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Putting Sandy In Destructive Context

Tyler Durden's picture




 

Given Sandy's status as 'worse than the worst case', it is perhaps not surprising that our estimate of the total cost being in the $50-100 billion range is not totally off mark given the discussions that ensued. By comparison Katrina's total loss/damage cost was $108bn. BofAML is a little more hopeful with estimates in the $10-20bn range - which seems optimistic to us, and further note that while it is a big hit to wealth, once the offsetting effects (Keynesian broken windows?) are taken into account, it will likely have a very small impact on economic growth.  Sandy is still in the Top 5 in terms of economic damage among modern hurricanes, and as BofAML adds, ironically, Sandy may even contribute further to the policy bickering in Washington. With so much of our central-banker-in-chief's efforts focused on raising our wealth perception, we wonder if this will have greater implications than merely the physical damage.

 

How Bad will Sandy be?

 

How bad was Sandy?

Before...

 

After...

 

BofAML: The economic impact of Sandy

As the winds die down, here is our early take on the impact of Hurricane Sandy on the economy. The bottom-line: it is a big hit to wealth, but once the various offsetting effects are taken into account, it will likely have a very small impact on economic growth. Obviously, we believe economic statistics in no way capture the human dimensions of the storm in terms of lives lost and disrupted.

 

As this note goes to press, Sandy appears to be in the top five in terms of economic damage among modern hurricanes. Table 1 above shows property damage for the top 5--generally speaking about half of this is insured. Judging from press reports, Sandy has had nothing close to the devastation of Katrina, but is worse than Irene. Sandy hit land first in the heavily populated New York area, while Irene hit North Carolina first and had lost much of its punch by the time it arrived in New York. In terms of economic damage, Hurricane Sandy is estimated to be between $10-20bn, according to EQECAT. Our insurance team, led by Jay Cohen, estimates insured losses of $5-15bn.

 

Overall, the region impacted by Sandy represents about 25% of the US economy. Whereas Irene hit New York on Saturday, Sandy hit on Monday, maximizing the disruption to business. US daily GDP is about $60bn on week days. If Sandy eliminated the equivalent of 2 days of GDP, that's a $30bn drag. All else equal, that's about a 0.8 pp hit to annualized Q4 GDP growth.

 

Before we take a knife to Q4 GDP, however, history shows that natural disasters early in a quarter are usually offset by increased activity later in the quarter, leaving few visible scars on the macro data. In particular, pent up demand and rebuilding efforts quickly restore activity. Overall we look for a 0 to 0.2% negative impact on Q4 GDP growth, followed by tiny positives in the coming quarters. Of course, there are some notable micro impacts. The shutdown of lower Manhattan may cost Wall Street some trading revenues. In consumer spending, staples and home improvement companies will benefit. However, this will be at the expense of discretionary spending; it may even put a small dent in the holiday shopping season.

 

Sandy does not have some of the characteristics that have made storms like Katrina so devastating. Katrina caused major damage to the refining industry and hence a major spike in gasoline prices. By contrast, the 5 major refineries impacted by Sandy produce only about 6.5%of the nation's gasoline; they have been only briefly impacted and the drop in consumption of gasoline (and airplane fuel) is probably greater than the lost supply. Sandy is also unlikely to have inflicted the long- lasting damage to regional infrastructure, including a devastated city, ports and transportation along the Mississippi.

 

Ironically, Sandy may contribute further to the policy bickering in Washington. Recall that Irene caused a major funding clash between fiscal conservatives and liberals over whether to offset the rescue costs with cuts to other programs. Fortunately, it has been a quieter year for disasters and FEMA still has about a billion dollars in spending power. We think Sandy brings similar complications to already stretched local budgets.

 

 

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Wed, 10/31/2012 - 09:27 | 2934171 Curt W
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The biggest question I have is...

Will they delay initial claims and the October jobs report because of this?

Wed, 10/31/2012 - 09:29 | 2934178 GetZeeGold
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If they know what's good for them they will.

Wed, 10/31/2012 - 09:36 | 2934196 maxmad
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Total damage will be closer to 1 Trillion..  The New York City subway system and entire grid needs to be replaced.... This thing will bankrupt the country... Plus the printing press at the New York Fed is being powered by a 2500 kw generator...

Wed, 10/31/2012 - 09:45 | 2934220 TrumpXVI
TrumpXVI's picture

I thought we already were bankrupt.  I guess we can always become more bankrupteder.  But what's another mere trillion among friends?

