RainwaterProphecy(PartII)
"Rainwater," the voice on the phone announces. "Now, type L-A-T-O-C into Yahoo, and scroll down to the seventh item." Rainwater doesn't use e-mail. Rather, he uses rapid-fire phone calls to spread the gospel he discovers every morning on the web. One day it might be the decline of arable land in Malaysia. The next it could be the Olduvai theory of per capita energy consumption. "L-A-T-O-C" stands for LifeAfterTheOilCrash.net, a blog edited by Matt Savinar, 27, of Santa Rosa, Calif. (which Rainwater calls "a hotbed for survivalist types"), who was on his way to being a lawyer when his side project began climbing up Google's rankings. The site is now the No. 2 result of a search on "oil." Savinar keeps a running diary of all manner of news and information relating to "peak oil," a once-wonkish geological debate that has recently crossed over not only to late-night talk shows but even onto the floor of the U.S. House of Representatives.
"Peak oil" theorists posit that global production is at or near its historic ceiling and will begin a long, inexorable decline. They worry that America is not ready for the downturn, for skyrocketing prices and even shortages. Savinar's site's opening line is, "Civilization as we know it is coming to an end." Rainwater has been checking it every morning since September, when his personal anxiety alert level moved to orange. "I can almost pinpoint the date," says Moore. "It was right after he read that book."
In August a friend gave Rainwater a copy of The Long Emergency, a dystopic view of the future written by ex-Rolling Stone writer James Kunstler, otherwise known for his passionate dislike of suburbia. Taking peak oil as a given, Kunstler argues that Americans have been "sleepwalking" through the end of a "100-year fossil fuel fiesta." The problem, he points out, is not that the world will run out of oil tomorrow, but rather that the lack of growth in oil production will wreak havoc on a global economic system predicated on perpetual expansion. Kunstler's "long emergency" is a decidedly unpleasant interval during which the world--and Americans in particular--must adapt to a post-oil regime of scarce energy and economic stagnation, a time of likely wars and the disappearance of all-American things like Wal-Mart and cul-de-sac homes 45 minutes by minivan from the office.
Rainwater doesn't completely buy into Kunstler's doom and gloom. "It's the Z scenario," he says. But at the same time, he worries that Kunstler isn't wrong enough, and he's been buying extra copies of the book and passing them around to the many titans of capitalism who are his protégés. It's not the first doomsday book in Rainwater's life: His big bet on oil in the late '90s was kicked off by a work called Beyond the Limits, the sequel to a '70s sensation called The Limits of Growth. Written by three professors armed with an MIT-bred computer called World3, the Limits books projected that, left unchecked, human population would, within 100 years, overshoot the capacity of the planet to serve up sufficient vitamins and minerals--let alone absorb all the waste and pollution--to keep everyone healthy. Rainwater took the book to heart. "Right after I read it, I said, 'They've figured it out, I'm going to follow this thing.' "
His ensuing oil bet was only the latest triumph for the grandson of a Lebanese immigrant (on his mother's side) who, according to family lore, picked up his last name from a Cherokee ancestor. His mother had worked at J.C. Penney to put him and his brother through the University of Texas. In 1970, after a short stint at Goldman Sachs, he joined Stanford Business School pal Sid Bass in managing the Bass family money in Fort Worth. Over the next decade and a half, he helped turn the family's modest $50 million fortune into one worth upwards of $5 billion.
In the process Rainwater's investing style emerged: analytically rigorous but opportunistic and Texas-sized in its audacity. He'd buy public companies or private. He'd use futures and leverage, sometimes 20 to 1. He even started companies. If he thought an idea was right, he put capital behind it. With the Basses, he resurrected the likes of Disney--recruiting Michael Eisner to be CEO--and bet early on cellphones. Later, when he went out on his own in 1986, his office drew a who's who of hard-charging capitalists to Fort Worth. In the heyday of Rainwater Inc., Eddie Lampert, the hedge fund tycoon turned head of Sears Holdings, had a desk, as did Daniel Stern, now of $3 billion Reservoir Capital. Ken Hersh, who has compounded money at 31% annually for 17 years at Natural Gas Partners, started there. With Rick Scott, Rainwater founded Columbia Healthcare, which merged with HCA and became the country's biggest for-profit hospital company (Scott was later forced out as CEO amid a federal fraud investigation). Even George W. Bush kept an office, when he and Rainwater were putting together the Texas Rangers stadium deal.
