The Hurricane That Changes It All

Friday, September 02, 2005

Seeing the pictures of destruction, reading about desperation and reports about queues at American gas stations (a few days ago such pictures came from China) and watching a seemingly clueless US president on TV (having taken pictures with rescue staff) while monitoring a volatile currency market one first feels sorry for the countless victims of hurricane Katrina.
The next thoughts swerve back to the economy. Looking back to past catastrophes the rule of thumb seems to be that after an initial downturn only insurance companies are left on the losing side. Their payouts actually help jump start a wave of consumer purchases as they have to replace what they have lost.
A lunch of the president and Federal Reserve chairman Alan Greenspan on Thursday has brought new speculation about the short term rate policy of the Fed. As the desaster in the South will have an adverse effect on the budget deficit chances are that the Federal Open Market Committee (FOMC) will take a break from their steady path of the past 14 meetings. This effect might get contravened by a weakening dollar which could burden the trade deficit still more, as if $70 oil were not already enough. A pause by the FOMC could also ignite an acceleration of inflation because of higher import prices.
Today's correction in energy prices does not have to be called anything else. It is a correction from the initial panic buying. But with the insecure supply situation from the Mexican gulf area I assume that levels below $69 will spark another buying spree for crude oil, never mind the temporary relief from the Strategic Petroleum Reserve. Demand will not drop. See oil advance further, maybe even 80 dollars before the end of September.
The rest of the world is shocked by the breakdown of order in the affected areas and the slow response of the American government, Reuters reports. The Bush administration is suddenly facing a second front. Things are not looking good for the superpower #1.


Wikinvest Wire