Home About Archives RSS Feed

The Independent Investor: Insult to Injury

By Bill SchmickiBerkshires Columnist
It has been over a week since Hurricane Sandy descended upon the Northeast. Adding insult to injury, this week's Nor'easter provided yet another punch to a region that is barely standing. Fortunately, yesterday's storm was more of an inconvenience than a disaster.

Of course, those who just had their power restored in places like Long Island and the battered New Jersey sea coast were plunged back into despair at this new power outage. But damage is minor compared to the estimates that Sandy has wrought. The price tag is now ranging from $30 to $50 billion, but that is only a guesstimate. Losses that are insured by private companies could amount to $20 billion or more. Additional losses covered by the National Flood Insurance Program, plus uninsured losses, could boost the total to the $50 billion mark.

Normally, the estimates of property damage are usually revised upward, while those losses incurred as a result of lost business activity are revised downward. That is because businesses usually find a way to make up for lost activity. In the case of Sandy, regaining lost business activity depends on when the power is restored. In many areas, power is still not fully restored and won't be soon, thanks to yesterday's storm.

Damage totals would put the cost of Sandy far above recent hurricanes and at least equal the cost of the four hurricanes the United States suffered in 2004. But the losses are still well below the $100 billion price tag of Hurricane Katrina, although it could beat the next largest storm, Hurricane Andrew in 1992 ($46 billion in inflation-adjusted losses).

There are a lot of misunderstandings about weather-related destruction. I have read a number of articles that seem to suggest that storm damages could actually be good for the economy. Pundits like to point out that although the damage will cause a dip in economic activity in the impacted region over the short-term, the economic reconstruction involved in rebuilding infrastructure (roads, bridges, subways, railways, etc.), plant and equipment (factories, stores, housing), and goods and services could actually act as a stimulus to the economy while creating new employment.

Some of the depressed consumer spending, they argue, will simply be postponed. For example, Hurricane Sandy was responsible for a 20 percent drop in retail sales last week in the mid-Atlantic and Northeast regions amounting to $4 billion. Although some of that will surely be recouped in the weeks and months ahead because of Thanksgiving and the Christmas season, not all of it will be recouped.

What many are forgetting is that natural disasters are destroyers, not creators, of wealth. The opportunity cost that we forego in natural disasters is immense. Think of what the victims could have done with the time, money and effort they now have to spend on rebuilding. No longer can businesses, homeowners and even the government make the purchases and investments on other more productive pursuits that could have generated more jobs and a better business environment if the disaster had not occurred.

Sure, the re-building process may result in a better structure or highway than before but the costs are replacement costs, not new investment. And what value will we place on the 100-plus lives that were lost or the pain and suffering of those that are now homeless or without jobs? What about their opportunity costs?

Sandy was a hurricane, a destructive one, but there was nothing super about it. It will take those in the Northeast a long time to recover from its impact and there are precious few silver linings in this disaster no matter how deeply you look.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Scoil Rince Bréifne Ó Ruairc Participated in North American Open Championships
Pittsfield Police Participating in US 20 Speed Enforcement Project
MassDOT Project Will Affect Traffic Near BMC
Dalton ADA Committee Explores Expanding
Milne Public Library Trustees Announce New Library Director
Clark Art Presents Free Thematic Tour on Music in Art
BCC, Mill Town Partner to Support Philanthropy Through 40 Under Forty
SVMC' Wellness Connection: March 15
Pittsfield Community Meeting On Rest of the River Project
Slavic Easter Egg Decorating At Ventfort Hall
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (4)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Greece Pullback Crisis Selloff Interest Rates Debt Currency Retirement Employment Banks Metals Bailout Stocks Fiscal Cliff Oil Banking Jobs Japan Euro Debt Ceiling Energy Election Europe Commodities Congress Federal Reserve Europe Recession Deficit Rally Economy Markets Stock Market Taxes Stimulus
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum