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Delta Trust News Archive
By Chris Harkins
After tragic events, such as 9/11 or Hurricanes Katrina, Rita and Wilma, emotions take hold more than usual which can greatly alter and affect your investment decisions. As an investment advisor, I have the responsibility of managing my client's assets for a variety of goals and objectives. As sad and tragic as these events are, I must remove myself from the emotional aspect and help my clients move forward.
When an event such as 9/11 or Katrina takes place, I research for similar historical events for comparisons. There have been several large and devastating hurricanes, such as Andrew in 1992. Several research reports were written shortly after Katrina and the battle lines were drawn: will this provide a boost to the economy OR will this slow it down? A recent research report from Sanford Bernstein stated their concern towards banks in and near the hard hit region. Despite that warning, a regional bank announced 3 rd quarter earnings results that were better than expected stating (and I'm paraphrasing), "We were able to gain market share during the disruption of the banking system due to the number of our available branches and ATMs in the surrounding areas." This release implied that due to the inability of several of their competitor banks to re-open quickly, they were able to capture those non-customers. I recently had a discussion with an insurance adjuster that works with one of the largest insurance companies in the country. He commented on the fact that some of the homes and businesses in the hurricane affected regions may not be covered by insurance. If that should happen, companies holding these mortgages, such as banks, may have little recourse.
While no one knows exactly how much money these tragedies will cost, it's safe to say that tens of billions of dollars will be spent on the effected regions for many years to come.
Catastrophes and natural disasters may have a short-term or sometimes long-term effect on the local, regional or national economy, such as events like 9/11 and Katrina. Recently, weather throughout the nation has been unseasonably warm, but this past week's "snap" could be the beginning of what several meteorologists feel could be a cold winter. The weather can ultimately affect the economy as well as the stock and bond markets.
Gas prices at the pump were historically high prior to Katrina, Rita and Wilma. Now throw in a natural gas and crude oil supply problem heading into winter. In just the past two weeks, natural gas prices rallied close to a new high in part due to this cold snap.
It is estimated that consumer spending contributes to approximately 70% of our economy. If energy prices remain high, then this spending might be diverted from other things such as eating out, shopping and traveling. That money will be needed for fueling cars and heating homes. Several analysts suggest that this may not be a short term "supply and demand" issue and gas and oil prices may remain high for the foreseeable future. One way to gauge if consumers are spending less is to watch the sales results within the retail sector over this year's holiday season.
All of my clients have unique goals, objectives and risk tolerances. Due to these recent events, I have contacted my clients to discuss how this may affect their holdings. For some of my clients, we are holding a higher level of cash than normal based on these meetings.
The recent rally in the stock market and decline in gas prices at the pump should help provide some relief. As the gulf region begins to rebuild due to people and businesses moving back, the fog should lift and we'll have a better understanding of the situation. Some are hopeful that the tragedy of the hurricanes will shine a light on our aging infrastructure throughout the country, but the overall amount needed to be spent is massive which could create an additional wave of opportunities to invest in the future.
CVH