On a Tuesday afternoon in mid-November, Rainwater and Moore are holding court in the 14th-floor conference room of Reservoir Capital in Midtown Manhattan, where he camps out when he's in New York (he has money invested with the fund). He has gathered Reservoir's Stern, Goldman alum and Crestview Partners co-founder Barry Volpert, and a couple of guests, and he is expounding on the implications of the peak-oil theory: "I believe in Hubbert's Peak. I came out of Texas. I watched oil fields reach peak and go over, and I've watched how people would do all they could, put whatever amount of money into the field, and they couldn't do anything about it."
In the 1940s and 1950s, a Shell geologist named M. King Hubbert observed that the production from any given oil field follows a bell curve, with annual volumes increasing until half the oil in the field is depleted, and declining thereafter. Basically, the bottom oil is harder to extract. King reasoned that production from all U.S. fields would follow a similar curve and predicted in 1956 that total U.S. oil production would peak in the early 1970s. His analysis caused a furor and was widely disparaged, but proved correct. "Hubbert's Peak" entered the lexicon of oil analysis--one of the great geological I-told-you-so's. Forty-nine years later, a growing number of noted geologists and industry analysts suggest that the global oil supply may now be topping out, a claim that has been met by skepticism from yet other geologists and economists who say higher prices will spawn both more discovery and improved recovery from existing fields.
Rainwater sides with the imminent peak crowd, and can rattle off facts to back up his argument. "In 1988 there were 15 million barrels a day of shut-in production"--meaning surplus that could be tapped--"and the world was using about 55 million barrels of oil. Today the world is using over 80 million, and there's no shut-in production left. We've used it up, through the combination of depletion and growth." In other words, the spigot can't be opened any wider.
What concerns him most is the conflict that he thinks an oil shortage will precipitate. What happens when people get blindsided by prices rocketing past any level they have contemplated--especially when you factor in other challenges America faces? "We've got a lot of things going on simultaneously," he says. "The world as we know it is unwinding with respect to Social Security, pensions, Medicare. We're going to have dramatically increased taxes in the U.S. I believe we're going into a world where there's going to be more hostility. More people are going to be asking, 'Why did God do this to us?' Whatever God they worship. Alfred Sloan said it a long time ago at General Motors, that we're giving these things during good times. What happens in bad times? We're going to have to take them back, and then everybody will riot.' And he's right."
Part of Rainwater's routine when he's down on the farm is to go for gizzards at Allison's, a no-frills truck stop up the road. Driving in a red BMW SUV on the Tuesday before Thanksgiving, he points out who lives where: the local doctor, the Taiwanese Nan Ya workers. He chokes up momentarily passing the home of a woman who worked at the farm, whose son has just returned from serving in Iraq. The sheer incongruity of his wealth in Lake City is not lost on him. But at Allison's he seems right at home, lathering the deep-fried gizzards with hot sauce and self-serving a large coffee which he spices at the hot chocolate machine.
Back on the farm that night, he and Moore discuss future projects with their landscaper, Jenks Farmer, over a glass of wine. Farmer, who has a master's in horticulture and lives on the property, maintains Moore's extensive gardens, including vegetable beds that produce all year round. That morning Rainwater had been surfing the web, researching greenhouses in his quest to further ensure a steady flow of food through the winter. At his prodding, Moore has installed an emergency generator and 500-gallon storage tanks for diesel fuel and water. When Rainwater says that he's thinking about opening a for-profit survivability center, it's not entirely clear that he's joking.
Later in the night Rainwater returns to musing on how different his lot is from the residents of Lake City. And then, returning to the debate in his head, he gets a serious look on his face and says: "This is going to get a little religious. I ask why I was blessed with this insightfulness. Everyone who has achieved something, scientists, ballplayers, thinks they were given their talent for a reason. Why me? Was I given this insightfulness at this particular time? Or was I just given this insightfulness?" He pauses. "I just want people to look out. 'Cause it could be bad."
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