The Rainwater Prophecy
Richard Rainwater made billions by knowing how to profit from a crisis. Now he foresees the biggest one yet.
By Oliver Ryan
Richard Rainwater doesn't want to sound like a kook. But he's about as worried as a happily married guy with more than $2 billion and a home in Pebble Beach can get. Americans are "in the kind of trouble people shouldn't find themselves in," he says. He's just wary about being the one to sound the alarm.
Rainwater is something of a behind-the-scenes type--at least as far as alpha-male billionaires go. He counts President Bush as a personal friend but dislikes politics, and frankly, when he gets worked up, he says some pretty far-out things that could easily be taken out of context. Such as: An economic tsunami is about to hit the global economy as the world runs out of oil. Or a coalition of communist and Islamic states may decide to stop selling their precious crude to Americans any day now. Or food shortages may soon hit the U.S. Or he read on a blog last night that there's this one gargantuan chunk of ice sitting on a precipice in Antarctica that, if it falls off, will raise sea levels worldwide by two feet--and it's getting closer to the edge.... And then he'll interrupt himself: "Look, I'm not predicting anything," he'll say. "That's when you get a little kooky-sounding."
Rainwater is no crackpot. But you don't get to be a multibillionaire investor--one who's more than doubled his net worth in a decade--through incremental gains on little stock trades. You have to push way past conventional thinking, test the boundaries of chaos, see events in a bigger context. You have to look at all the scenarios, from "A to friggin' Z," as he says, and not be afraid to focus on Z. Only when you've vacuumed up as much information as possible and you know the world is at a major inflection point do you put a hell of a lot of money behind your conviction.
Such insights have allowed Rainwater to turn moments of cataclysm into gigantic paydays before. In the mid-1990s he saw panic selling in Houston real estate and bought some 15 million square feet; now the properties are selling for three times his purchase price. In the late '90s, when oil seemed plentiful and its price had fallen to the low teens, he bet hundreds of millions--by investing in oil stocks and futures--that it would rise. A billion dollars later, that move is still paying off. "Most people invest and then sit around worrying what the next blowup will be," he says. "I do the opposite. I wait for the blowup, then invest."
The next blowup, however, looms so large that it scares and confuses him. For the past few months he's been holed up in hard-core research mode--reading books, academic studies, and, yes, blogs. Every morning he rises before dawn at one of his houses in Texas or South Carolina or California (he actually owns a piece of Pebble Beach Resorts) and spends four or five hours reading sites like LifeAftertheOilCrash.net or DieOff.org, obsessively following links and sifting through data. How worried is he? He has some $500 million of his $2.5 billion fortune in cash, more than ever before. "I'm long oil and I'm liquid," he says. "I've put myself in a position that if the end of the world came tomorrow I'd kind of be prepared." He's also ready to move fast if he spots an opening.
His instincts tell him that another enormous moneymaking opportunity is about to present itself, what he calls a "slow pitch down the middle." But, at 61, wealthier and happier than ever before, Rainwater finds himself reacting differently this time. He's focused more on staying rich than on getting richer. But there's something else too: a sort of billionaire-style civic duty he feels to get a conversation started. Why couldn't energy prices skyrocket, with grave repercussions, not just economic but political? As industry analysts debate whether the world's oil production is destined to decline, the prospect makes him itchy.
"This is a nonrecurring event," he says. "The 100-year flood in Houston real estate was one, the ability to buy oil and gas really cheap was another, and now there's the opportunity to do something based on a shortage of natural resources. Can you make money? Well, yeah. One way is to just stay long domestic oil. But there may be something more important than making money. This is the first scenario I've seen where I question the survivability of mankind. I don't want the world to wake up one day and say, 'How come some doofus billionaire in Texas made all this money by being aware of this, and why didn't someone tell us?'"
It feels like the last place you'd go looking for a rich man. Lake City, S.C., is a town of 6,500 in the low country two hours northwest of Charleston. Once the bustling home to small, independent tobacco farmers, now it's mostly a collection of abandoned gas stations, roadside churches, and fading brick walls with trust jesus painted on them in big black letters. Unemployment hovers around 10% and would be worse if the Taiwanese plastics manufacturer Nan Ya hadn't opened up a sprawling factory on the edge of town.
Rainwater spends a lot of time in Lake City because of his wife, Darla Moore. A former star in bankruptcy financing at Chemical Bank who was once dubbed the "toughest babe in business" by Fortune, Moore, 51, grew up here. Her grandfather was one of the small tobacco farmers. Nowadays she lives on her grandparents' old farm. (Moore and Rainwater also own a lavish home in Charleston.) Rainwater calls Lake City the "middle of bum-fuck nowhere." But the truth is he's got everything he needs here: cable TV, a telephone, an automatic coffeemaker, a decent golf course up the road, and a fast Internet connection.
Measured against the languid pace of the surroundings, Rainwater's usual surplus of physical energy seems even more pronounced in Lake City. Tall, tan, and sturdily built, he has a hard time sitting still. He's run four marathons and offers that, when he was 40, he unexpectedly set the record in his age group on something called a "modified Balke protocol" treadmill test, a measure of the body's efficiency in absorbing oxygen. Rainwater bounces around the farm in shorts, a polo shirt, and a baseball cap, maintaining a running dialogue with Moore (whom he calls "Precious"), his staff, and anyone else who happens to be within earshot or on his speed dial. "He's maternal," says Moore. "And I'm paternal."
In the ongoing Richard and Darla show, Moore supplies the dry one-liners to his constant chatter. Lately she's been affectionately calling him "Dr. Doom." But she's not dismissing his concerns. Or harboring any illusions that she can talk him out of making a big investment once he settles on a theme. As president of Rainwater Inc. in the '90s, she was his partner in his last two big bets. And though she's at a stage in life where she might prefer to simplify her affairs rather than go off on another wild ride, she knows that soon he'll have to act. "We've been married for 15 years," she says. "This is the third time I've seen this. The massive intake of information has been complete. Now he's agonizing. We're in what I refer to as the raving mode--the latter stages of rave. This is the refinement stage. Then we're going to make decisions."
"It's not raving," he says. "I promise I am not a kook."
"You're kooking out a little. But I've seen the process before. I saw you go from zero to 100 miles per hour in real estate."
"And you saw me get into oil ten years ago," he says, then protests, "But I'm on the edge of being so old that it doesn't matter anymore. I've won the heavyweight championship before. Instead of taking one more swing, maybe I should just retire a winner." Moore's not buying it. "Buckwheat," she says, using her nickname for him, "There's not a chance in a million you won't swing. He can't not. It's the nature of the animal."
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