Will Hepburn’s Money Matters Newsletter
10,000 dead, martial law, a major US city that won’t be the same for a generation, if ever, and an entire region reeling in shock. When people finally begin to return to New Orleans, what will they be returning to? Most jobs will be gone and the economy of southern Louisiana and Mississippi has been devastated.
And what does hurricane Katrina mean to investors? I’ve fielded lots of questions the past few days. None were optimistic; most folks are clearly concerned. So, I am hastily replacing part of the newsletter slated to go to press on Tuesday the 6th, to try to address and alleviate some of the fear surrounding this issue.
First let me tell you that for several months the bond market has been pointing towards a potential business slowdown next year. This was before Katrina blew into town. Many bull markets have ended because of either rising oil prices or rising interest rates. We have both right now, and storm damage adds to that dynamic.
As energy costs rise, people eat out a little less often, travel a little less, and put off redecorating the house. Less spending translates to fewer jobs, drawing even more money from the economy. That’s already happening. Katrina has damaged eight Gulf Coast refineries, further limiting supply of gasoline. Get ready for gas prices to go higher. An analyst on TV last week said prices would likely climb by 60 cents a gallon on average due to Katrina. I believe it.
Will there be investment-life after Katrina and a possible business slowdown, too? Certainly. Keep in mind that there are always opportunities. For my Adaptive Market Strategies (fee based) clients, we are analyzing the market activity every day and are prepared to quickly shift investments into the relative safety of a money market fund to preserve your investment capital. In some cases we buy “hedges”, investments that are designed to go up when the market goes down, to reduce fluctuation of principal values without having to actually sell investments. In some strategies, we have already done this for you. The investments we still hold have been doing well, which is why we continue to hold them.
For commission based clients (if we don’t bill you a quarterly fee, this is you), there are investments that traditionally have fared well in business slowdowns or may have a lower risk than your current holdings. I’d be happy to discuss them with you. If you are concerned that your current investments need to be reviewed in light of these economic events, please call the office to arrange a telephone conference or face-to-face review of your accounts. The number is 778-4000.
In the meantime, remember that the investment world changed very little despite events like 1992’s Hurricane Andrew, the election crisis of 2000 and even 9/11. For those of us who don’t live in the affected storm area, life will change very little. Please feel free to call if you have any questions or concerns about your investments.
Chart of the Day
To create today’s chart, consumer spending on gasoline and oil was divided by disposable income. The chart illustrates how the recent spike in gasoline and oil prices are currently taking a larger chunk (3.1%) of disposable income (i.e. take-home pay). While a percentage point increase over three years may not seem like a great deal, it is worth noting that previous spikes in the gasoline spending to disposable income ratio did occur around the time of a recession. Stay tuned… September 2005 Fighting Identity Theft Monitoring your credit reports is one of the most effective ways to protect yourself from criminals who want to steal your identity. Starting Sept. 1, everyone will be eligible to order a free credit report from the three major credit-reporting agencies. But be careful. The Internet is littered with promotions for “free” credit reports, and many are back-door efforts to sell credit-monitoring services and other products. And “impostor sites” abound. These sites use misspellings and sound-alike names to misdirect consumers to sites unrelated to the government-mandated site. You can get to the legitimate site through the Federal Trade Commission’s Internet site, www.ftc.gov. On the left side, you’ll see the link to Free Annual Credit Reports. Be wary of any site that promises a free credit report, then asks for your credit card number. That may be an indication that you’ve landed on an impostor site. Don’t respond or reply to e-mails, pop-up ads or phone calls that claim to come from one of the credit-reporting agencies. These may be scams seeking personal information.