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Gasoline Shortages, Sell Munies

Apr. 17, 2011 2:22 AM ET
Bill James profile picture
Bill James's Blog
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We dodged this bullet, but it underscores the danger of oil's Potato Famine potential, a 65% dependence on a source of energy outside our control. We have a 3 day safety margin to support a 365 day food cycle.

Meredith Whitney's forecast of a municipal bond collapse seems likely if gasoline inventories continue to drop for another 2-8 weeks. Here are modified graphs from DOEs This Week in Petroleum (TWIP):

Graphs are modified to show current trends in the middle insted of the end and a guess at a cone of probability for future trends.

In the author's memory, hurricane Katrina was the only time the rate and size of inventory decreases have been so severe. If this rate continues 2-8 weeks, gasoline shortages seem likely. The TWIP reports "Days of Supply" that have little to do with days before outages (background, July 2008 warning of gasoline outages in the Southeast that hit in Sept 2008).

Heavy public debt (S&P downgrading US), a fragile municipal bond market and curtailed tax revenues from a gasoline outages may trigger a collapse like the subprime trigger in September 2008.

Even good municipal bonds seem likely to suffer with gasoline outage. My recommendation is to get out of municipal bonds. Least risk investments seem silver, railroads and gold.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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