Is it Ethical to Profit From a Hurricane?
“So Dad, is it ethical to profit from a disaster like a hurricane?”
Not exactly the question I expected to hear from my 16-year old daughter Avery.
Perhaps she read my notes on today’s alert. Or maybe she had a lesson from her political science class on her mind.
Whatever the case, it sparked a great conversation about politics, markets, and capitalism while we worked together to get dinner on the table. And during that conversation, we debated the income opportunity that I’m going to share with you today.
You see, Avery was taken aback because I’m going to show you how to profit from hurricane Harvey…
No, we’re not skimming bottles of water that are earmarked for flood victims. And my heart goes out to all of the people who lost so much from the storm.
In fact, today I’m going to challenge you to allocate at least some of the profits you’ve made from The Daily Edge to give to flood victims in Texas. More on that in a minute.
I’ll show you the opportunity and let you be the judge…
Harvey Shuts Down Refineries, Sets Up An Income Opportunity
Investing for income can be tricky. But in some situations, it can be easy to connect the dots.
Here’s the situation I’m looking at today.
Hurricane Harvey made landfall near Houston Texas, flooding the region with record-breaking amounts of rainfall. The city has essentially been shut down with business (including oil refineries) shuttered against the storm.
With a material portion of U.S. refining capacity offline, the price for a barrel of oil fell. This is natural because demand (buying from refineries) has moved lower.
At the same time, prices for gasoline have moved in the opposite direction.
That’s right… The price for a gallon of oil moved higher for two reasons.
First, we’re still in prime summer driving season with the Labor Day holiday coming up. So demand is strong. Second, fewer refineries are actually pumping out gasoline. So total supply for U.S. gasoline has declined.
Whenever you have a situation of strong demand and weak supply, Economics 101 tells us that prices will rise. And that’s why you’re seeing a higher price for gasoline at the pump.
Now this is a perfect situation for refiners like CVR Energy (NYSE:CVI) who operate U.S. refineries outside of Texas. You see, CVR operates oil refineries, but the company’s locations are in Kansas and Oklahoma. So despite the damage from hurricane Harvey, CVR has been able to continue operations and sell gasoline at a wide profit.
Shares of CVI have moved higher following the storm and I believe the trend will continue.
The stock currently pays a 9.3% dividend which makes shares of CVI attractive even without the extra boost in income from hurricane Harvey.
But with today’s supply and demand imbalance — thanks to a devastating hurricane — shares of CVI represent a very timely income investment opportunity.
Which brings us to the question Avery and I were debating last night…
Is it Wrong to Profit From a Hurricane?
What do you think?
Is it wrong to set up an income opportunity that benefits from such a devastating event? Would you consider this “taking advantage” of the situation or of the people affected by the hurricane?
Here’s why I believe an investment in CVI is an ethical decision.
If you buy shares of CVI and the stock moves sharply higher, you won’t be causing any additional pain or suffering for Harvey victims. In fact, you could be setting the stage for more relief for these people…
Sure, the profits you accumulate will grow because of dynamics that stem from a very bad event.
But that’s often how markets work!
Ultimately, wise investors find ways to protect and grow their wealth in good times and bad. Just as buying gold to protect your wealth against an economic crisis makes sense, buying a refiner when supply and demand dynamics give you a timely opportunity also helps to protect your wealth.
So if you agree with me that protecting your wealth in challenging times is an ethical decision, then I encourage you to profit from shares of CVI.
And if you do take that step, I would also challenge you to make another ethical decision… to do what you can to help someone else…
Wealth, Capitalism and Compassion
“From each according to his ability, to each according to his needs.”
That’s the slogan made popular by Karl Marx – one of the political philosophers championed by socialists and communists.
Now I’ll tell you that as a capitalist, I’m a big proponent of free markets. And I’m very against most of the philosophies held dear by socialist thinkers.
However, I actually like the Marx statement — as long as giving is a decision that I make (and not a demand of the government).
When it comes to my wealth, my first priority is to take care of my family. But beyond that, I believe that I have a responsibility to help those in need. And I believe that if I found my own home flooded with nowhere to go, that many of you would gladly help my family
And so that’s my challenge to you today.
If your family is safe… If you are dry and have shelter over your head… If you and your family have food to eat… Then consider those less fortunate than yourself this weekend.
We’ve booked some great profits here this year at The Daily Edge. Hopefully you’ve been able to participate in a few of our income opportunities and lock in profits, then I have a challenge for you.
“Make money. Do good.”
Consider making a donation to the victims of hurricane Harvey. Or better yet, donate some of your time to a collection location or some other charity that is helping people less fortunate than you.
We’ve all got so much to be thankful for. And so many reasons to pay it forward.
I hope you have a wonderful holiday weekend!
Here’s to growing and protecting your wealth!