With the recent earthquakes rattling southern California in the last 24 hours, July being the hottest month in the US on record and just general 2012 pessimism – is the stock market in for a wild ride? We would all like to think that the answer is no, but it seems that we are always just one step away from chaos as our infrastructure is getting pushed to its limits and 2012 fanaticism continues to escalate All things considered, we are really just one step away from our markets being tossed into chaos.
THE BIG ONE
Let us take a look at the recent earthquake in California – what would happen if it was a major earthquake of magnitude of 8.0 or more and hit Los Angeles? Beside the direct loss in countless billions of dollars to the local economy and infrastructure, what would happen to the stock market? Well it would be safe to say that local residents and businesses would be the hardest hit. Now, let us not forget about insurance companies. Depending on the size and scope, certain companies could be wiped out or pushed to the brink of financial collapse. However, those that were left standing would have the opportunity to gain market share, as after any major disaster there is an increase in insurance purchases as awareness for the need increases. This could create a buying opportunity. Clearly infrastructure companies could show be a strong play in such a tumultuous time as in the aftermath of such a horrible tragedy.
JULY – THE HOTTEST MONTH EVER
To date, July 2012 was the hottest month ever recorded in the US. With rising temperatures, an aging power grid and a growing population we are truly starting to strain our existing infrastructure to the brink of exhaustion. We could possibly start experiencing the brownouts and blackouts of 8 years ago. Take a look at what is happening in India right now. According to The Onion, “300 Million Without Electricity In India After Restoration Of Power Grid.” Yes that is 300,000,000 without power. Let’s face it, back home in the good ole US of A we don’t have the best power infrastructure anymore. Our power grid is antiquated for 2 reasons. First and foremost much of the infrastructure is old and needs to be modernized – it’s remained largely unchanged since the 1960’s. Second, our population is growing and our need for power is increasing.
As our temperatures increase over long periods of time, the question becomes – can our outdated power grid support the increasing thirst for electricity of our growing population? Looking at India, it could be just a matter of time before our infrastructure caves in and we start to experience the brownouts and blackouts which we consider so third world. The question is what does that do to our stock markets? Well that just depends on the scope of the problem. If we are talking brownouts over small areas then it might actually be a good thing, as power companies and the federal government will be forced to look more closely at resolving this issue. However what about a major failure to the US power grid? What does this mean for stocks? Well the answer is quite simple, it could spell temporary Armageddon for the US markets. See without power several things happen. First off everything now happens digitally, even the trading of stocks and other financial instruments. With a major failure of the power grid, we are not able to access the exchanges and hence the markets could come to a screaming halt. We’ve seen what has happened with just a slowdown of the markets, but a complete freeze – the consequences could have effects for years to come. Clearly this would negatively affect many companies on a broad scale – a smart play could be the stock in companies rebuilding after awareness rises.
2012 – REAL OR NOT – HERE IT COMES
We have all been bombarded left, right and center over the last decade about December 21, 2012 being the last day of the Mayan Calendar. The significance of this day has been widely speculated about over the last decade. Everything from solar maximum, to a polar shift, to the end of the world has been predicted to start occurring as the end of 2012 nears. Whether or not these things happen is for conjecture. However, with each tick and tock on the clock we inch closer to the 21st of December and this author believes that confidence in our markets will start to sink.
With all doom and gloom all around us, we are all affected by it on some level. Even if none of these things physically affect us, their very presence and potential lurking in the distance has a real effect on our markets. Consumer and investor confidence is one of the most important factors in determining the state of our economy. If people are not spending or investing, especially if they cut back over a long period of time – the effect could be felt for the next generation.