Hurricane Katrina

The damage from Hurricane Katrina is simply overwhelming. Communities on the Gulf Coast have been wiped out. Thousands of people have been evacuated, and no one can say when power will be restored. Insurance companies estimate the losses at $26 billion.

The mayor of New Orleans said thousands might be dead, and President Bush said it could take years to recover. Just by looking at today’s big winners (ExxonMobil, Home Depot), you could tell what was on Wall Street’s mind. Yesterday, gasoline futures soared 20%, the biggest move ever. And today, all 29 energy stocks in the S&P 500 went up.

At times like this, it seems almost callous to talk about investments and financial markets. But markets are the medium of investment, and that’s what will help rebuild the Gulf Coast.

The investing landscape has changed. Before, I was convinced that long-term interest rates were headed higher. No longer. In the last two days, long-term rates have plunged. The yield on the 10-year Treasury bond came within a hair of falling below 4% today. The Federal Reserve will probably raise interest rates one more time, but after that, the outlook is unclear.

The economy had been strong. Up till now, consumers have been able to withstand higher energy prices. Could this simply be too much to bear? My initial feeling is to be optimistic. The S&P 500 held above 1,200 and saw a nice rally today. The market is still well above where it was in April and May. I’m still a bull, but Katrina’s reminds why it’s important to be conservative because risk is the event you never saw coming.

Posted by on August 31st, 2005 at 10:58 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.