10/31/2012 6:45 PM ET|
Will Sandy blow down the economy?
The stock market bite
The final piece to the puzzle is the impact on the financial system from the New York Stock Exchange's longest weather-related closing since the Blizzard of 1888. Again, confidence plays a role here, because illiquidity risk -- the inability to buy and sell -- has a direct negative impact on the valuation of financial assets. This is especially true with Wall Street trying to prepare for major, and by nature unpredictable, political events: the presidential election and the fiscal cliff.
The New York Stock Exchange reopened trading today. That was critical, since it was the last trading day of the month, a time when institutional investors like hedge funds and mutual funds conduct "window dressing," which means buying and selling to clean up lists of holdings before statements are presented to clients. (You don't want them to see losers; think of it as erasing the bad grades from your report card.)
There will surely be fireworks ahead, especially with technical measures of market strength weakening so badly even before the weather-related break. Last Friday, the Nasdaq 100 Index ($NDX) dipped its toe below the critical 200-day moving average for the first time since December, as selling pressure intensified. Safe-haven inflows were pushing up Treasury bonds. And money was flowing out of key, economically-sensitive stocks, especially in the energy sector.
In Everybody's Magazine, Edwin Lefèvre, a financial journalist active in New York in the early 1900s, described the way illiquidity deepened the Panic of 1907. While this was obviously much worse than the NYSE's flood closure, from a market perspective, it reflects the same feeling of helplessness:
"(O)ne cloudy day somebody asked for a dollar, and, not getting it promptly enough, very promptly squealed. That squeal was the signal for the chorus to join -- the chorus of the entire world, which also wanted Money! Money!MONEY! It is sad to want money and not get it. But to ask for your own money and not get it is the civilized man's hell."
How to hang in there
For now, my advice to my readers (and my clients) remains the same: Stay defensive with large cash allocations, and use targeted short positions such as the ProShares UltraShort Oil & Gas (DUG) exchange-traded fund, and Treasury holdings such as the Direxion Daily 20+ Year Treasury Bull 3x (TMF) ETF, to try to find gains. Both positions will do well if the selling pressure intensifies, sending investors scrambling for the proverbial high ground of Treasury bonds.
I am also recommending outright short selling in some stocks -- including Hercules Offshore (HERO) -- to take advantage of any pull-downs in crude oil prices. (See current positions in my Edge Letter Sample Portfolio.)
If there is a silver lining from Hurricane Sandy, it's that academic research shows that natural disasters have a long-term positive effect on growth. That's because they encourage fresh investment and the adoption of new technologies, and they drive increases in productivity. If anything could use this, it's the New York City subway and transportation system.
So while the country and its greatest city will surely bounce back, there's first going to be turbulence for the economy and the markets. Investors will need to stay nimble and heed the warnings.
At the time of publication, Anthony Mirhaydari did not own or control shares of any company or fund mentioned in this column. He has recommended ProShares UltraShort Oil & Gas and Direxion 20+ Year Treasury Bull 3X ETFs and shorting Hercules Offshore to his newsletter subscribers and money-management clients.
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Be sure to check out Anthony's new money management service, Mirhaydari Capital Management, and his investment newsletter, the Edge. A free, two-week trial subscription to the newsletter has been extended to MSN Money readers. Click here to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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VIDEO ON MSN MONEY
If one storm can blow down the U.S. economy, what does that say about the fragility of the U.S. economy.
And by the way, isn't this the same economy you were bullish on just two weeks ago?
I'd like to take this opportunity to say to the mainstream media that when there's nothing to say, you shouldn't feel obligated to tell me anything. Really, I'm OK with that.
The begininng of the end was in 1989 when the banks now called TBTF began their rape of the real estate market. Then, the dot-com bubble, cause dby the Clinton SEC new accounting rules, then the Clinton recession, inherited by George W., then the Freddie and Fannie fraud, with BO and Dodd and Barney leading their defense of their worngdoing.
Sandy is estimated to cost 20-30 billion. Obama has cost us over 6 trillion.
