Katrina Is Coming

First a prayer for anyone living in or near the Gulf of Mexico. Now.......what are possible sectors which may be affected by this tomorrow and over coming weeks / months. Several possible issues are on my mind:

1) This disaster could cause the Fed to stop tightening and even possibly loosen. This has very bullish implications for gold, equities, commodities.......and even.....gulp.....home prices.

2) Oil prices / gasoline prices are headed higher - so there will probably be a multi-week trade of 10-20% upside in energy ETF over next 3-4 weeks.

3) The Insurers who have large exposure in the Gulf are likely to start trading down. The past has shown that most insurers have been hedged excellently via reinsurance products. It is unclear if that will be the case this time and I don't know how to tell without digging through the 10-K filings. Could be a buy the dip type thing - but I think we will have to watch this play out over a longer time period.

4) A disaster of this size is likely to slow economy so I like again Puts on anything related to non-essential retail. Re: (Walmart might actually do well as they sell food and water.) However the last thing anyone is going to want to do is go to Best Buy to get a new big screen. (Could be wrong once insurance money comes in but that is months away - and I think first reactionary trade is for Best Buy type picks to sell off.)

Now, I am contemplating a major reallocation of the portfolio tomorrow morning depending on the price movements -as confirmed with my above expectations. These are my picks:

1) Frontline (FRO) - Major oil tanker company. Tanker rates will soar as the refinery capacity is cut off in the gulf and more oil from the rest of the world - has to be shipped.

2) Newmone Mines (NEM) - I already own the common, but at this point would consider selling common in to strength tomorrow and picking up the September Call Options - Probable strike price - $40 - generating approximately 30-1 leverage but we will have to see what stuff is trading at tomorrow.

3) Best Buy (BBY) - I want to see what this thing is doing tomorrow and am thinking about picking up some Puts - with small portion maybe 10% of capital.

4) Pick your financial - I think first reactionary trade in the financials will be to sell off, however this might be dangerous to short / buy puts, as if/when Fed decides to flood system with liquidity they will rally hard.

5) Homebuilders (PHM, etc.) - This is dangerous as we talked about the potential flood of liquidity to the system.......will probably stay away.

I had no idea that something would develop so quickly - but things are changing and as we all know..........time waits for no man.....or woman for that matter.

-BG