Hurricane Sandy and Your Portfolio.

It’s only Monday, but what a week it’s been! First, the hometown San Francisco Giants win the World Series, sparking a riot downtown, causing cars to be overturned and windows smashed.

Then, I get an unexpected two-day vacation when hurricane Sandy closes all stock and bond trading in the United States. Even my own New York research office has gone missing. I hope they’re safely ensconced on a high floor in Midtown. Wednesday is now looking like a partial day at best to reopen and facilitate options expirations. It is the first time in 27 years we have seen such a shuttering.

So I am taking the rare time off to plow into the “To Do” list that never gets done. Nissan kindly took in my all electric Leaf for a tune-up on short notice. I sent in the FBI background check for a new employee. A trip to Ace’s Hardware got all of the burned out light bulbs in the house replaced. Now if I can only get my Apple TV working, which has been sitting in the box in my office unopened for months.

While I am safely based on the west coast, where we usually only have earthquakes to worry about, Sandy will wreak havoc on my life for months to come. The bottom line is that she will skew economic data reports to extremes, making things difficult for all of us who make a living looking for trend reversals.

The numbers will initially show sudden and temporary weakness, which could chop a few dozen basis points off of GDP growth. That will be followed by exceptional strength months down the road while we bask in the reconstruction that follows. The misleading numbers will start with the weekly jobless claims that will be released at 8:00 AM EST on Thursday, November 8, which should be enormous.

Then there is the impact on the presidential election. Romney is behind, and needs to keep his campaign rolling to have any chance of catching up to Obama by November 6. That doesn’t happen when everyone is hunkered down in a storm shelter. The big battleground states with the most electoral votes are dead in the path of the storm.

The Democrats also have a big advantage with their huge investment in early voting efforts. If your vote has already been cast, you can’t be prevented from reaching the polls by bad weather, closed roads, or the absence of electricity. Imagine if the hurricane had hit the east coast on election day? Yikes!

The net of all of this is to create a lower low in stock prices to be followed by a higher high. A hurricane is your class “A” long volatility event. That is welcome news in a year where market volatility has otherwise been dreadful.

The only thing I know for sure is that you want to run out and buy casualty insurance companies right now. The premium boost they get from these storms lasts for years, and far outweigh any out-of-pocket costs from the initial damage. Warren Buffet figured this out 60 years ago when he first bought GEICO.

Well, the taxi is at my front door to drive me back to Nissan. It turns out that tune ups don’t take very long when the car doesn’t have an engine. It’s basically a software upgrade and topping off the tires. I don’t need to worry about disruptions to the gasoline supply caused by a hurricane either.

 

Is This a “BUY” Signal?

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