Compared to Obama, Sandy is a mere drop in an endless ocean!
Ruin the economy? Of course not. The rebuilding process will create jobs. We will all be paying higher insurance premiums for the money insurers will pay out. In trade we get:
Unlike government green projects and stimulus money that was wasted, this private sector rebuilding process will create real growth and job creation.
Capitalism, while not perfect can work , even in the face of disaster.
Yes, we built that. And we will rebuild it, even better.
The images of all the aftermath coming out now are heartbreaking. The image of the woman who was being embraced by Governor Christy that lost everything really drove home how we need to reach out to those people with monies, shelter, food, clothing, medical needs, giving blood, volunteering.....lets say everything you can think of.
The estimates are saying 50 Billion. I think it will double ! All the tunnels still need to be cleared and 660 miles of subway system need to be inspected. I can't even count the number of homes knocked off their foundations or out right washed away, covered with sand in every neighborhood were seeing.
It will probably rank up there right next to Katrina in loses.
This article shows what is fundamentally wrong with our news media. It thinks that the U.S. economy revolves around Wall Street, and cannot function without the stock market and the opinions of economic forecasters - most of who create no real value but do waste a lot of resources. Yeah the local economies in the storm ravaged areas will suffer, but then it will rebuild. Meanwhile, the rest of the country isn't going to shut down waiting on it.
Good thing I only read this economic bs for entertainment. If MSN had any real influence in the world then I'd be really upset. But they’re just silly, so just treat them as another sitcom.
As usual, the key component of the scenario expressed by our boy Mirhaydari, was completely avoided.
The "Broken Window Theory" refutes the benefits catastrophic events have when the same pool of money is spent buying the same thing twice.
If the window of a store is broken by a rabble rouser, the on-lookers will say to look on the bright side. The money the store owner has to pay replacing the broken window will go into the economy as an increase in the purchase of goods and services.
Listening to the gawkers, the store owner is going to say, how he was planning on buying a new suit. But now, he has to use that money to replace what once was, a perfectly good window, and will not be able to afford the new suit, and what was once a perfectly good window now lies buried in a landfill somewhere.
Think the economy being in the ditch is more oblamos fault, than Sandy's fault...
After three years of so called, summer of recovery failures...
What happened to his Laser Beam for Jobs project..? lol
Sandy has created infrastructure rebuilding opportunities and thus a lot of jobs, rather than blew down the economy, period.
Unless the article is suggesting that these areas housing, utilities, roads, transportation, electric grid, sewer and water pipes etc will not be rebuilt and the people will be confined to homelessness etc.......
Mother Nature has a way of shaking things up on land doesn't She of the "She Who Must Be Obeyed and Taken Seriously Or Else". LOL
What short sighted meanspirited polititians refuses to do for political reasons although it needs to be done,- eg like the rebuilding and upgrading the infrastructure in this country,- Mother Nature then forces them to do what need to be done for the people or watch a large segment of the American populace stretching over 9 plus States go homeless etc and become very angry.... and in which many of these newly homeless and hating it have guns or access to same... LOL
Anyway there will be a lot of rebuilding going on. It will not be like the bail out of the financial folks where it was just the shifting of money via computer from one group to another group to make some papers/debt whole. Bailing out people by rebuilding their home and rebuilding roads etc is different as folks will actually see what the money is going for this time round.
MIRAGEGUY..... discribing yourself again huh.....but calling yourself Lazy, corrupt,arrogant and stupid.... Oh well, you know yourself best, but on the other hand why don't you give yourself a bit of a break eh?
Oh well 6 days from now we won't have to read your carpings or you beating up on yourself..... well at least for about a few years anyway..... LOL
Now Washington is trying to blame the weather for our crappy economy? What a bunch of complete idiots. The only people dumber than the politicians in Washington, are the Sheeple that continue to vote them into office.
Vote Libertarian for a real change in Washington. The Dem's and Rep's have had their chances and have repeatedly proven they are worthless.
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