11/1/2012 7:30 PM ET|
Rebuilding after Sandy? Maybe not
Home-repair stocks will do well. But what about big projects that might prevent the next disaster? That's a different question entirely.
Sand deposited by superstorm Sandy fills the streets of Jersey Shore, N.J.
Is this any way to run an economy?
In an efficient economy with a rational political class, I'd be recommending shares of cement makers such as Cemex (CX), pump-makers such as Flowserve (FLS) and engineering companies such as Chicago Bridge & Iron (CBI) as post-Hurricane Sandy rebuilding plays.
But instead, casting a despairing eye on U.S. politics, I'm suggesting stocks such as Lumber Liquidators (LL) and Home Depot (HD). (For more on my reasons for buying Lumber Liquidators now, see "16 stocks for the rest of 2012.")
Investing in infrastructure to prevent some of the damage from the next Sandy would be the smart thing to do. But I think our political system is way, way past doing the smart thing.
In 1798, South Carolina Rep. Robert Goodloe Harper could fend off French threats to seize American ships unless the U.S. paid a bribe with the heroic "Millions for defense but not one cent for tribute."
Today, our motto is more like "Millions in insurance payouts for new hardwood floors but not a cent for infrastructure."
Counting the cost
What will be the cost of Hurricane Sandy?
In human life, more than 80 have died as a result of the storm.
The consensus estimate of physical damage seems to be around $20 billion, although I've seen figures as low as $7 billion and as high as $50 billion. The actual total is very dependent on how much damage needs to be repaired in New York's 108-year-old subway system. Big damage there could easily push the price tag past $40 billion. (By contrast last year's Hurricane Irene cost $10 billion. Katrina in 2005 is estimated at $100 billion.)
About $7 billion to $8 billion of the damage from Sandy is covered by insurance, estimates say.
The worst damage in Manhattan, where I live, came when a 13-foot storm surge swamped the southern end of the island. A giant transformer station at East 14th Street exploded, knocking out power to most of lower Manhattan. The water filled the Brooklyn-Battery tunnel, poured into the foundations of the under-construction World Trade Center complex and then backed up in the train tunnels under the Hudson River. And, of course, water poured into the New York subway system. Early estimates were that it could take a week or more to pump out the system and restore full service. (Some trains did start running today.)
The damage wasn't limited to Manhattan. The storm knocked out power to 8 million households. Power outages and flooding caused sewage-treatment plants throughout the region to fail, dumping untreated sewage into rivers. In Howard County, Md., for example, the storm sent 2 million gallons of sewage an hour into the Little Patuxent River. In Atlantic City, N.J., Hurricane Sandy ripped a huge hole in the city's famed boardwalk. A fire in the Breezy Point area of Queens turned 111 houses into damp cinders. Hoboken, Newark and Jersey City, N.J., all flooded. Hoboken's mayor estimated that 20,000 people were stranded in their homes by floodwaters. Waves and high winds pushed the damage as far west as Chicago. In West Virginia, Hurricane Sandy turned into a killer blizzard.
Nor was the damage limited to the United States. Hurricane Sandy destroyed 15,000 homes in Cuba. In the Dominican Republic, 17,500 people were forced from their houses. More than 17,000 people in Haiti were forced to flee.
Shots of row after row of cabs in Hoboken, submerged to their windshields, were reminders that the damage from the storm wasn't limited to the destruction of property. Livelihoods, like each of these cabs, took brutal blows. In fact, the economic damage from Sandy may turn out to be even greater than the physical damage.
The storm could cut economic activity in the fourth quarter by $25 billion, according to IHS Global Insight. Wells Fargo put the hit to output at $30 billion. Some of this activity isn't lost to the U.S. economy; it is simply delayed, with Sandy reducing the gross domestic product by as much as 0.2 percentage point in the fourth quarter and then adding to growth in the first quarter of 2013.
Prevention is costly
Some of this damage could have been prevented. And some of it, on the economic numbers, is and was worth preventing. But deciding what is worth doing -- in economic terms -- is a matter of assumptions and arguments. And the bigger a project's price tag, the louder the arguments become.
So, for example, the winds from Hurricane Sandy had barely died down before the talk about building sea gates intensified in New York. A 2004 study by the Storm Surge Research Group at the State University of New York at Stony Brook recommended building three sea gates -- at the upper end of the East River near the Throgs Neck Bridge, under the Verrazano-Narrows Bridge and at the mouth of the Arthur Kill between Staten Island and New Jersey. That project would cost an estimated $10 billion. And at the time and for years afterward, the biggest argument against spending that money was that no hurricane had made landfall directly in New York City in more than a century.
Sandy has changed this calculus. (As New York Gov. Andrew Cuomo has put it, after Irene and Sandy, New York seems to be experiencing a hundred-year storm every year or two.)
But I doubt that it has changed the calculus enough -- yet.
For spending $10 billion to make to economic and political sense, you have to assume that indeed something has changed in the global climate and that rising sea levels and warming of the air and water are combining to increase the frequency of big storms and make them more devastating when they occur. As you can tell from the silence about climate change from the presidential campaigns this year, we're nowhere near a consensus on that issue. Heck, we're not even having an intelligent discussion about it.
