Good Sunday morning to all readers. We hope you are safe, secure, and recovering from Ian's destruction if you found yourself in the storm’s path. And if you know someone — whether friend, relative, business associate, or colleague — who has been impacted by Ian, we hope they, too, are now safe. Here's a quick take on Ian, in bullet format.
• Cumberland Advisors is fully functional. We have an emergency system, and our New Jersey office is staffed, so from a business point of view, the firm never missed a beat.
• Our Sarasota Office and office buildings were closed. We went immediately into a work-from-home mode while the contingent crew operated from New Jersey. We have a communications system internally so that we can keep in touch with each other.
• The State of Florida has suffered an enormous blow. We will find out now what the state of preparedness in Florida, in its counties and cities and agencies, really is. We have heard the press conferences and announcements, which were rehearsed and prepared for. The test of governance now is the recovery and repair.
• We will soon discover the extent and the gravity of the issue regarding Florida insurance funds and claims, following a long period of neglect where insurance funding is concerned. (See “Florida's Shaky Insurance Market May Not Be Able to Handle Hurricane Ian,” https://gizmodo.com/florida-insurance-hurricane-ian-1849596111.)
• Initial estimates for the damage from hurricane Ian in Florida stand now at $67 billion. What I've learned in decades of experience with natural disasters, however, is that the first estimates are the smallest number we are likely to see. Over time, damage estimates are refined, and costs turn out to be much higher than originally estimated. We have seen that in the past with hurricanes, whether it was Charley 18 years ago or Katrina in New Orleans. We see it with natural disasters all the time. There is no way to assess definitively today what the eventual cost will be.
• For years, organizations such as the Sarasota-based Climate Adaptation Center (https://www.theclimateadaptationcenter.org/about-us/) have discussed the need for mitigation against a rising sea level and other effects of climate change. A few have paid attention; most have ignored the warnings. Now we have experienced a direct hit from Ian, which followed a path previously taken by Hurricane Charley in 2004. Ian’s storm surge in some locations exceeded 12 feet, as measured. In other locations it is estimated to have reached as high as 18 feet. We must now ask, how much more does it take to make mitigation against climate change a serious and highest-priority issue for Florida, a state of over 20 million people?
• We haven't addressed public health here, and the hurricane damage will replace it on the front pages of newspapers and social media commentary for a time, but public health issues are hugely exacerbated by natural disasters. We will follow that issue as we have since the pandemic started and advise readers of what we find.
• Natural disasters such as hurricanes, floods, fires, and major earthquakes impact economies differently than public health or pandemic disasters do. Natural disasters destroy wealth and property and trigger rebuilding. The rebuilding spurs economic activity, shows up in the GDP, reemploys people, and commences an economic recovery.
• Pandemic and public health disasters, on the other hand, kill people and damage health. They don't destroy the property, so the wealth that remains is redistributed among the survivors. Those are the differences between Ian and Covid. We are now about to see the economic dynamics produced by a pandemic interact with the economic dynamics driven by a major natural disaster. That combination of forces will make the economics of the recovery very complicated. Covid death and long Covid disability have removed more than three million people from the workforce (ages 16-64). Slowing immigration has cost American employers another two million workers. We face spiraling wage inflation because of the shortage of labor, and we must now undertake a massive recovery task that requires labor. Will this urgent priority inspire a ceasefire in the cultural political war that is destroying the country and instead permit the United States to exhibit its resilience and recovery potential? That profound policy question lies just ahead.
• A personal note — I was fortunate enough to visit New Orleans, in depth after Katrina, with a small delegation assembled by the Global Interdependence Center. During that visit, we toured the Ninth Ward, and we asked how the cleanup was taking place and where the workforce was coming from. A public official privately said to me, “The labor force is 15,000 people who are from Honduras. We cannot find and obtain the local labor force to clean up New Orleans. These folks are accustomed to the heat and humidity, and they are the reason we are able to start the cleanup of the Katrina mess.” I asked that official how he was handling the undocumented-labor issue, and he said, “We don’t talk about it. We pay them; we don’t ask questions because if we started down that road, we would never clean up New Orleans.” Will Florida, now facing the same issue, attempt to solve it the same way? The answer to that question remains to be seen. Maybe shocks from disasters can improve the political/labor situation so that the recovery can move along efficiently and within a rational, legal framework. We look forward to that reality.
It is our hope that everyone is safe and secure after Ian. It was a monumental and fiercely destructive storm, and our changing climate means that we can expect more of those category 4 or 5 storms than we used to see. By the way, the sea level in Sarasota is nine inches higher than it was half a century ago and continues to rise. That's true for the rest of Florida as well. Happy Sunday morning.
Chart source: NOA
David R. Kotok
Chairman & Chief Investment Officer
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