Investing in America's Resilience

 | Oct 31, 2012 | 2:07 PM EDT
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As our thoughts continue to remain with the millions of Americans who have suffered from the effects of destructive storm that has hit the eastern half of the U.S., we also take comfort in knowing that Americans have a resolve and fortitude unlike any other nation. Hard-hit cities in New York and New Jersey will rebuild and prosper once again. U.S. history provides countless evidence of that.

With an initial estimate of some $20 billion in damages, there can be no doubt that the U.S. economy will be affected both today and tomorrow. In the short term, one can only expect that the economy will experience some slowdown. While the Northeast may occupy a small geographical footprint relative to all of the continental U.S., the region affected is perhaps the most populous and urbanized part of the United States, with a great deal of economic activity. Clearly, the insurance companies will be affected as millions if not billions of P&C claims will undoubtedly affect underwriting profitability. Segments of retail will be affected, 33but the extent of that damage will only be known in the days and weeks ahead as we get more accurate damage data.

In the longer term, it is expected that the economic impact will turn positive. The great thing about America is the unity we display during times of crisis. According to Mohammed El-Erian, CEO and Co-CIO of PIMCO, predicts that after several weeks of negative economic impact overall GDP should turn slightly positive. In essence, the increased economic activity that will ultimately result from Sandy's aftermath will bode well for economic growth. If this increased economic activity can help put more Americans to work right before the holiday season that will be a really positive thing.

With the demand for reconstruction goods and services likely to pick up in the weeks and months ahead, Home Depot (HD) and Lowe's (LOW) will are likely to be impacted in a positive way. I suspect that general retailers will fare quite well not only as folks replenish essential supplies, but also get ready for the holiday season. Wal-Mart (WMT) and Target (TGT) are certainly the two big ones, but names like Dollar General (DG), which has more stores than Wal-Mart, will also be very favorably impacted in the longer term.

The effect on energy could go either way. I've been bullish on natural gas and if this winter turns out to be cold in addition increased energy demand from the reconstruction efforts, natural gas prices could be a winner. It's an abundant resource that is historically lower than any other energy alternative. New York Governor Cuomo said it best yesterday that one positive outcome will be the opportunity not to rebuild but rebuild better. Chesapeake Energy (CHK) is the dominant natural gas player and it also happens to be trading at an attractive price. Wilbur Ross has a big investment in EXCO Resources (XCO).

Just as it makes no sense to invest based on a fad, I would certainly not anchor an investment based on a singular event. But the unique opportunity here is that state and government coffers are financially strapped and don't have the spending flexibility as before. Perhaps this storm will be the catalyst that gets private enterprise expenditures going which, to a free market capitalist like me, will be a positive for the economy.

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