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Katrina Not Stopping Bulls MoneyNews
(Headlines - scroll down for full stories)
1. Katrina Not Stopping Bulls The United States has endured a devastating hurricane that could cost $125 billion in damage. And now skyrocketing gas prices are inducing sticker shock on U.S. consumers. But even with all of this, investors have yet to make the switch from bull to bear. Last week was proof of that. A downward spike in oil prices to pre-Katrina levels - coupled with the perception that a reconstruction book is in the offing after the flood damage - was enough to spur the stock market to a week of solid gains. The Dow Jones Industrial Average surged 2.21%, the Standard & Poor's 500 Index gained 1.93% and the Nasdaq Composite Index climbed 1.61%. "After a brief pause, the stock market resumed its upward march, allowing the Dow to complete its best week since May," says Al Goldman, chief marketing strategist at A.G. Edwards. "The S&P 500 has gained 3% since Hurricane Katrina hit the Gulf Coast on August 29. Plus, the indicators are favorable. Comments on September 8th by a Federal Reserve official caused many to anticipate the Fed will limit future interest rate hikes," Goldman went on to say. "Oil and gasoline futures fell on signs that high prices have curtailed demand. The Energy Department reported that gasoline consumption was down 4% in the latest week." But a few things could cloud the picture:
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Insiders say that with Fed Chairman Alan Greenspan set to hang up his green eyeshade for good on January 31, 2006, he'll want to leave his successor some leeway to cut interest rates. Still, Goldman remains optimistic. "Katrina has probably had its maximum emotional impact on the market and now folks are trying to gauge its economic impact," notes Goldman. "Of course, no one knows the answer except that the hurricane will reduce GDP and corporate earnings somewhat the rest of 2005. This too will pass and eventually the rebuilding of the Gulf Coast and New Orleans will create many new jobs. "There is lots of speculation as to what the Fed will do about interest rates Sept. 20. Overall market action remains quite impressive in the face of the many uncertainties - both economic and political. Editor's Note:
Even as recently as a month ago, 2005 was going to be so sweet for the insurance industry - particularly re-insurers. Underwriting results were solid, investment income was easily in the black and claims were low. Then Katrina, the costliest natural disaster in U.S. history, hit the Gulf of Mexico. Now, an estimated $125 billion in insurance costs later, the insurance industry is girding itself for a protracted legal battle in Louisiana, Mississippi and Alabama to decide who pays for property repairs for tens of thousands of homeowners and businesses in the area. Today's Financial Times reports that many homeowners are set to discover that their insurance claims do not cover the cost of rebuilding their homes. Jim Brown, Louisiana's insurance commissioner from 1992 until 2004, told FT that only a quarter of the houses in the poorest areas affected by Hurricane Katrina had flood insurance. Standard insurance policies, carried by almost all homeowners, cover damage caused by storms - but not floods. In addition, those who bought federal flood insurance that was beyond the means of many poorer households may find that compensation falls short, since it covers losses of only up to $250,000. "There is a big insurance gap," said Brown. "In all likelihood many people will suffer great financial loss." Similar disputes are expected along the Mississippi coast, where the worst damage actually came from the storm surge brought ashore by Hurricane Katrina - not the 145 mph winds. Experts said disputes are likely to arise over whether a storm surge will be classified as a flood. Flood coverage was offered under a scheme backed by the Federal Flood Insurance Program. But it was expensive, costing up to $1,000 a year for a $200,000 home. "The [physical] nightmare of the emergency is hopefully over for many people, but the financial nightmare is just about to begin," said E.L. "Bubba" Henry, a lawyer representing insurance companies. The Times cites a report by Risk Management Solutions - a company that provides catastrophic risk data to insurers - estimating that damage from the hurricane could reach $125 billion, with insured losses of between $40 billion and $60 billion. Insurance experts said that, generally speaking, if damage is caused by wind or rain the insurance companies are liable. But if the water comes from the ground, the Federal Flood Insurance Program becomes responsible. Many homeowners are expected to argue that the flooding was caused by the wind and torrential rain, which led to the bursting of the levees in New Orleans.
