Are we underestimating Hurricane Sandy? Are we doing so because of a total lack of knowledge of the extent of the damage, because we're just plain wrong about how much rebuilding will need to be done? Just this morning, the always-on-his-game Bill Dudley -- the president of the New York Federal Reserve -- relayed a possible recognition that Sandy might be the big one, and that we still haven't been able to grasp the enormity of its effects.
I think he's right. The numbers we have seen have pointed to $36 billion in damage for New Jersey and $33 billion in New York, according to the respective state governors. These may sound like overestimates, but I think they will end up dramatically understating the destruction.
That's because there are whole swaths of Sandy's effects that haven't begun to be measured. In fact, to date the only measurement we've gotten that counts, in my opinion, is this morning's reported shortfall in retail sales from chain stores that have been hurt by the hurricane. Maybe only Amazon (AMZN) was able to capitalize by the shut-in Northeast consumer during a chunk of November.
In fact, I think repairing the damage may cause the entire gross domestic product of the nation to spike. We are beginning to find out that the materials that would have been used for rebuilding by many of the contractors in the Northeast are not usable -- they've been the victims of warehouses that straddled the ports of the states, warehouses that were basically washed away by the storm.
Now, many an article has been written lamenting the lack of insurance for the storm, and there are many people who are struggling to put the pieces together, particularly in the hard-hit Rockaways in Queens, NY and Staten Island, NY. But there are other areas -- high-income areas -- where, insurance or no, the tearing-down is just beginning. Here, the rebuilding will start in earnest when the supplies are replenished, and this is something that might not occur until as late as the second quarter.
I believe the destruction will provide a level of business to the home-construction products that could shock people when the bill comes due. I am talking about the very basic companies, such as Georgia Gulf (GGC) for pipe, USG (USG) for gypsum board; Louisiana Pacific (LPX) and Weyerhaeuser (WY) for board and wood; Owens Corning (OC) for roof and insulation; and even Berkshire Hathaway (BRK.A) for Acme Bricks. I expect the impact will extend to whole aisles of Home Depot (HD) and Lowe's (LOW), including the tools, Stanley Black & Decker (SWK) and even appliances and paints, including old favorites Whirlpool (WHR) and Sherwin Williams (SHW).
I suspect that, over time, we will hear numbers being pumped for all of these companies as they furiously try to get the inventory where it is needed.
It's going to be rocky. It will be difficult just getting the contractors to the houses, or hiring contractors, given a labor shortage and the wipe-out of so many contractors' places of business. But this event will provide multiple quarters of growth, and it is growth in which you must invest during every fiscal-cliff dip over the next four to eight weeks as wrangling in the Capitol continues.
It's interesting, because the housing and construction business was just beginning to come back on its own; witness this morning's strong pending-home sales. But, layer on Sandy damage, and you get sharply better-than-expected quarters for companies that have been serial disappointers for ages. It's a major change, and one that will become the story for the first half of 2013.