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TREES INVESTMENT COUNSEL VIEWPOINT (Q3
2005)
HURRICANES
Have you contributed to the relief effort yet? Just wait, you will.
200 billion dollars for Katrina; Rita and Wilma will take a bit too.
Everyone reading this letter will be sending well over $1,000.
Do the math. The total is about $700 per person in the USA.
Of course, this may not be current cash, just more debt for future
generations. There is an effort to take some from other
government programs, but Congress's past record is not encouraging.
And they want to take it from some programs you might actually like,
ouch!
Well, the hurricanes did blow away everyone's forecast for oil and
gas prices (including ours). This effect should be fairly
short-lived, but in spite of what you might hear, destruction is not
good for the economy. Neither is more debt.
One lesson may be that the world needs more infrastructure to handle
6 billion people, up 4 times in a hundred years, particularly
because instant TV pictures fuel demands for instant response with
all the help anyone might need. Even the earthquake in
Pakistan generated static from the poor residents about lousy
government response. They need helicopters though as there are
few roads, mostly unpaved. Try rescuing 100,000 people by
helicopter.
Suffering from natural disasters is increasing because there are
more potential victims now. We all sympathize and wish to
help. That may not be enough. Perhaps a few novel ideas
like discouraging people from living in flood plains, below sea
level, or on costal barrier islands might be a start.
The economy is due for a slowdown unless we get a temporary fillip
from the hurricanes. The high energy prices, rising interest
rates, and slow monetary growth should see to that. A flat
yield curve and a flat stock market are good indicators. Other
factors include higher taxes on businesses making capital equipment
purchases, effective tax increases on individuals, a slowing housing
sector and a higher-valued yuan. We normally get a mid-cycle
slowdown about 3 years after a recovery and we expect we will once
again.
The Federal Reserve is worried about inflation because the consumer
price index is understated due to how rent is calculated, we are at
effective full employment levels and the dollar is dropping on a
secular basis. No one knows how much the excessive savings
mentioned in our last letter will offset these pro-inflation forces.
We are trying to keep our seat belts fastened.
M. Jay Trees
Jackie E. Moss
October 24, 2005 |
