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Minding the Helm in Choppy Waters

Staying on course in a tough cycle isn't easy, but it is necessary.

I honestly didn't know quite where to start this morning. Often, I will have this column roughed out or finished by about noon, but for the first time in recent memory, I had to struggle a bit. It did, however, seem like the right idea to talk about the past week - a difficult one for most people. As the aftermath of hurricane IKE allided with the ongoing financial crisis like a VLCC at full speed with a broken rudder into a jetty, I am sure that many people feel like things can't get much worse. They may or may not be right.

My wife has been in banking for about 28 years and still works in this industry. Over the years, she has seen it all – takeovers, mergers, bank failures, liquidity crises – or so we thought. This week's machinations on Wall Street, preceded by the equally shaky weeks that preceded it are a stark reminder that there are no "gimmies" anymore. The crisis extends to one of the world's largest insurance companies and also threatens to dry up available capital necessary to keep the current shipbuilding "boom" on track. On the other hand, my better half also constantly reminds me that we have seen similar and possibly equally trying times in the past. The period of the mid-1980's in Houston is an excellent case in point.

At that time, I was living in Houston and, using the time-honored Keefe family tradition of "buying high and selling low," I owned a couple of pieces of property, one of which was a three unit rental house. I don't need to tell you how all of that turned out. It was also during this particular time, of course, that the bottom fell out of the oil patch and the city of Houston emptied out in a similar fashion, with, as I remember, literally entire neighborhoods abandoned as people walked away from their notes while the job market evaporated. Our younger MarEx readers may not be familiar with this particular piece of history, but I for one will never forget it. That we (personally and collectively) recovered from it is part of what keeps my optimism at a reasonable level even today.

This has been a week of learning, as well as one of "lessons learned," or so one would hope. My initial reaction to my local gas station's move to crank up their retail price for Regular Unleaded Gasoline from $3.69 to $4.19, literally in the space of one hour – without having taken delivery of one single drop of new product – was one of outrage. But, predictably, the wholesale price of gasoline had also spiked in response to the handiwork of hurricane IKE and I am told that some stations had no control over what was happening. I certainly hope that the dozen or so gas station owners in my area now under investigation for price gouging were hamstrung by some sort of "price averaging" for all monthly deliveries. If not, their week is going to get even tougher.

The general party line right now is that because such a large portion of our domestic refining capacity exists on the U.S. Gulf Coast, and around the greater Houston area in particular, the effects of IKE were significant on the supplies and prices of gasoline. Fair enough. But the problem extends further than that: a country (that's us, by the way) that routinely denies refiners the opportunity to build new facilities (in places better sheltered from natural disasters) and/or expand and modernize existing refineries has little to complain about when these sorts of things occur. No one wants a refinery in their backyard and at the same time, everyone wants to pay $1.25 for a gallon of gas. The "disconnect" there is as real as the "disconnect," apparently, between this week's wholesale price of gasoline, the availability of that product, and the worldwide price of crude oil. And, as you read this column, my children's local school system is pondering how to get almost 100,000 students to school if the next diesel delivery does not happen.

The price and availability of gasoline in other parts of the country, however, should be the least of our worries right now. Tens of thousands of people in Texas and surrounding areas are just now starting what will be a long and painful recovery. For me, it is particularly sad to watch from afar what has happened to a place that I called home for almost fifteen years. Having said all of that, there is absolutely no doubt in my mind that the area will rebound, industry will recover and the ship channel will once again be up and running at 100 percent – and sooner, rather than later.

You don't need me to tell you that it is going to be a bumpy ride for a while. And, while I also don't have a crystal ball to predict what will happen in the national economy or the banking industry, I can say with confidence that this isn't the first time we've had a crisis of this magnitude, and it won't be the last. But, this is no time to bail out or bury your head in the sand. At Chez Keefe – and at MarEx – we continue to stay the course and expect the best. It is going to be alright – really. It has to be. – MarEx.

Joseph Keefe is the Managing Editor of THE MARITIME EXECUTIVE. He can be reached with comments and/or questions on this or any other aspect of this e-newsletter at jkeefe@maritime-executive.com.


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