As our thoughts remain with all those who have been horribly affected by the devastation that hit the U.S. Eastern seaboard and its aftermath, we are being asked about the implications of Hurricane Sandy for markets.
Four observations seem warranted based on available information -- and they range from the certain to the highly uncertain.
First, the greatest impact is in individual sectors where we may see distinct winners and losers.
Specific segments have suffered demand destruction which will be difficult to reverse in the short term. Think here of airlines, other transportation companies, and parts of the retail sector in some of the major population centers on the East Coast. Some have also incurred higher costs. Business interruption insurance will only partially offset the hit on these companies' operating earnings; and uninsured small businesses and personal sectors will be particularly badly hit.
The provision of such insurance, while partial, will in turn hit the net income of insurance companies here and abroad; and they will also be meeting much larger P&C claims, making this industry worse off because of Sandy.
Against this, there are companies that will benefit. They are concentrated in segments that will supply goods and services for the reconstruction of homes, businesses roads and infrastructure.
Second, after an immediate negative impulse of several weeks, the impact on GDP as a whole will be mixed to slightly positive.
The upfront decline in GDP and the destruction of physical wealth will be offset over time by greater economic activity. So while the balance sheet of the country as a whole has been negatively affected, there will be a boost to certain components of aggregate demand as some of the delayed activity is made up and reconstruction proceeds.
Third, it is not clear whether policy will play its traditional role in the aftermath of such a natural disaster.
In more normal times, we would look to federal, state and local governments to increase spending, particularly on reconstruction and rehabilitation of infrastructure. Indeed, government assistance to the uninsured and less well-off sectors -- both personal and small business -- has proven especially valuable in curtailing negative social and economic effects.
But budgets are already under pressure. Meanwhile, the Federal Reserve has already floored policy rates, limiting its ability to assist unless it goes even more unconventional.
So this will be much more about private sector-led activity than policy stimulus. The impact therefore will be less front-loaded, not as comprehensive and spread over a longer time period.
Finally, there is one of the most uncertain issues in the aftermath of the storm - the extent to which the realization of limited policy effectiveness at a time of great need will entice our Congress to step up properly to the challenges of economic governance. This would start with the fiscal cliff and hopefully would pivot to the list of long-delayed policies.
If history is a guide, and notwithstanding the significant devastation created by Hurricane Sandy, there should be limited expectation that even this stark situation will prompt Congress to take concerted and meaningful action.
In the immediate term, American communities will rally their considerable resolve and resilience, and they will summon their culture of giving to help victims of the storm. The challenge is also to facilitate the longer-term ability to harness fully resources of private and public sectors currently undermined by deep political divisions, thus removing what has been a constant dampener of entrepreneurship and value creation.
This post was originally published on CNBC.com.
Frederic Bastiat refuted this fallacious nonsense over a hundred years ago.
While other victims live without electricity and water, I imagine no resource was spared to get the NYSE operational again.
That may be true in the short term, but in the long term this will be a net negative. This also highlights short term conservative thinking on the environment and climate change. If the estimated 60 Billion loses for this storm, coupled with the 100 or so billion loses for katrina had been spent on ways to mitigate damage (doesn't mater if you think climate change is man made or not, it is happening), the operational costs of this, and future storms would be a lot less, But more importantly, the continuity of business and personal lives would be a lot less disrupted. Meaning less dip in GDP, while spending the same or less in investment capital.
If the Wallstreet dies, it will be a welcome emancipation.
Situations like these are best suited for Stock Exchange where rich industrialists/ capitalists make more and more money. How can one enjoy making money in such devastating situations?
As the planet warms, we will see more extreme weather, including storms like Hurricane Sandy.
It's people like El-Erian who are really the problem - not the solution. They refuse to admit that global climate change exists. They insist of allowing oil companies to buy out Congress and that's the real problem.
If we want to save the stock market from its own stupidity, we must re-hire Obama and fire the entire lyin'-Ryan, Shifty-Mitt GOP.
It's naïve to assume that a bunch of know-nothings AKA the GOP, funded by oil company lobbyists can ever solve the underlying reasons for Hurricane Sandy.