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History Speaks
A Washington Tornado Amidst An Invasion
The old saying "It is an ill wind that blows no one good" was tested when a major tornado struck Washington D.C. in 1814. Two years earlier, the United States had declared war on Great Britain but the British were focused on fighting Napolean in Europe. With Napoleons' eventual defeat and exile, they turned full attention on the fledgling States, landing a force of 5000 troops in Maryland in August of 1814.
 | | The burned shell of the White House |
The seasoned British troops easily defeated the American forces in Washington D.C. and marched into the capitol, intent on burning it to the ground. The British commander ate a meal at the White House before setting it afire along with the Capitol and other government buildings housing the State, War and Treasury departments. The conflagration threatened to engulf the whole city until a major tornado and thunderstorm hit -and saved- the city. The tornado was powerful enough to lift buildings off foundations and rip trees from their roots. One British officer reported seeing a cannon lifted from the ground. The invading army was in no way prepared for such a storm and many survived only by lying face down on the ground to avoid being swept away by the wind. The storm stopped the fires and hastened the British forces decision to head back to their ships and out of the nation's capitol.
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Chart of the Month
From the New York Times, a map ranking the 379 U.S. metro areas by their susceptibility to various natural disasters.
 | | Where to Live to Avoid a Natural Disaster |
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Asset Class Returns
Through September, 30th, 2012
Returns assume dividend reinvestment and do not include any types of management fees, transaction costs or expenses.
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Commentary
Why didn't Sandy (also) Crash the Markets???
Living in the New York metropolitan area, we got a close up look at the physical and personal cost a powerful storm such as Sandy can inflict. But those watching the stock market in the days following the storm might have been surprised to see it remain relatively steady in the storm's wake. In fact, the market displayed much more sensitivity to 'Obama' than to 'Sandy'. This despite estimates for the cost of the storm ranging from $30 billion to $50 billion. In the United States this 'calm after the storm' has been the theme following our major destructive storms. The table below from CLS Investments details the performance of the stock market and the economy following the costliest storms of the last decade:
The median GDP change in the year following the storms was +2.2% and the median change in the S&P 500 was +12.5%. So why don't storms have a large negative impact despite the damage they do? In many ways it's because storms tend to change the timing of economic activity rather than destroy it. Destruction of housing and other capital goods can be devastating to owners but- on the other side- reconstruction is a boon to construction firms and producers of capital goods. And while businesses can suffer significant capital losses in terms of plant and equipment it is often easier for them to rebuild capital than to create it anew - they already have customers, business processes and can replicate the practices that made them successful. Insurance plays an important role in minimizing the economic impact of a natural disaster. Mitigating financial disaster is the reason to have insurance in the first place. This does not mean that a natural disaster is a boon for the economy. Companies and individuals may initiate economic activity as a result of the storm but they are probably draining resources they might have used in the future for a new project. Insurance companies provide much needed capital for rebuilding but if their losses are too great they will have to make up for it in higher premiums in future years. Governments rarely insure infrastructure and now will borrow to rebuild, thus limiting their ability to do likewise at a later date. The long term effects of a storm are almost certainly negative because unproductive destruction of wealth cannot be helpful, but the timing of those effects gets spread out over years. In most cases, therefore, these storms have a relative small impact on financial markets.
As a note to our existing clients: In the disaster preparedness video above, Mike mentioned securing vital papers in a safe place. As a service to our clients, we provide a secure electronic storage for such documents. These documents include wills, copies of identification, passports and a list of your insurance policies and the policy numbers. If you need help uploading these documents to your electronic vault, please call us at 212-949-0494.
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InnerHarbor Advisors, LLC
420 Lexington Ave, NYC 10170
212-949-0494
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