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41: Impact of Hurricane Katrina


09-09-2005

This event will have a global impact on oil and gasoline prices – these act like a tax on discretionary spending and subdue economic activity. They put pressure on inflation and hence can lead to upward interest rates and/or lower GDP growth and employment. Oil prices over $60/bbl really start having a negative impact on growth – so I would watch oil prices closely – it’s a definite risk for a property investor. That said, unlike most other businesses, people will always need to live in property – they are more likely to cut back on cloths, holidays etc. As far as the impact in the Mississippi and Louisiana region – it’s a very negative outlook. New Orleans will likely be “de-flooded” in the next 4-12 weeks, after the levees have been bridged and area pumped dry with imported machinery. But before this happens, all big business will be forced to relocate to, for example, Baton Rouge or Houston. Many of the oil companies are likely to then relocate permanently, not only because their staff will have moved temporarily, but they will not look forward to going back to a city that can easily be hit again by such a hurricane – and where law and order so clearly broke down and could do so again. No significant business can take place in the city at present – many local businesses will go under. Many people will choose not to move back. Property prices will likely crash – they might not return. In any case, New Orleans although a beautiful historic city, has not seen property price rises like the Florida, Alabama and Texas gulf coast areas. There is likely to be some massive rebuilding and renovation programme, but I fear there will also be a very significant depopulation in New Orleans itself. No-one likes to live in a life threatening flood prone area – as are areas beneath sea-level along the shore of lake Ponchatrain. That said, towns close to New Orleans – in the employment catchment area, might actually fair a lot better. Covington on the Northshore is an example, though Sliddel with its close proximity to the gulf – close by, was severely flooded and damaged and could suffer accordingly.

 

So how is this different to Florida? In Florida, many of the beach homes on the coast get devastated say once every 20 year, but people rebuild these, and they are not flooded for prolonged periods. Business rapidly gets back to normal – can even by stimulated as building levels increase. It does seem that with global warming, the frequency of more the intense hurricanes is increasing.

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