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Tuesday, August 30, 2005

Silver lining in Katrina

--posted by Tony Garcia on 8/30/2005

This one I found through my newsfeeds on each state page. This story was on the Louisiana page.

There is always investment opportunity no matter what good or bad has occurred. And these ideas will help the companies that will help rebuild after Katrina.
On Monday, investors focused on higher energy prices and insurance-company payouts in the wake of Hurricane Katrina. But as time marches on, attention will shift to rebuilding, the risks that hedge- and pension-fund investors took in buying supposedly low-risk "catastrophe" bonds and the effect of the storm on the fragile U.S. economy.

While the near-term result of natural disasters is naturally negative, they very often lead to infrastructure investments that end up looking like a net positive for their regions. Homes, roads, offices and industrial complexes need to be rebuilt, and the government usually provides tax relief, or outright grants, to pave the way.
An example might be Beacon Roofing Supply (BECN, news, msgs), which does not operate branches in the area but may see its revenues and earnings move up anyway. A Morgan Keegan analyst notes that the storm's destructive winds have torn a lot of roofs off structures. Shelter Distribution, a major distributor being acquired by Beacon, operates two branches in the greater New Orleans area. The analyst said he believes Katrina could potentially push 2006 income at Beacon up by 20 cents to 25 cents a share.

Maybe you are interested in commodity futures. Here is something to consider:
Everyone immediately worries about the loss of life in a city the size of New Orleans, and economic minds immediately dwell on the loss of Gulf of Mexico oil production. But the area is also home to the Port of South Louisiana -- the fifth-largest port in the world and the largest port in the United States. Yes, it's bigger than New York-New Jersey, bigger than Los Angeles-Long Beach and bigger than Houston. You have to go to Hong Kong, Shanghai, Rotterdam and Singapore to find ports that handle more tonnage.

Something like 15% of all U.S. exports ship through the southern Louisiana port, including much of our Midwestern corn, soybeans, wheat and animal feed. Add crude oil from the Gulf, steel from the Appalachians, iron ore from the northern plains, and fertilizer, gasoline and petrochemicals from area refineries, and you can begin to understand the profound importance of the area to American commerce.

If Katrina causes the port to become unusable, or if it causes the Mississippi to shift significantly at a time when harvests are coming in, we may see an important boost in world agricultural prices. The reaction could be delayed, but watch for moves in soybean giant Bunge.

There is plenty of advice in the article, but I thought I would share how investments are not confined to good times. The investments in bad times are just as good.


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