October 22, 2005 -- Residents along the Gulf Coast of Florida may be thinking “here we go again . . .” as they await the arrival of Hurricane Wilma, currently a fierce Category 5 hurricane and the strongest ever recorded in the Atlantic basin.
Should Wilma hit Tampa or Miami – or both - which are major urban economic centers in Florida, and cause devastation with its storm surge and high winds comparable to what Katrina and Rita did in New Orleans and along the Gulf Coast, the expanding hurricaneomic effects of this triple play on the financial markets could cause shock waves to be felt throughout the world economy.
Welcome to “hurricaneomics,” a term coined recently by Louis B. Mendelsohn, a leading expert on the intermarket effects that take place within global financial markets (www.hurricaneomics.com).
Hurricaneomic analysis deals with that imprecise slice of economics that dictates that disasters of the magnitude of Katrina and Rita - and now possibly Wilma - have an effect on many different, but related, global financial markets, reinforcing the significance that intermarket relationships now have in today’s world economy. Now, no one can take the “I don’t really care because it didn’t hit my community”. Instead, everyone becomes a victim, in one way or another, of these massive storms as their hurricaneomic effects play themselves out in the world economy.
In fact, hurricaneomic analysis, in its broadest sense, addresses the impact that events such as these killer storms have on global financial markets and how this affects everyone’s pocketbook throughout the United States and the world.
According to Mendelsohn hurricaneomic effects can be set into motion, in a domino-like chain of action and reaction, in which various financial markets affect each other as the ripple effects from these natural catastrophes work their way through the financial markets with some effects being felt immediately while others take longer to develop.
Should Hurricane Wilma strike major economic centers in Florida the economic impact on the commodities and futures markets could be staggering, says Mendelsohn. You only have to look back to what happened immediately after Katrina/Rita, when crude oil prices topped $70 a barrel, to understand the ripple effect of record energy prices on the U.S. and world economy. Shipping routes could again be interrupted by Wilma, driving the price of crude up again, and oil and natural gas production in the Gulf, already diminished by Katrina/Rita, could face another possible setback, further driving up energy costs and particularly heating bills this winter.
If Wilma strikes Florida - or anywhere along the Gulf Coast - with full force, construction materials such as
copper and lumber will be in even shorter supply, sending these commodity prices sky-rocketing. Even the price of orange juice could soar if Wilma’s path hits southern Florida where orange groves are now concentrated after freezes a few years ago pushed production further south.
But in hurricaneomic analysis, the cumulative effect of Wilma on top of the other two recent hurricanes could go far beyond commodities and strike at the core of the U.S. and global economy. Not only would the economic productivity of yet another region of the United States be reduced, but money spent on materials for extensive rebuilding or repairing or gasoline or heating bills takes away disposable income that could be better spent on other products and services that would promote much greater economic growth over the next several years.
The federal government, now very sensitive about providing disaster aid as a result of the FEMA fiasco following Katrina, could be expected to step in more quickly if Wilma causes major damage, further increasing the federal deficit, already swollen by Katrina. More government borrowing is likely to mean higher interest rates and create expectations, if not the actuality, of higher inflation rates, as has already been seen in government statistics since Katrina.
At the same time, higher costs of fuel for heating and transportation and more expensive – and increasingly unavailable - building materials could dramatically affect corporate profits both in the U.S. and elsewhere, resulting in lower equities prices and potentially a worldwide recession.
Whether it’s higher interest rates and larger mortgage payments, increased spending at the gas pump or higher bills for home heating oil or natural gas, every U.S. consumer, as well as others throughout the world, will feel the hurricaneomic effects of these storms for months and years to come. The lesson learned from these storms is that they not only hit those who live in the immediate areas where these storms make landfall, but affect everyone in one way or another.
According to Mendelsohn these effects have serious short and intermediate term implications involving significant price movements in a multitude of financial markets ranging from energies (such as crude, heating oil and natural gas) to equities to interest rates (including government bonds and mortgage rates) to the U.S. dollar to currency futures and Forex markets to agricultural and soft commodities (including lumber and orange juice) which will continue to be felt as these hurricaneomic effects unfold over the next six to eighteen months, just in time for the next Atlantic hurricane season to begin.
About Louis B. Mendelsohn
Louis B. Mendelsohn is the President and CEO of Market Technologies, LLC, an Inc. 500 Company, headquartered in Tampa Bay since it was founded by Mr. Mendelsohn in 1979. The company, with clients in over seventy countries worldwide, is recognized as the world leader in market forecasting. Market Technologies researches and develops proprietary trend forecasting and market timing technologies that utilize artificial intelligence applied to intermarket and hurricaneomic analysis, in order to forecast various commodity and financial markets throughout the world. These presently include energies, interest rates, stock indexes, currencies, metals, grains, meats, softs, Forex and ETFs, covering a total of sixty-nine world markets.
Hurricaneomics, hurricaneomic analysis and hurricaneomic effects are trademarks of Louis B. Mendelsohn.
