Katrina Effect on US Economy ?

[frayne]

With staggering losses of property, jobs and life, how will the US economy be impacted. Already seeing impact of refinery outages and crude production drive up energy prices. In light of NOLA being a major port for the midwest and southern states, how will this impact grain exports and imports as well. Does anyone see this creating a long term drag on the US economy for the foreseeable future ? Anyone adjusting or changing investment strategy due to this calamity ?

 

[maddythebeagle]

They had a story yesterday about the upper Mississippi river and not knowing when commerce will be back up. Yes, they said grain prices will go up and some will spoil. Also, a lot of the road salt comes from La, so that will go up for road crews. Some areas like Canadian energy and forest products will do well. Paul Merriman on smart investing said last week that the markets not crashing was very bullish.

Anyone adjusting or changing investment strategy due to this calamity ?

No. I view it as good time to put new money to work.

 

[Mr._johngalt]

They had a story yesterday about the upper Mississippi river and not knowing when commerce will be back up. Yes, they said grain prices will go up and some will spoil. Also, a lot of the road salt comes from La, so that will go up for road crews. Some areas like Canadian energy and forest products will do well. Paul Merriman on smart investing said last week that the markets not crashing was very bullish.

Anyone adjusting or changing investment strategy due to this calamity ? 

No. I view it as good time to put new money to work.

"New money"?? We have little "new money" and very little old money.
Thus, this is not an issue which we need to explore. For you others,
take your best shot. I confess age has reduced my desire to adjust
much.

JG

 

[TromboneAl]

Ignoring the human suffering for a moment...

When the media talks about billions in property losses, realize that they are mixed up, and what they mean to say is billions in gains in jobs, employment, etc.

I learned this when we lost our house in the Oakland firestorm. The media talked about the millions in property losses, and I saw contractors streaming into the area building expensive homes, spending their windfall profits on lodging, food, and big TV's. I saw victims with $500,000 checks from the insurance company building houses and walking down the store aisles with no time to comparison shop ("I'll take that, and that, and that...").

So where does all the money come from? The insurance company. And a lot of that money comes from around the world, since the insurance companies have reinsurance with other companies.

So, when you hear "property loss" think "economy gain."

 

[retire@40]

So, when you hear "property loss" think "economy gain."

Good point since this is how most companies look at the situation, unlike how most people look at it.

I would think many investors are asking themselves how they can profit from this situation, maybe by investing in the rebuilding effort.  Home Depot, building suppliers, and construction and manufacturing companies all stand to profit.

 

[Marshac]

I don't really believe that $30B cleanup/rebuilding will be the salve for the economy.

Let's look at some numbers-

Home Depot (HD)- Gross income- $76.86B
Lowes (LOW)- Gross income- $39.46B
Toll Brothers (TOLL)- Gross income- $5.23B

When $30B is spread out over several years between some of the big players, it makes for some pretty good quarterly earnings, but nothing more.


Only the gasoline numbers-

US gasoline consumption per day- 9,000,000 barrels/day (378,000,000 gallons)
Increase in wholesale gas price- $.20/gallon
Total increase in gasoline costs per day- $75,600,000 per day

So lets say that gas settles down to $.05/gallon more than it was before-
Increased cost per day- $18.9M/day or $567M/month or $6.8B/year

Yes, $30B is a lot of money, but IMO it's not nearly large enough to make up for the economic damages. We have to remember, the impact is very regional, yet the costs are being felt across the entire US. More consumers will reduce consumption in some form than will increase. 

Check out 'the recovery in pictures'
http://globaleconomicanalysis.blogspot.com/

 

[greg]

Ignoring the human suffering for a moment...

When the media talks about billions in property losses, realize that they are mixed up, and what they mean to say is billions in gains in jobs, employment, etc.

I learned this when we lost our house in the Oakland firestorm. The media talked about the millions in property losses, and I saw contractors streaming into the area building expensive homes, spending their windfall profits on lodging, food, and big TV's. I saw victims with $500,000 checks from the insurance company building houses and walking down the store aisles with no time to comparison shop ("I'll take that, and that, and that...").

So where does all the money come from? The insurance company. And a lot of that money comes from around the world, since the insurance companies have reinsurance with other companies.

So, when you hear "property loss" think "economy gain."

This to my mind is partially true. After destruction of this sort, what is primarily going on is replacement of capital goods (houses, TVs, roads, clothes, etc.). In a weird sense, a hurricane is just something that causes accelerated depreciation. Sure it stimulates accelerated replacement. But the money to do this comes from somewhere, and that money could have been spent to improve productivity, educate people, build a stronger manufacturing base, etc. Instead, a big pile of money goes into retail product replacement, and not into long-term improvement and enhancement of country. Too much retail expenditure has been the problem in this country for too long.

I understand that the replacement needs to done, that the process, wages, and employment will temporarily stimulate that economy for a few years. Insurance companies will sell their investments (bonds and stocks and RE) to finace this replacement. This is a good thing, I guess. What bothers me about it is that most of the money from the government portion of the coming relief can be traced right back to our increasing deficit. Also, think economic losses.

--Greg

 

[nfs]

So, when you hear "property loss" think "economy gain."

When you hear an argument like this - and you'll be hearing a lot of them soon - google for "broken window" and Hazlitt or Bastiat e.g. this.

 

[TromboneAl]

Yes, that's very relevant, and I may have indeed fallen for that fallacy. 

 

[TromboneAl]

OTOH, the money that's paying for the reconstruction comes from insurance worldwide.  Here's one of the first persons talking about the rebuilding bolstering the economy:

"Charles Biderman, president of TrimTabs Investment Research,  expects Hurricane Katrina to bolster the U.S. economy once rebuilding starts and predicts markets will  gain 4 to 5 percent by year-end."

 

[wildcat]

L-T no problems

S-T Sure, in the past natural disasters have not been much of a burden but I think this one will cause a very small blip due to the energy/refinery/port disruption. It is the difference maker in this case IMHO.