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The economic, trading and investing impact of Hurricane Sandy (And Trade Alert – Trimming some LPS puts)

October 31, 2012 by Cody Willard Leave a Comment

First things first. My thoughts and prayers go out to all those affected by Hurricane Sandy. As human beings, that is the first thing on all our minds and hearts. As professionals, we have to analyze what it means to our portfolios, if anything.

There’s an old economic theorem about the “Broken Window” and it essentially explains how breaking your own house’s windows doesn’t actually create any economic benefit even though you’re going to be buying a new window, which creates demand for glass, metal, wood, installation services, and what not. Because when all is said and done, without some repeatable demand from new housing, you’re back where you started and those guys have to hope you’re willing to break your own window again to keep their businesses going.

Hurricane Sandy is not a “Broken Window” phenomenon. Yes, it was destructive and that is always a negative. And yes, there’s been a few billion dollars worth of retail and other business lost over the last few days. But that demand will be right back where it was and will have some pent up excess to it for the next few weeks after life returns back to some semblance of normalcy for the affected parts of the country. And there will indeed be tens of billions, probably more than a hundred billion dollars, worth of new demand for construction materials, services, supplies, workers, and so on for the next couple years as a result of the rebuilding process that we’re about to undertake.

Most of that money will ultimately come from the Federal government and/or the Too-Big-Too-Fail government-sponsored banks and is ultimately borrowed from our future generations of taxpayers as it will ultimately add to the deficit side of the government’s ledger. However, there’s very little near- or mid-term costs to that new spending because the government and the TBTF banks have the ability for the next couple years or so to borrow that money for free what with interest rates artificially set at 0%.  The pain from that added additional debt to the Federal deficit won’t be felt until interest rates rise whenever that may be. And as I’ve written before, when interest rates for the US government finally rise back even just to where they were ten years ago, which were historic lows at the time, we’ll probably need to be long gone from our net long positioning anyway.

Thus, the economic, trading and investing effects from Hurricane Sandy are, if anything, a net positive for the near- and mid-terms and are a net negative for future generations (although at this point $100 billion of new borrowing only adds 0.07% to the Republican/Democrat Regime’s deficit of $14 trillion and counting).

As for trading, I’m going to sell about 15% of my LPS puts which we’d been scaling into recently and are now up much more than double after that stock dropped big time today post earnings. Nothing really new in the earnings report as far as our thesis of this thing being an eventual scapegoat for the mortgage-title robosigning debacle, but the topline was light and the bulls want to see this thing grow faster.

Bidu’s down 5% after its earnings report as the bears leap on the ol’ “slowing growth” mantra. Steady as she goes there too, I’ll look to finally scale into another tranche if and when she gets closer to $100 and not before. Patience is one of the most important lessons I can practice and write about.

 

 

 

Related posts:

Trade Alert: Buy into the "scentless" fear
Trade Alert - A basket buy plus a bunch of must-reads and commentary
Trade Alert - In 3-D
Trade Alert: Update on the GTAT BK trade PLUS Everything You Should Know Heading Into This Busy Week
Riding the bull: Trade Alert - Taking profits on the Dollar shorts and also on some Sandisk calls
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Filed Under: Trade Alert

Disclosure: At the time of publication, the firm in which Willard is a partner and/or Mr. Willard had positions in some of the stocks mentioned above although positions can change at any time and without notice.

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This does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or cryptocurrency or token any other product or service by Cody Willard or any other third party. Furthermore, nothing in this is intended to provide tax, legal, or investment advice and nothing in this should be construed as a recommendation to buy, sell, or hold any investment or security or cryptocurrency or token or to engage in any investment strategy or transaction. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your business advisor, attorney, or tax and accounting advisor regarding your specific business, legal or tax situation.

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