Credit Bubble Bulletin

Credit Bubble Bulletin

While the damage will be significant, at least much of the Florida coastline dodged a bullet. The surprise drifts 25 to 30 miles west and it’s an extremely different outcome. Yet most people will your investment seriousness of such a detailed Call. Instead they’ll embed the idea of “fear mongering” further into their thinking. The complacency that developed over ten years of no hurricane encounters will become only more instilled.

Surely another dangerous storm caution will be readily dismissed. Heading back to early CBBs, I’ve used a parable of a “Little Town on the River” that appreciated booming growth and success engendered by the newfound option of cheap flood insurance. For the “financial” side, writing flood insurance during an extended drought was as near to free money as one can get about.

It was fascinating, sophisticated and lavishly rewarding. Truth be told, the insurance market was a rank speculative Bubble in disguise. On the true economy side, the building growth along the river run a self-reinforcing generalized financial Bubble. The tiny town that got a lot bigger was wonderful and awe-inspiring. And it all came crashing down when torrential rains commenced and the undercapitalized “insurance” industry rushed to offload flood exposure (into an illiquid market).

As an analyst of risk, I had been struck by an integral hurricane Matthew data point. Apparently, five million new residents have relocated along the SE coast since the last major hurricane back 2004. Therefore the risk of a catastrophic event has increased significantly. Matthew’s … Read the rest