THE OIL BUBBLE - THE RISK ASSESSMENT

We are seeing dramatic changes in the economy as a result of skyrocketing oil prices.

Airlines are grounding planes and laying off workers. GM is closing truck plants and laying off thousands of workers.

Car manufacturers are setting up alliances to spend huge amounts of capital to build battery plants.

Companies who use a lot of fuel are having their budgets ripped from projections they have made.

How is your company managing the risk to your business from the oil bubble? (more on the bubble later)

Are you asking the right questions of all your department heads?

1) How does this affect us?
2) How does this affect our customers?
3) What are our plans to mitigate this risk?

For Commercial Building owners and managers, where is our property located, how far do people have to commute to get to our building? If the price of oil stays high does our building become more unattractive as a place to lease? How vulnerable are our tenants (especially anchor tenants ) to the price of oil, how does or could this affect our financing, our property value, our unit holders?

Should you renew key tenants quickly? Talk to local transit about getting a better connection to your building?

This is an example of some of the questions for one industry.

But, back to the bubble. According to George Soros, a man who has made over a billion dollars in one day by betting on bubbles, he predicts that oil is in a bubble, it could and likely will cause a recession in both North America and the United Kingdom, this will cause oil prices to plummet as demand and the ability to pay will no longer be there.

(click on the title to this entry to see the article on Soro's predictions)

So what happens to the auto industry now if all of a sudden it is cheap to run a big truck on gas, and suddenly the pricey little hybrid is no longer economical? You have closed your truck plants and sank millions into little cars! You have to be careful when assessing risk, you could be setting yourself up for bigger problems if you guess wrong, or take a knee-jerk reaction to a threat.

You need to look at both possibilities for your business.