This is another sane and commonsense look at the Katrina situation..and The U.S. as the Global Economic Engine that it is.

Date:   9/12/2005 10:08:30 AM ( 19 y ago)

COMMENT: Ripples on the Pond.

Dear A-Letter Reader:
As the Gulf Coast picks itself up after being flattened and flooded by
Hurricane Katrina, many worry about the affect it might have on the US
economy. I think other nation's economies could be even more at risk.

Now, it's easy to see the risk to the US. After all, we're talking at
least $125 billion in economic damage...400,000 jobs may disappear...
higher gas prices which squeeze consumer spending and business profit
margins...damage to offshore rigs and onshore refineries...and
interruptions of shipping through the vital gulf ports.

On the other hand, the US has an $11 trillion economy...the Fed can be
accommodative if it has to...and gasoline refining is coming back online
faster than anyone foresaw (including me). And our economy is growing
at a 3.6% annual rate.

So yeah, there are risks to the US economy. But there might be even
bigger risks across the pond - the Atlantic Ocean - where Europe limps
along with 1.3% growth. Germany, the "engine of Europe" - manages just
1% growth. Even Britain should manage just 1.9% growth this year,
according to the latest forecasts from the OECD.

Those economies could get hit hard, because gas prices are rising over
there, too, where drivers already routinely pay over $5 a gallon. The
International Energy Agency is releasing about a million barrels a day
in oil products (gasoline, heating oil) from its European reserves to
send to the US to make up the difference in the wake of Katrina's
devastation.

And you know who is contributing even more oil products than Europe?
Japan - and its economy is growing at just 1.5%. How much of a shock is
it going to take to send Japan's economy careening back into a ditch?

Now, the Japanese and European economies are less fuel intensive than
our own, thanks to their extensive public transportation systems.
Still, it's pretty clear that the damage from Katrina will ripple
through the global economy.

Here's another set of ripples: America is the world's biggest exporter
of corn and soybeans, and almost 60% of the grain exported by the US
reaches its destination via the Mississippi River. New Orleans handles
more than 2,000 vessels annually, and another 4,000 ocean-going vessels
traverse the Mississippi. Typically - before Katrina - New Orleans could
handle ocean-going vessels that draft 45 feet. Now, after the storm, it
can only handle vessels that draft 12 feet, such as river barges.

Crews are working frantically to reopen the port and the river to
ocean-going shipping, and should have it up and running in a couple of
weeks. But until then, businesses and consumers alike will feel the
pinch from grain exporters in the Midwest to railroads to grain
elevators in Minneapolis to barge operators to grain buyers in Africa
?indeed all over the world.

Now you want the really bad news? Hurricane season isn't over yet!
What if another storm hits the Gulf Coast. What then?

Point is, I think there will be winners and losers across the globe in
the hurricane's wake. Picking the winners and avoiding the losers will
be the real trick. I don't think this is the kind of market where you
can just buy the S&P 500. I think it's going to take a deft hand, and
luck wouldn't hurt, either. And by all means, follow the Sovereign
Society Investment philosophy of investing in different baskets - not
just stocks and sectors, but the best economies and currencies, too.

Since I live in Florida, I thank my lucky stars that Katrina gave us a
mere glancing blow before going over to unleash her fury on the Gulf
Coast. My heart goes out to the people left to pick up the pieces of
their lives in the wake of the storm. I know it could as easily be us
next time. Good luck to us all.

SEAN BRODRICK, Editorial Director
The Sovereign Society Ltd.
E-mail: seanbrod@bellsouth.net



 

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