If you’re bearish…

A host of weather-related problems have caused some serious fundamental issues.

First, Alcoa announced last night that high energy prices have cut expected quarterly profits almost in half.  One of the more unexpected issues was weakness in demand for aluminum, which is probably related to lower auto production.  Alcoa also blamed lower aluminum prices, weakness in Europe and higher costs, particularly in energy and raw materials.  These higher price, lower demand issues could weigh on all the cyclical companies.  The high energy prices and lower demand have already forced two airlines into bankruptcy.  Additional energy price spikes could put even a bigger damper on Q3 and Q4 earnings. 

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Second, damages from Rita could affect the mortgage backed securities markets and could in turn slow the housing market as financing becomes more difficult to obtain.  The WSJ wrote the following story today…

Standard & Poor’s estimates about three times as much commerical-mortgage-backed securities could be affected by the pending storm than were affected by Katrina. CMBS are created by securitizing loans on offices, malls and other commerical properties.

In Houston alone, some 2,000 properties valued at about $11 billion are packaged in such bonds, according to analytics firm Trepp LLC — roughly 2.4% of the overall CMBS market. Across Louisiana, Mississippi and Alabama, about 1,100 properties in 345 deals were affected by Katrina.

But Mr. Reiff and others hope buildings in those more-inland Texas towns won’t be harmed nearly as badly as buildings in New Orleans, where flooding accounted for most of the damage.

Real estate investment trusts like Camden Property Trust and Gables Residential Trust also have large portfolios in the Houston market. All together, REITs own more than 900 properties there.

Finally, insurers are some of the largest holders of stocks and bonds.  If Rita does inflict serious damage in Texas, the markets could be in for a bought of selling as insurers raise cash to pay claims.  While the losses from Katrina seem to have been contained, damages from two major Hurricanes could cause enough selling by insurance companie to hit the markets.