The East Coast is being bombarded by Mother Nature this week. Hurricane Sandy is wreaking havoc on the United States as the Superstorm brings damaging winds and life-threatening storm surges to as many as 60 million people. The full effect of Sandy will not be known for quite some time, but economic silver linings should not be expected after the wake of destruction.
On Monday, the New York Stock Exchange was closed due to Sandy approaching the mainland. The Exchange also decided to close trading on Tuesday, with the hopes of reopening in some capacity on Wednesday. It is the first time since 1888 that the stock exchange has been shutdown for two consecutive days for weather issues.
Several businesses have altered daily operations to deal with the storm. Wall Street banks such as JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) have closed hundreds of branches and said they would waive certain fees for customers affected by the storm. Wireless providers Verizon (NYSE:VZ) and AT&T (NYSE:T) readied repair equipment and installed new batteries at cell sites. Consumer giants such as Starbucks (NASDAQ:SBUX) and Apple (NASDAQ:AAPL) also closed several stores in the region. More than 10,000 airline flights have been grounded.
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Once Sandy passes, there will be a period of rebuilding of the things lost. This phase is expected to bring an economic bump by some. CNBC’s Jim Cramer even called Sandy a “GDP event.” While Cramer was trying to find some sort of a positive from the situation, Peter Schiff does not sugarcoat his outlook. In an interview with CNBC, he says that weather disasters are “never a net add” to the gross domestic product.
Schiff explains, “You always have these Keynesian economists that are trying to tell us that there’s a silver lining to the cloud, that is never the case. The resources that we have to expend to repair the damage from a hurricane to replace what was lost, they come at the expense of other things that we might have been able to create or build if we didn’t’ have to divert our scarce resources to repair the damage.” He adds, “Normally you save up for a rainy day, that’s what we’re told, save your money for a rainy day. Well, it’s about to pour and we’ve got nothing saved. We’re going to have to go deeper into debt to pay for any of the damage that needs to be repaired.” He also notes that imports will rise and create a bigger trade imbalance, and insurers will pass losses onto customers and place more strain on struggling Americans.
Aside from uncovered and unexpected economic damages that will result from Sandy, early estimates for the insured losses range between $5 billion and $20 billion.
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