Buy gold, keep stackin'.

Wed, 10/31/2012 - 09:53 | 2934254 maxmad
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True dat Trump.... Like Bernanke always says "once your pregnant, you can't get more pregnant!" 

Wed, 10/31/2012 - 10:07 | 2934280 Bicycle Repairman
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Exactly.  The damage is in the neighborhood of $1 Trillion.

"In terms of economic damage, Hurricane Sandy is estimated to be between $10-20bn, according to EQECAT. Our insurance team, led by Jay Cohen, estimates insured losses of $5-15bn."

LOL.  EQECAT is a model.  It's results are based on assumptions.  The assumptions come from informed speculation and an extremely limited data sample.  This event is completely unique, so the model has to extrapolate.  Extrapolation is an exercise with little precision.

A quick sanity check on the model:

1.  claims will be filed by sophisticated NYC'ers, not defenseless Southern Blacks

2.  The current zeitgeist is very different.  Everyone is looking for someone else to bail them out.  Hello, much despised insurance industry.

$5B to $15B is not even close.  The figure is DOA.

BTW, there are insurance and reinsurance companies in lower Manhattan.  They are being directly affected.  Unlike Katrina, this is not just some dry <pun> intellectual exercise.

LOL.

Wed, 10/31/2012 - 10:54 | 2934412 Doomer_Marx
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Doesn't matter how sophisticated NYers consider themselves. If the policy doesn't cover floods, it doesn't cover floods no matter how high society they are in their own minds.

Wed, 10/31/2012 - 11:34 | 2934567 Bicycle Repairman
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NYC'ers will get top dollar for their insurable events.  They'll have competent lawyers go over their policies with a fine tooth comb and litigate, if there is an opening.  Business insurance sometimes covers flood.  Business interruption.  Food spoilage.  There's more to consider than just direct water damage.  Unlike Katrina victims, these people will not be run off.  When these victims ask their government to intervene with insurers, it will happen.

Wed, 10/31/2012 - 12:01 | 2934690 Doomer_Marx
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They may get a few more crumbs but I noticed on the article claiming 100B in damages that the figure was taken from a Cat 3-4 because of the higher storm surge with Sandy. The flooding from the storm surge is mostly uninsured and the estimate for a Cat 1 is only 5B. The difference is in the wind damage of a stronger hurricane. The extra from the higher storm surge is not insured losses for the most part.

Just in general, having been through a Cat 3, the damage seems minor - it's just in a expensive part of the country. It's not like anyone in NY was stranded on a roof top for days - most had power the next morning even.

Wed, 10/31/2012 - 14:21 | 2935188 Bicycle Repairman
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Let's see how many business interruption claims get paid.  The longer power and transportation stay out, the higher it goes.

Wed, 10/31/2012 - 12:07 | 2934718 GeezerGeek
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Send some lawyers after the Indian tribe that sold Manhattan Island to the colonists. Clearly the land is defective (prone to flooding) and I doubt there were caveats issued prior to the sale.

Wed, 10/31/2012 - 11:34 | 2934579 TheCanadianAustrian
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Do you really think that Obama would resist calls to pass some executive order retroactively declaring insurance companies liable?

Wed, 10/31/2012 - 14:29 | 2935074 Flakmeister
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Hey BR, you really are starting to channel Trav...

claims will be filed by sophisticated NYC'ers, not defenseless Southern Blacks

I wonder what fraction of claims were filed by "defenceless Southern Whites" given that blacks own maybe 10-20% of whites vis a vis insurable assets....

When I have a chance, I'll link in your attempt at humor at the end of the "Sandy Total Loss" thread, hell Trav would have given you a greenie on that one...

Slowly but surely your true colors emerge.....

Edit:

Here it is...

 2934086 Bicycle Repairman

Wed, 10/31/2012 - 09:30 | 2934180 spastic_colon
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not with such a great chance to report some fantastical numbers before the election since no one was able to get out and make a claim

Wed, 10/31/2012 - 09:30 | 2934181 krispkritter
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The biggest question I have is...

Will 'they' delay the election...

Wed, 10/31/2012 - 09:34 | 2934192 youngman
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Those numbers were already calculated in Obama´s Chicago HQ two months ago....

Wed, 10/31/2012 - 10:00 | 2934272 CPL
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Humpty Dumpty sat on a wall,

Humpty Dumpty had a great fall.