(For an intelligent discussion of the statistics of climate change see Chapter 12 of Nate Silver's new book, "The Signal and the Noise: Why So Many Predictions Fail -- but Some Don't," which you can find on Bing. There are also scientists who worry about the effect of sea gates on the natural flushing of pollutants in New York's coastal waters and the effect on aquatic ecosystems. My guess is that if we ever decide to build sea gates, it will be done in a moment of panic and the attitude toward these objections will be: "Aquatic ecosystems be damned. Full speed ahead.")
If we go down the price list, we pretty quickly get to territory where the cost of doing something to improve infrastructure -- and not just in New York and environs -- gets very reasonable compared with the cost of doing nothing.
The Metropolitan Transportation Authority, which operates the subways, has begun to spend money -- $34 million in its recent budget -- to raise ventilation grates, to design entrances to keep floodwater from entering the system, and to increase pumping capacity. The agency could easily have spent more if the perennially strapped system had more to spend. Talk to any business in any borough of New York still without subway service about how much that would be worth to them.
Consolidated Edison, our electric utility, estimates that installing submersible switches and moving high-voltage transformers above ground level would cost at least $250 million. In the aftermath of Sandy, that seems like a bargain. The utility has spent about $24 million on changes like these in flood zones since 2007.
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I too live where I can look out my window and see the surf / fishing /diving conditions along the ocean. The view is spectacular, neighbors are great, and there is nothing better than watching that sun rise every morning with that first cup of coffee. HOWEVER- My windstorm & flood insurance are very expensive, and that's on top of my regular home owners insurance. I have metal, roll down shutters that seal up the house but again, they're very expensive. If you want to live on the coast, or near it, you have to invest or buy those things to protect your property & your life. When the victims of Sandy rebuild, and they will, they should consider all of these important to maintain their lifestyle.
Here in Florida, we are well seasoned in hurricane preparation and if anyone would like some advice, just ask .
NOBODY placed the population anywhere.......people, at least for now, are FREE to live where they want. Many chose the coast. They will suffer the consequences, then freely decide to stay or leave.
That's the price of freedom. Many nitwit "I know what's best" types will scream for laws, taxes, and other ways to force and control peoples choices on movement. To the extent that they succeed, we loose as a free people.
The problem seems to be we spend so much on the politically popular or nonessential stuff that nothing is left for what is needed. What makes this even worse is that both sides are dug in and will not move.
You wrote in this article......"Maybe someday -- after another devastating natural disaster of two in other parts of the country --the United States might invest in ways to prevent damage to its infrastructure....." Do you think talk of investment in infrastructure might be a reason for businesses and business owners to pay more in taxes? Our businesses and entrepreneurs benefit greatly from infrastructure which has been paid for over the years by Americans....ALL Americans. This is what Elizabeth Warren meant when she said that the current batch of wealthy Americans did not become wealthy due to their business acumen alone. The wealthy benefit from operating inside a system which had been built and maintained long before they were even born. There are many places to look for reasons why this has happened.
I was glad to see your reference to lobbyists and special interest groups. "Instead, we're going to slash this program and spare that one based on which interest groups yell loudest -- and which groups have contributed the most to the politicians who are best placed to influence the decisions." You are sounding like a Democrat now. I am not sure if your politics tend towards higher taxes for the wealthy along with diverting spending to projects which give ALL Americans a return on their tax dollars. More for infrastructure and less on the Military Industrial Complex would be a good place to start. I want to see us get away from being a Super Power based on military might and become a Super Power based on economic strength. That means we will have to take the risk of losses at home. This risk could be called the potential for collateral damage in our war on terror. The less people fear us the less likely they will target us. This would mean politicos would have to stop frightening the American people in their quest to get votes. This approach would take COURAGE. The challenge is to stop spending most (not all) of the hundreds of billions of dollars that most politicians tell us that we need to "stay strong". Are we, as Americans with a history of being brave, ready for a challenge like this? I think we could be. I hope we could be. The groups that want to see us fail want us to keep spending our money on things that don't help us economically such as a military which is spread throughout the entire world. That is why periodically they put somebody on a plane with explosives in his shoe or in his underwear. Their cost of doing this. $1000 maybe? Our cost to react to it. Hundreds of millions. Stop the madness!
it is shameful that government has money to fight wars but has no money to make a city safer
The funniest line I ever heard from the late, great George Carlin:
"I have a message for the people of New Orleans. If you want to live five feet below sea level, join the Navy."
And the old rule will hold true until the end of time: "You can't fix stupid."
We cannot make a United States of Holland. You cannot build a levy around the coast lines of a whole world. And this is exactly what some authorities are suggesting, regardless of common sense, regardless of the facts sitting right in front of our eyes.
Once again, we have been reminded of the most obvious fact -- that nature (like an ocean) is going to go where ever nature wants. Placing the majority of a country's population along one coast line that was suceptible to hurricanes was just looking for trouble.
What we should be doing now is asking ourselves how would you honestly classify the investment value of a city, like New Orleans, that has levies on all sides and resides well below the level of the ocean, and will one day flood permanently? And in sorting through the debris that is New York City and Hoboken, how do we avoid the fact that we have more than just one New Orleans right here in in the present to deal with.
This whole business about "shining cities by the sea" said nothing about how dry they would be.
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