When we wrote our commentary last week on climate week and the ninth named storm, little did we know that Helene would cause such a huge swath of damage and destruction. See “Climate Week, the Ninth Named Storm, Insurance, and Municipal Bonds,” https://www.cumber.com/market-commentary/climate-week-ninth-named-storm-insurance-and-municipal-bonds. The storm wreaked havoc with high winds, a storm surge, and heavy rainfall in Florida, Georgia, South Carolina, North Carolina, and Tennessee. The hopes that a fast-moving storm would not dump as much rain as the more recent slow-moving storms were dashed. Unfortunately, in Western North Carolina torrential rain from Hurricane Helene fell shortly after days of rain from a separate storm, causing devastating floods that washed away buildings, roads, cars, and lives.
The death toll as of this writing has risen to over 160 and may well rise further. Our hearts and prayers go out to all those who are suffering and have lost homes and loved ones. The efforts of local officials, first responders, and the National Guard, and all the inner workings of our national disaster relief machine, have been tested – but are delivering. Many areas have been hard for rescuers to reach until debris is removed or roads are rebuilt or circumvented to reach victims, let alone to give people access to their homes or what is left of them.
Estimates of damage from Hurricane Helene, including economic loss, by AccuWeather have reached $160 billion. The recent increase reflects, in part, the catastrophic flooding disaster in the southern Appalachians, including Asheville, North Carolina, and surrounding areas, as well as the widespread storm surge impacts along the populated west coast of Florida. In contrast, Hurricane Katrina killed at least 1,200 people and caused $100 billion in damage and economic loss, while Hurricane Sandy caused around 160 fatalities and $210 billion in damage and economic loss.
Unabridged federal funding can have unintended consequences, even though the aid is necessary and important to all Americans. People need to feel safe and know that our responders have the resources to address disasters. However, rebuilding in areas that are time and again exposed to disaster could take a toll on our economy. Many are thinking about not living in vulnerable areas, and insurance pricing that takes into account potential risks will raise premiums, despite some states subsidizing insurance. We also have a not so new problem: Areas that hadn’t experienced disasters now are! Folks that didn’t need flood insurance now do.
We have learned from other natural disasters that rebuilding efforts often increase economic activity and municipalities do recover. There may be stresses along the way, such as New Orleans experiencing credit downgrades after Hurricane Katrina and smaller issuers or projects facing insurmountable damage and experiencing default. Most municipalities in the higher-rated categories that Cumberland invests in have diverse economies or are bedroom communities that have good financial management and strong reserves, such that if a disaster or economic dislocation occurs, the municipality has resources to address the problems. And of course, our Federal Emergency Management Agency response and funding as well as private donations go a long way to helping residents and municipalities recover.
Patricia Healy, CFA
Senior Vice President of Research & Portfolio Manager
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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.