All the king's horses and all the king's men

Couldn't put Humpty together again

 

Wed, 10/31/2012 - 09:28 | 2934174 spastic_colon
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the only thing that will matter is how it is spun GDP positive

Wed, 10/31/2012 - 09:31 | 2934184 Jason T
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I think of Fukushima and the Tsunami and that impact on Japan.. it was short lived for the most part.. this is nothing comparedt to the Tsunami in Japan last year.

Wed, 10/31/2012 - 09:31 | 2934186 hooligan2009
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Sandy is a voting member of the Fed..she favors adding more liquidity to the system!

Wed, 10/31/2012 - 09:32 | 2934187 krispkritter
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Are those numbers adjusted for our horribly inflated fiat?

Ahh, who gives a shit. It's just money...

Wed, 10/31/2012 - 10:03 | 2934283 mess nonster
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Wed, 10/31/2012 - 09:32 | 2934189 kill switch
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Can't these assholes see there’s only a 12 foot clearance?

Wed, 10/31/2012 - 09:35 | 2934194 Curt W
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Looks like insurers will be buying up some of the auto tunnel stuffing

Wed, 10/31/2012 - 12:26 | 2934805 GeezerGeek
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Long GM! If reelected, Obama will promise to replace all water-damaged cars with Volts. After all, if he can give away Obamaphones, why not Obamacars? Just hope the power is restored before that happens.

Wed, 10/31/2012 - 09:34 | 2934191 slackrabbit
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Meanwhile in London UBS employees also can't get in to their buildings...

UBS bankers in London head for the pub after being turned away at office door

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9643500/UBS-bankers-in-London-head-for-the-pub-after-being-turned-away-at-office-door.html

 

 

Wed, 10/31/2012 - 09:44 | 2934219 Dr. Engali
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"Today is for drinking tomorrow is for thinking about careers".

 

Some how I get the impression they may be drinking longer than they think.

Wed, 10/31/2012 - 09:53 | 2934252 Whoa Dammit
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The comments being made about this article are screamingly funny. Example" Reminds me of seeing dead ticks falling off a dog."

Wed, 10/31/2012 - 12:12 | 2934747 GeezerGeek
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The article mentioned that those employees were being put on "special leave". As in, "Leave and don't ever come back"?

Wed, 10/31/2012 - 09:37 | 2934199 youngman
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Ok folks this has happened before in history....so the people knew it could happen again.....you build a house on a beach...the Ocean will take it back eventually....so either you plan on rebuilding every 20-30 years...or you lose everything.....BUT..the Feds will come in and "bail" them out..pun entended.....no insurance..no problem..here is a grant...its the new disaster

Wed, 10/31/2012 - 11:00 | 2934444 Rentier
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BO already got you covered didn't you know?!

 

http://reason.com/archives/2012/10/29/fear-no-hurricane-obama-quietly-ap...

 

Four months before Hurricane Sandy hit the East Coast, President Obama quietly signed legislation expanding the federal program that offers taxpayer-subsidized flood insurance to ocean-front homeowners.

 

Thank OB that you'll be 'forced' to help rebuild these wealthy peeps houses on the beach... 

 

meant to post it here...

Wed, 10/31/2012 - 09:44 | 2934200 Dr. Engali
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 "Fortunately, it has been a quieter year for disasters and FEMA still has about a billion dollars in spending power".

 

They have been quietly busy preparing the camps.

 

Wed, 10/31/2012 - 09:39 | 2934208 SheepDog-One
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Gotta ramp markets....major fishing expedition launched to find insurance companies $100 Billion worth of suckers.

Wed, 10/31/2012 - 09:45 | 2934221 Silver Garbage Man
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What's the big deal, Bernake pull this out of thin air every 30 days.
EVERY 720 HOURS!!!

Wed, 10/31/2012 - 09:46 | 2934228 Silver Garbage Man
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What's the big deal, Bernake pull this out of thin air every 30 days.
EVERY 720 HOURS!!!

Wed, 10/31/2012 - 09:48 | 2934237 Schlomo Bergstein
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So many broken windows means America is going to be RICH from now on! If only you could have MORE disasters that would employ more people to fix things. The DOW is going to 15,000 from this event, everyone is going to be so employed!

Wed, 10/31/2012 - 09:52 | 2934249 Stanley Lord
Stanley Lord's picture

Stop building million dollar, second home  mansions on the beach that I have to pay to rebuild.

