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Financial Forecast - Floods, Forests, and Fuel

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Financial news: Dire times call for drastic measures. Hurricane Katrina; alone, dealt a major blow to our economic infrastructure, causing fuel prices to soar. It's amazing how the oil industry raised prices to offset their additional costs of refining and transporting oil, costs which they attributed to hurricanes on the Gulf Coast. What's so amazing, is that the oil giants just reported a large quarter of earnings. How can that be, when they claimed the loss of the refinery and pipeline in Louisiana burdened them with additional costs? As winter sets in, heating oil shortages can be anticipated, with no immediate, drastic reduction in costs.

Setting that issue aside, and giving due respect and condolences to the victims of the Gulf Coast, the upside is that we project a boom in construction. But there's a problem. Where will the timber come from? Conservationists reject opening more timber land in the U.S., while democratic politicians rebuke importing timber. If we are to rebuild the Gulf Coast, and employ tens of thousands of people alone in that region who are currently out of work due to their businesses being destroyed, there will need to be an immediate resolution to this issue.

No one desires disasters, but at least the recent disasters occurred at a time that may bring economic revival. This Christmas shopping season may lack luster for the retail industry, but every penny gained will indeed help, and to say the tax revenue is needed is an understatement. Governor Haley Barbour of Mississippi estimates a needed 63 billion in federal relief funds to rebuild Katrina's damage to South Mississippi. Don't forget, Louisiana, Alabama and Florida also suffered from Hurricanes and flood waters. It could be argued that shopping; versus charitable contributions, may have a greater positive impact on recovery.

But shopping also presents a problem. Now that the new bankruptcy laws are in affect, there may be trouble following the Christmas season if consumers are unable to repay debts, either because of fuel prices or loss of employment income. The key here is for consumers to shop, but not to forego their personal budgets.

U.S. resources are being stretched near the breaking point. Just as in World War II, consumers need to conserve what resources we have. Construction materials and fuel are the top two resources which require conservation.

Partly due to fuel prices, material and labor costs, U.S. automakers will continue to have difficulty with sales. While this may drive down sticker prices, there will likely be fewer consumers who can afford a new auto, particular SUVs and trucks with lower fuel mileage. Anticipate more autoworker layoffs, as well as soaring prices for steel and a possibility of steelworker layoffs.

Also expect lenders to rally for the Fed to lower interest rates. This can help improve housing starts, which we desperately need to encourage, but may present another problem with outstanding debt and lender risk.

In 2006, watch where; and with whom, you invest your money. If the Federal Government relaxes lending restrictions in an effort to boost the economy, the potential for high risk lenders to go under will increase dramatically.

For a healthy economic recovery, we will need to conserve our natural resources, but not place restrictions which would interfere with construction or our nation's infrastructure. Consumers must carryon business as usual with a safety margin of savings to offset any rising costs. And, most importantly, as JFK said: Ask not what your country can do for you, but what you can do for your country.

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