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Learning From Adversity

By Mike Patton

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The past few weeks have been a whirlwind since Hurricane Gustav paid a visit to Louisiana, where I work and practice. Gustav turned out to be the worst storm in Baton Rouge’s long history with winds gusting up to 91 m.p.h. Oak trees which had been standing for hundreds of years decided to lay down, roots and all. The power went out on the day of the storm (Monday, September 1) around mid afternoon and remained out until the following Saturday, September 6. Many are still without power in the area. Area banks didn’t begin to come back online until Thursday and then only a few branches were open. Many employees couldn’t get to work because of fallen trees and other personal struggles such as cleaning up from the storm and waiting in long lines to get gas to run their generators. All in all, commerce came to a screeching halt. In short, it looked like a war zone.

Now as I write this on September 12, Hurricane Ike is about to hit the Texas border and we are feeling the winds here in BR already. I did say the Texas border, didn’t I. How about the oil refineries? They’re about to be hit, perhaps hard ,which will certainly affect gas prices. Actually, on September 11, the local news was suggesting that gas prices could rise to over $5.00 per gallon in the next 24 hours. If the damage to the refineries is indeed significant, it could very well exceed that. If gas stations have any gas left, there are long lines reminiscent of the 1970s. I saw 20-25 cars in line last night at one station as people were filling up everything they had, ahead of Ike. Combine these recent disasters with the current news concerning American banks, auto makers, etc. and you have a recipe for a prolonged economic malaise. Malaise might actually be putting it mildly. Perhaps catastrophe would be a more apt description.

I learned another valuable lesson this week (we usually learn best from adversity). Never buy a CD which exceeds the FDIC guarantee and ALWAYS check out the bank before you buy. I had a CD with a bank which was taken over by the FDIC and fortunately it was only $100,000 so I was covered. The point here is that our financial system has some very real systemic problems and this is not our typical bear market. Oh, it’s a bear all right, but it’s a bear on steroids. One which I don’t believe it is going away anytime soon

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