This is number 3 in a series of how 9-11 and Katrina are radically different in their impact. Again, if someone says, “Like 9-11” to make a point, ignore everything he or she says after that. They are full of poop.
I have asked very smart people to offer their views on this. The only comments I have received is, “I don’t know if I feel qualified to make a comment on this”.
That’s never stopped me before, it won’t now. I could be wrong, Or right. Ignore my viewpoint at your own risk.
So, here goes:
MONEY
9-11
Money stopped. You may have forgotten. People quit paying their bills. People lived in fear that the next day could be their last. Liquidity dried up. The government didn’t get it. Millions went bust.
Then several months later things loosened up. Too late for many, including yours truly. The damage was done. The happy talk didn’t help much from the government. Resources were taken to put in place policies which did nothing but inhibit the free flow of commerce (air travel).
Eventually after stock market free fall from fear the economy began to recover. For most of 2002 it sagged, surged, sagged. Unemployment was tremendous.
The economic shock rooted as much in fear and loathing as reality. People gave but it had no effect. The government paid off litigants. Money was used in place of compassion and impact. It was badly executed. The war on terror, Iraq and all has done little to really change the financial landscape. Only by the sheer determination of the American economy have we come this far.
Katrina and Money
There is no negative impact from the disaster in New Orleans. It’s all a zero sum game. Money in, money out. The best thing the government can do is leave hands off as much as possible. There are short term impacts which will be discussed below but for the most part this is a non event in the gross economy. No one is living in fear in Chicago that a hurricane will drop in and destroy us.
All the giving, all the federal help, all of everything that will happen in the next years will be zero impact. It in fact is a positive. It frees up money in the economy that might not otherwise been set free. I know it sounds callous but think of Hurricane Andrew. Locally a catastrophe, nationally no impact, net effect probably positive. Restructured insurance reinsurance a little.
OIL
9-11
Limited net effect. Market jerked around. It always does. There is no shortage of oil. In 3 months the effect on people’s pocketbook was negligible. There was an underlying view that invading Iraq would free up lots of oil. Of course that never happened.
Katrina
Oil will be short for a short time. Price will be high. It’s not crude. It refining and logistics. There is no global oil shortage. The good news is, the relaxation of boutique refining which will stay in place. It was a dumb idea to start with. Then there are refineries that will be brought on line to make up the shortfall. Several are sitting idle in the USA. Now the gates are open. Anwar. Drill. Offshore Mass. Drill. Drill. Every Russian is looking at the worldwide market and looking for a quick buck. All over Africa profiteers are looking for the quick buck before the market goes south. They are chasing the rabbit. There will be oil, it will be refined. A year from now, New Orleans will be open for business refining wise. Gas will be $2, crude $40 and all you want. This is the best thing to happen to oil since Regan took off controls in 1981. I’m taking bets for anyone who doubts this. This will fuel a great resurgence in the economy. Don’t sell that SUV yet.
A few other effects of Katrina that will you need to be aware of:
Shipping of grains and other commodities will be done by traditional ports. Duluth, Burns Harbor, (St. Lawrence Seaway) Seattle, and lots of other places. It will be inconvenient but grain will find a market. It will mean the elevator price will be lower than might have otherwise been but it will still be good. Crops are short. In a year or so New Orleans will open up for the 2006-shipping season.
Lumber will climb in price but supply will be OK. New building will push the inventories. Cement will be somewhat short. All building product will be harder to find than it was a year ago. This is a 2-year cycle after something like this. But in the end it will equalize.
Trucking and transportation (including airlines) will find fuel short and pricey. It will drive up prices and drive out weak competitors. This is a short-term effect and in 2 years after oil prices come down will back off some. But prices for transportation in general will never again be the bargain it was 2 years ago. This is a permanent price change.
Interest rates will hold or drop. There is a great deal of pressure from jitters about potential high priced oils effect on the economy to keep the rates down. I think we could see interest rates drop in all areas from here.
One area that will do well is trailer homes. Manufactured housing they call it. None the less, these evacuees will have to be housed somewhere. Some will be housed in trailers. This will be a 3 year exodus. I don’t expect more than 20% of the evacuees to return to New Orleans because I don’t expect New Orleans as we knew and loved her to be there other than as a symbol. Kind of like the business towers that are now 9-11. Get it?
Overall, I’m optimistic. This will have less effect than New Orleanites hoped it would have. In the big picture New Orleans and it's population just aren't that big a part of the national economy.
What gives me the right or edge to make such bold predicitons? I use a wide angle lense called 60 years. I've seen this all before.
Cheer up, give to the Salvation Army. It'll be OK.
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