An investor should never let emotions get involved when making investment decisions and even more important, they should never, ever let the media influence their investment decisions.
The disaster known as Hurricane Katrina played havoc on thousands of lives just four weeks ago. Without question, it is one of this country's worst natural disasters.
However, at times like this, the national media will go to any lengths to fulfill their main goal - getting your attention and never letting it go.
Anything that can be sensationalized will be, whether it was the reported 30,000 body bags on hand or the forced evacuations that were to come.
On the day after Hurricane Katrina hit - August 29 - with much of New Orleans under water, the national media had a field day predicting doom and gloom for our economy. It was widely predicted that the anticipated economic hit might deal a severe blow to the stock market.
Despite its occasional complexity, the stock market universe is a pretty simple place. Stocks ultimately go up or down because of corporate profits or the lack of them. It is that simple.
If something happens to a company that hurts the bottom line, the stock of that company will usually decline and stock prices usually increase when corporate profits improve.
One major concern for most companies is rising interest rates. It was reported that in order to pay off the costs of Hurricane Katrina, our government will have to increase the sale of bonds, causing interest rates to rise. In turn, this will increase the cost of consumer interest debt and each additional dollar needed to pay off credit cards will be one less dollar available to spend on added services and goods.
However, during the first 15 trading days after Katrina hit, the S&P 500 went up 2.7 percent with all other major U.S. indexes up a similar amount.
Wall Street made it very clear that despite the terrible damage inflicted by the hurricane, the hit to the economy would not be all that bad. The media did not stop to think that despite Hurricane Katrina, last year when several major hurricanes hit the United States, the effect on the economy was fairly minor.
They also failed to point out that Louisiana and Mississippi together only account for two percent of our nation's gross domestic product.
Many years ago the media had a different agenda - tell the story and let the public make up its own mind about how it felt. Now, major newspapers have declining revenues and television networks are continuing to lose viewers to the Internet, facing tremendous pressure to maintain ratings. The ensuing result is a national media that continues to lose credibility with the public because it has lost sight of its primary purpose.
With his popularity ratings at a low and his administration taking a hit over FEMA's response time after the hurricane, President Bush has pledged massive federal government spending for the gulf region.
Interest rates will probably rise to pay off the near $200 billion that Bush has indicated will be needed to repair the damage. However, just this week, the Fed raised short term interest rates one-quarter-of-one percent, showing it was more concerned about inflation from an over-heated economy rather than any economic damage done by Hurricane Katrina.
Pat Holland is a certified financial planner and fee-only investment advisor located at 583 S. Highway 49 in the Motherlode Plaza in Jackson. He can be reached at 223-3444. Questions may be submitted online at p.holland@sbcglobal.net or may be mailed to the above address.