3. New Orleans: $50M Tourism Losses Daily The Gulf Coast, which boasts tourist mecca New Orleans as well as countless miles of gorgeous coastline and beaches, will have its work cut out in terms of bringing vacationers back to the region. According to reports from New Orleans, the city is trying to get the famous French Quarter back up and running by December 1, 2005 - about two months ahead of Mardi Gras. But some tourism experts say that an early timeline for New Orleans and other Gulf locales is out of the question. "It is next to impossible to believe that any of the Gulf Coast will experience any tourism for the better part of a year," says Dr. Steve Litvin, professor of hospitality and tourism management at the College of Charleston. "The affected places will rebuild, but until everything is back in place there will be no reason for tourists to want to return. Transferability is one of the key points that define tourism. Tourists can go wherever it is they wish, when they wish," says Litvin. "And with all the problems and lack of infrastructure the Gulf Coast will see over the next year, when a tourist picks their destination of choice, the choice will be someplace without problems. And for the next year, at least, these areas will not have the infrastructure to provide the quality experience they provided in the past." Sources say that in daily tourism revenue, Katrina is currently costing the city of New Orleans alone about $50 million.
4. Will Katrina Salvage Estate Tax?
The U.S. Senate Republican Majority Leader Bill Frist has said in recent days that the Senate would postpone its scheduled vote on the U.S. estate tax - but only for a short while.
The delay, Frist says, accommodates the legislative branch's obligation to deal with the aftermath of Hurricane Katrina. Already over $50 billion in aid has been earmarked by Congress toward the hurricane-ravaged Gulf region.
Frist has told reporters that the death tax vote was "temporarily shelved." Political insiders say the bill could come up for a vote sometime in October 2005.
But will the economic cost of Katrina cause some Republican lawmakers to flip over to the pro-death tax side and kill any attempts to eliminate the estate tax?
"The U.S. Senate will vote on permanently eliminating the federal estate tax - even for the wealthiest Americans - when they finish dealing with Katrina," says Curtis Kimball, gift and estate tax director at Willamette Management Associates.
"Some call this bill, S. 420, a squabble between the merely rich and the really rich. Others claim that the current death tax literally could mean the death of a family business. But I believe that a compromise will take place instead of completely eliminating the tax after a symbolic vote by the Senate."
Democrats have long argued that the estate tax - which is currently being phased out until 2010, when it will be repealed for one year - benefits the wealthy and deepens federal budget deficits.
Others disagree, insisting that the economic lift that would come with repealing the death tax is exactly what the Gulf of Mexico region needs to battle back from Katrina.
"The 2003 tax cut lifted economic growth far beyond what most people expected," says Grover Norquist, president of Americans for Tax Reform.
"We know repeal of the Death Tax will also have a similar effect. And higher levels of economic growth are exactly what the residents of the Gulf region need at this time to start the rebuilding process for their neighborhoods - and more importantly, for their lives."
Editor's Note:
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5. Paper: Energy Policy Crushing Americans The United States has not built a single new gasoline refinery since 1976, mainly because of costly environmental regulations. And that's just one of the regulatory factors behind the recent spike in gas prices, which have been pushed even higher by the loss of drilling and refinery operations due to Hurricane Katrina. "The damage Hurricane Katrina has done to our energy infrastructure is nothing compared to what Congress and Democrats have done and failed to do," according to Investor's Business Daily. IBD urges Congress to stop dragging its feet on approving drilling in the Arctic National Wildlife Refuge (ANWR), noting: "If ANWR had been approved back in 1995, when President Clinton nixed it, we would be producing another million barrels a day - 5% of our total consumption - reducing gas prices, oil imports and our vulnerability to emergencies like Katrina." Clinton also signed an executive order in 1998 extending a moratorium on most offshore oil drilling for 10 years and banning drilling in national marine sanctuaries. These restricted areas contain an estimated 75 billion barrels of recoverable crude oil and more than 350 billion cubic feet of natural gas. Energy exploration is also banned in the eastern Gulf of Mexico and the Outer Continental Shelf, and access to resources in the Rocky Mountains is restricted. This policy has boosted natural gas prices by 83% in the last 41 months, costing consumers more than $111 billion, according to a report from the Industrial Energy Consumers of America. "We haven't built a single new gasoline refinery since 1976, but we have something on the order of 13 special Congressionally mandated 'boutique blends' of gasoline that make prices higher than they need to be," IBD reports in its Issues & Insights opinion piece. This variety of specialized regional blends makes refining, storage and distribution more costly and vulnerable to supply disruptions. And more trouble is on the horizon: Complying with a new low-sulfur regulation for passenger cars will force the refining industry to spend more than $8 billion in the next three years. The right way to fight high energy costs and reduce our vulnerability to supply disruptions "is for Congress to remove obstacles to domestic production and the environmental albatross it has placed around the necks of energy producers," IBD concludes. "President Bush's move to temporarily allow the sale of gasoline with higher evaporation rates and diesel fuel with higher sulfur content is a start." Editor's note:
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2. Storm Insurance: The Next Nightmare 
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