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GULF DISASTER TO TEST U.S. ECONOMY

GULF DISASTER TO TEST U.S. ECONOMY

STOCK MARKET RALLY IGNORES BUDGET DEFICIT INCREASE THAT KATRINA WILL CERTAINLY DELIVER

STOCK BUYERS ARE JUST HAPPY THAT THE SPENDING ON CLEAN-UP AND REPAIR WILL KEEP THE GDP GROWTH RATE FROM SHRINKING TOO FAST

BULLISH FOR GOLD AND BEARISH FOR THE US DOLLAR

The stock market rally yesterday was a relief reaction to the commencement of dewatering in New Orleans, the closing of two breached levees, and the return of businesses activity in a few cases.
I am told that the Mississippi river is navigable and that river transport will begin again in a small way. Once debris is cleared, transportation will return to near-normal levels. The problems are the processing and storage facilities near the coast that have been damaged or destroyed. This is important because one of the few export strengths for the U.S. at present is farm products, especially grain, and the fall harvest starts in two weeks.

The Mississippi is the main transportation path for export-ready Midwestern and Southern farm products. It is also the main transportation route for minerals that are needed for the factories in the Midwest.
The Battle of New Orleans was fought to keep the Mississippi River outlet for the burgeoning U.S. economy. The two ports north and south of the city, namely the Port of South Louisiana and the Port of New Orleans, export about 25 million tons of food and 27 million tons of other exports each year. They import another 17 million tons of oil, chemicals, building supplies, coal etc. Longer term, a closure of this port system could cripple a large part of the U.S. industrial base.

Today, the U.S. is beset with a shortage of rail cars. In recent decades, much of the U.S. rail car manufacturing industry went bankrupt and had to be restructured. The U.S. has a coal car shortage even today. Rail and trucks are not really available to back up a failure of barge traffic on the Mississippi. Even though rail and truck are much more expensive, they may not be available at any price.
The country needs the Mississippi River open and operating soon. The best news is that the river is not silted up to a point that it currently requires a large quantity of dredging. Also, the river has not changed its course.
Another major problem is housing for the people that work in the refineries and other energy related facilities of Southern Louisiana. Where will they live? Temporary housing, schools and other facilities must be quickly built for these workers and their families.

Business people who build large industrial facilities are not politicians. The refineries for the New Orleans area are in pretty good repair because the industrial corporations who built them made sure they were constructed well above water level. On the other hand, their employees relied on politicians who allowed the building of residences well below water level and now they have no homes. The employees have jobs, but no homes, and the companies have working refineries and a shortage of employees.

Some additional information relating to the situation on the Gulf coast: 28 rigs have sunk, are floating or are damaged. About 10 or 12 of them will probably be repairable. The port that services supertankers in the gulf, the Louisana Offshore Oil Port, is intact, and Port Fourchon is damaged but can be repaired. My New Orleans contacts believe that the insurance companies who have insured much of the city will eventually go broke and a government bailout will be required to rebuild part of the insured areas.
In addition, the uninsured areas will require a massive federal bailout with an early guess by me of $100 billion by. The politicians are starting at $50 billion but it is their style to start low and raise it incrementally.

IN SUMMARY: MORE SPENDING, BIGGER DEFICITS AND MORE DEBT TO BE FLOATED ON THE WORLD MARKETS TO PAY FOR IT ALL.

EXPECTED OUTCOME: HIGHER GOLD, HIGHER FOREIGN CURRENCIES AND A LOWER US DOLLAR.