The Economic Aftermath of Sandy
By: Rick Ackerman, Rick's Picks
-- Posted Wednesday, 31 October 2012 | | Source: GoldSeek.com
The
markets will be limping badly when they open for trading on Wednesday,
numbed by the destructive power of Hurricane Sandy. The cleanup is going
to take many weeks if not months, and cities up and down the East Coast
will be in a daze until basic services have been restored. Pumping out
the saltwater that gushed into tunnels and subways will be relatively
easy compared to fixing and replacing electrical switches and
components. Because New York’s subway system is very old, many of the
parts that will be needed are no longer available. Of course, the trains
will run again, and soon, but how smoothly is a question that looms
large for those who live in, and commute to, New York City.
Although
it will be a while before we can know the extent of the economic
damage, the markets themselves cannot but give an instant assessment
when stocks start to trade Wednesday morning. The shares of property and
casualty insurers are all but certain to dive, but there will be a
bullish offset in stocks tied to the rebuilding effort. The cities
themselves will be under enormous financial strain to rebuild transit
systems, roads and beaches, and the logistical challenge to FEMA in
particular will be considerable. President Obama has promised that there
will be as little red tape as possible, and there is no doubting that
he intends to make good on that promise.
A Keynesian’s Dream
On
Wall Street, pent-up demand could cause the markets to be quite
volatile in the days ahead, especially because the four-day trading
hiatus has occurred in the middle of the Q3 earnings season. My hunch is
that the remainder of the week will see a continuation of the bearish
trend in stocks, perhaps with an added kicker from the storm. From a
Keynesian perspective, restoring and rebuilding the Eastern Seaboard is
as pure and powerful a stimulus as you could ask for. Tens of billions
of dollars are going to be spent in the effort. But where will those
dollars come from? There’s no getting around the fact that they will
have to be borrowed. Ironically, the dollars when considered as an
investment may have a much better chance of paying off than the
Government’s bailout of General Motors. If so, the rebuilding of the
Eastern Seaboard cannot begin soon enough.
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