Hurricane Irene – March 2020

By Teri | March 25, 2020

What kind of financial storm are we in? How long will it last? What should I do?

This is the story of Hurricane Irene.

It was late August 2011. Hot and humid on the east coast. And it was the beginning of hurricane season.

Towards the end of August, the first hurricane of the season was predicted . It was a Category 3 hurricane named Irene.

A Category 3 hurricane will do some serious damage and should be avoided if possible.

When a Category 3 hurricane is predicted, you do exactly what you are told to do. No questions. No second guessing. No landing on your feet in Oz.

Saffir-Simpson Hurricane Wind Scale

The Saffir-Simpson Hurricane Wind Scale is a 1 to 5 rating based on a hurricane’s sustained wind speed. This scale estimates potential property damage. Hurricanes reaching Category 3 and higher are considered major hurricanes because of their potential for significant loss of life and damage. Category 1 and 2 storms are still dangerous, however, and require preventative measures. In the western North Pacific, the term “super typhoon” is used for tropical cyclones with sustained winds exceeding 150 mph.

Category	Sustained Winds	Types of Damage Due to Hurricane Winds
1	74-95 mph 64-82 kt 119-153 km/h	Very dangerous winds will produce some damage: Well-constructed frame homes could have damage to roof, shingles, vinyl siding and gutters. Large branches of trees will snap and shallowly rooted trees may be toppled. Extensive damage to power lines and poles likely will result in power outages that could last a few to several days.
2	96-110 mph 83-95 kt 154-177 km/h	Extremely dangerous winds will cause extensive damage: Well-constructed frame homes could sustain major roof and siding damage. Many shallowly rooted trees will be snapped or uprooted and block numerous roads. Near-total power loss is expected with outages that could last from several days to weeks.
3 (major)	111-129 mph 96-112 kt 178-208 km/h	Devastating damage will occur: Well-built framed homes may incur major damage or removal of roof decking and gable ends. Many trees will be snapped or uprooted, blocking numerous roads. Electricity and water will be unavailable for several days to weeks after the storm passes.
4 (major)	130-156 mph 113-136 kt 209-251 km/h	Catastrophic damage will occur: Well-built framed homes can sustain severe damage with loss of most of the roof structure and/or some exterior walls. Most trees will be snapped or uprooted and power poles downed. Fallen trees and power poles will isolate residential areas. Power outages will last weeks to possibly months. Most of the area will be uninhabitable for weeks or months.
5 (major)	157 mph or higher 137 kt or higher 252 km/h or higher	Catastrophic damage will occur: A high percentage of framed homes will be destroyed, with total roof failure and wall collapse. Fallen trees and power poles will isolate residential areas. Power outages will last for weeks to possibly months. Most of the area will be uninhabitable for weeks or months.

https://www.nhc.noaa.gov/aboutsshws.php

Governors across the eastern seaboard declared a state of emergency and preparations began.

People were told to evacuate, and they did. Shelves were empty. There were long lines at gas stations. Massive traffic issues occurred as people hightailed it out of town.

Efforts across state lines were coordinated. Everyone agreed that Irene could be one of the most destructive hurricanes in recent history.

And then it hit landfall in New York. I remember standing in the living room looking out the window, waiting.

Friends were calling to make sure I was okay. It was a bit of a let down to tell them that it was raining in midtown, but not very hard.

Summer storms could be worse than this. Irene was downgraded to a tropical storm. The apocalypse did not happen.

In 2012 another Category 3 hurricane was again predicted to demolish the entire east coast.

Governors declared a state of emergency. Evacuations were ordered.

But something had changed. People in the evacuation areas were not evacuating.

Instead thinking, “this will be downgraded like Irene before it gets here” or ”We are going to wait and see what happens.”

Friends were not worried. It seemed no one was really worried.

What happened was Hurricane Sandy.

In New York Governor Cuomo, yes the same governor we have all come to know better in the last few weeks, declared a state of emergency.

“Special MTA service alerts, posted in subway stations on October 26, urged travelers to be alert for future evacuation orders or service suspension announcements.

Governor Andrew Cuomo declared a statewide state of emergency and asked for a pre-disaster declaration on October 26,[108] which President Obama signed later that day. Stock trading was halted for 2 days.

“Sandy was a Category 3 storm at its peak intensity when it made landfall in Cuba.[3] While it was a Category 2 hurricane off the coast of the Northeastern United States, the storm became the largest Atlantic hurricane on record (as measured by diameter, with tropical-storm-force winds spanning 900 miles (1,400 km)).[4][5][6] At least 233 people were killed along the path of the storm in eight countries.[7 ][8]”

Once again I was standing in the living room looking out the window .This time I was looking at a massive storm. The winds were so strong I could feel the building shudder.

I was not in a designated evacuation area. But even if I was, it was too late.

Then I heard through the wind, a high-pitched grinding of metal. A crane sitting on top of a newly constructed 60 story building was giving way under the winds. The boom, which had not been lowered as instructed across the city, bent backwards 180 degrees and was now dangling over 57th street.

I was less than 2 blocks away. I tried not to imagine the destruction if it fell off 60 stories, boom pointed downward like a missile.

Sandy was worse than anyone imagined.

https://en.wikipedia.org/wiki/Hurricane_Sandy#Forecasts

The crane was somehow secured to the building with netting. All the streets in a 5-block radius were closed. Turns out it isn’t possible to get a crane off a building with another crane. It must be dismantled.

Statistics later showed that only 50% of the people ordered to evacuate left.

What kind of financial storm are we in?

Today, some of us are in “stay at home” mode. I say some of us because there are a lot of people who are acting as if Sandy can’t possibly happen to them.

I wasn’t too worried until this last weekend.

I have never seen so many people out hiking, running, bicycling and walking their dogs. No thought to “self-distancing”. Groups of people playing Frisbee golf (yes there is such a thing).

Defying a hurricane like Sandy?

How long will it last ?

Hurricanes can last from several days to weeks. There is one thing about hurricanes though, they do end.

I think that is true in the markets as well, Yes, we are seeing a precipitous drop in stock prices. Never the time to sell if you have cash and can wait it out. The reason we are seeing the huge drop in prices is very different that 2008. We know what is causing this drop and it is “containable”.

I am surprisingly optimistic and think this hurricane will end sooner rather than later.

What should I do?

Fear and panic are driving down stock prices.

I can tell you what I have been doing. I looked at my allocation to stocks and bonds. I have always been light on equities with most of my exposure to bonds.

I looked at the stock prices of some very good companies, and they are on sale. I mean really on sale. I started reallocating a small percentage of my portfolio out of bonds, into cash, so I have cash ready to BUY.

Yes, I am buying stocks. At these prices they were too good to pass up. I don’t buy very much of any one stock. Depending on the price maybe 100 shares. I have also bought 10 shares of more expensive stocks. My allocation to equities is still within my target range.

I expect stock prices to be volatile. We will see down days and up days. The stocks I am buying now are for the long term.

I might have to wait a year or longer, or longer still but I’m ready to sit out the storm because storms and hurricanes do end.

Hey, there’s nothing at the store to buy. The shelves are empty. The equity market is fully stocked and offering discounts.

Listen to Governor Cuomo, he has been at the helm with two hurricanes named Irene and Sandy.

The silver lining? So many happy dogs who are getting walked liked they have never been walked before.

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.