at some length. Here are some of the more startlingly profitable conclusions of that deliberation process.
First, the U.S. consumes some 317 million gallons of gasoline every DAY. This amounts to over 100 Billion gallons each year. Because of the way that the supply-demand curve actually works — where the first 10% of demand amounts to a smaller fraction of the price of gas, and the last 10% accounts for a much larger portion of its price — if we were to eliminate merely Friday-driving (for all but necessary traffic and 18-wheelers, which have special licenses and training), this would cause about a 40% drop in the price of oil per barrel. Science News reported this correctly. Savings would diminish rapidly after that point.
Thus, if the President issued a moratorium on Friday-driving, we could expect the following savings:
1. A significant drop in gas prices at the pump.
2. Falling prices for medical insurance, since most of the accidents, etc transpire at the end of the demand curve as well (Friday being the end of the 5-day work week).
3. Lower life insurance prices
4. Much lower prices on everything that is hauled to market in the 18-wheelers when they pay less for gas. This includes something like a 10% drop in prices of all manufactured goods across the board — everything from twinkies (known to some as the death sponge) to small electronics.
5. Many other lowered residual costs hard to estimate, since they fall out from the lower gas and insurance prices as “down the supply chain” costs, like automobile maintenance costs.
6. The carbon footprint of our nation would drop dramatically, lowering the costs of EPA regulatory needs and environmental clean-up costs associated with a more prolific carbon footprint.
Now let us go on to consider the next question. What if the rest of the world followed the lead of the U.S. with each nation imposing its own Friday-driving moratorium? First, the cost of gas worldwide would likely plummet something like another 30-40%. This would lower the related residual costs like those above even more, or at least in like manner.
I estimate that this would save the world economy very easily 1 Trillion dollars each year. My best guess without more specific data (I intend to update this post with corrections and more specifics later) aims at 2.5 trillion dollars could be saved annually when you try to figure in the worldwide effects of the lowered residual costs, including less parking fees paid, and a myriad other fees and hidden costs, such as the more slight depreciation in value that results in the first two or three years of a car’s life, due to reduced driving. Whatever this number is, you would have to multiply it by the number of new cars on the road — purchased worldwide in the last three years. Others would include health and mental care costs associated with reduced stress worldwide — no Friday commute at all.
How could employers adapt to the new demand for everyone to either omit going to work on Fridays or else simply take public transportation once a week? Very easily. They could opt for any one or more of the following:
1. they could opt for the 4-10 work week for all employees (Monday to Thursday work week, 10 hours a day)
2. No change in work schedule at all — simply have employees take the bus or train one day a week, and allow a grace period of being late now and again for the adjustment period of a new schedule on Friday. Friday is a tongue-in-cheek work day for many anyway — called a half-day.
3. They could opt for a “Monday – Thursday + Saturday” (or Sunday) work week.
4. Some could allow employees to tele-commute on Fridays
The simple truth of the matter is this: For almost no real inconvenience or real cost, we could make a slight modification of our work and driving habits — in favor of the environment to the tune of some 5% reduction of the whole world’s carbon footprint — and, at the same, time, we could save some 2 Trillion dollars to world economy, which could be reinvested worldwide to make yet more money from this wise choice. It is the only reasonable course of action, given our environmental and market needs.
But someone will ask wisely, “Given the numbers you have presented and/ or implied, won’t this severely harm the value of stock shares (i.e. the market capitalization) of the larger and smaller oil and gas companies?” What about their shareholders, including people trying to get ahead by holding these shares in their 401k’s and Roth IRA’s (Middle class)?
It would in fact exert significant downward pressure on the price action of the oil and gas company commonstock shares, especially harming them IF AND ONLY IF we do not take a corrective action to reverse this at the same time that we impose the moratorium on the Friday driving. But if you will recall, supply and demand on the purchase of stocks is not the same as the supply and demand forces acting upon the commodity underlying the companies in question. If the nations form a staggered entry (with their own portfolios held in trust as mentioned in yesterday’s post), the national and international purchasing of a set of diverse national portfolios would include very large purchases of energy company stock shares, offsetting with great efficacy the downward pressure just mentioned — perhaps “in a Herculean kind of way” — ensuring significant gains in those stock prices, entirely despite the lower demand for the underlying commodities that these companies represent, and by which they profit.
In fact, if you put these two trends together — plunging oil prices and surging energy-company stock purchases — if properly timed, this would mean that nations would buy very cheap oil stock, and probably in larger quantities just because of their lower prices expected by the proposed Friday-driving moratorium. Buy low (or more if very low), sell high.
My advice? Trade up on the short squeeze. Sorry, hedge funds. At the end of the day, it’s all good. If the powers that be decide to go this route — I would wait for oil and gas to bottom here and get ready to dollar-cost average your gas and oil stock purchases. These are no falling knife. Buy, buy, buy.