 My crappy flood insurance that I am forced to purchase by the hack politicans in bed with the insurance companies (and media) is going to go through the roof and I do not have an ounce of water in my basement.

We are over insured as it is.

Wed, 10/31/2012 - 09:54 | 2934259 Curt W
Curt W's picture

So many under water mortgages, hope the insurance rebuilds to actual mortgage balances.

Wed, 10/31/2012 - 09:56 | 2934265 adr
adr's picture

The rebuilding effort may boost spending for a short time, but it is not a gain to the economy. It is replacing what was lost with money that can not be spent in the future. If insurance rates rise to cover the loss, all of that money wil be taken out of the economy. Not that anything matters with the Fed printing the money to pay for it. Inflation will surge again for sure.

The real story is the market opening while millions still do not have power or transportation. Outside the world of NYC the market truly is not important at all. However the stock market is the lifeblood of the city and its corruption powers the economy.

If the financial sector can't create wealth out of thin air, all of the $200 a plate restaurants go out of business, the black car drivers have nobody to ferry back and forth, downtown lunch spots have no customers, coke dealers have no customers, and don't forget about the strip clubs and hookers. Without the Goldman Sachs bonuses the upscale designer trinket stores have no sales. Forget about Broadway.

If the $$$$ restaurants are gone the waiters can't make rent. The starving artists and actors won't be able to survive off their once a month gig. The hookers and blow trade will collapse disrupting the NYC underworld. Without that black market income, the lower class of NY will need to turn to even more dangerous crime to make ends meet.

Then you have the billions of dollars invested in the financial news industry. Even though it is a complete farce, it still adds to the NYC economy. The camera operators and makeup people still pay rent and eat somewhere.

NYC dies without the financial sector. That is why it was brought back before anything else. Which is why the financial sector needs to die. When wealth without labor is your first priority, how can you have a functioning economy? Everything depends on the crumbs the rich leave behind. Not a way to live.

Wed, 10/31/2012 - 10:08 | 2934297 Cosimo de Medici
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The advantage to being the sitting President after a natural disaster, and a week before an election, is that one can gerrymander the clean-up effort, making sure power is returned to Democratic precincts as quickly as possible.

Wed, 10/31/2012 - 12:19 | 2934781 GeezerGeek
GeezerGeek's picture

Manhattan and New Jersey were in the Obama column already. Probably Conn. also, although it's probably too small to have power restored piecemeal. The states will remain blue (in more ways than one, unfortunately) but the total voter head counts will probably be down.

Wed, 10/31/2012 - 17:43 | 2935764 blunderdog
blunderdog's picture

I understand the sentiment, but personally, I think New Jersey's in play.  It has gone Republican recently, no reason it can't happen again. 

A friend reminded me that the UPSTATE part of NY tends to be a lot more Republican than the city--if NYC turnout tanked badly enough, a red NYS sure would be a kick in the head!

Wed, 10/31/2012 - 10:58 | 2934436 Rentier
Rentier's picture

BO already got you covered didn't you know?!

 

http://reason.com/archives/2012/10/29/fear-no-hurricane-obama-quietly-ap...

 

Four months before Hurricane Sandy hit the East Coast, President Obama quietly signed legislation expanding the federal program that offers taxpayer-subsidized flood insurance to ocean-front homeowners.

 

Thank OB that you'll be 'forced' to help rebuild these wealthy peeps houses on the beach...

Wed, 10/31/2012 - 17:44 | 2935768 blunderdog
blunderdog's picture

No one could POSSIBLY HAVE FORESEEN water there in the ocean coming up and damaging homes on the BEACH!  It's madness, I tell you!

Wed, 10/31/2012 - 12:03 | 2934699 brown_hornet
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Can't Ben just give that $40bil a month to the insurance companies instead of the banksters?

Wed, 10/31/2012 - 12:21 | 2934788 GeezerGeek
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Don't give him any ideas, or he'll end up giving $40bil each to banksters and insurers.

Wed, 10/31/2012 - 13:27 | 2935021 SanOvaBeach
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When Katrina blew thru New Orleans, over 150 sworn pigs just walked.  The local scumbags needed somebody to blame for that.  The Chief of Police is the perfect target.  He was really smart!  He just retired!  Don't yea just love it!  Have not heard of any New York police or rescue people walk'in off their jobs during Sandy.  New Yorkers are made of tougher stuff.  What would you expect from those screwed-up New Orlean cops.  The State of Lousy-ana is actually a foreign county in the U.S.

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