January 23, 2006

In the energy sector, we have a series of unrelated events that have the makings of a supply shock on top of the demand shock that we have already discussed. Hurricane Katrina knocked out several refineries and that in effect amounts to a leftward shift in the overall energy supply curve. A possible confrontation with Iran could lead to an oil embargo or oil disruption from that region of the world. The final elements of our supply shock theory are the political developments in the energy producing countries of Latin America.

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