Mar

23

DaHRiFDisasters and Heroic Rescues of Florida by E. Lynn Wright recounts the stories of 22 disasters in Florida starting with the Sinking of the Plate Fleet in 1710 and ending with wildfires in 1998 and a constellation of four hurricanes — Charlie, Francis , Ivan and Jeanne — in 2004. Florida is particularly prone to natural disasters because of its geographical position between the Gulf of Mexico and the Atlantic Ocean and its 12,000 miles of rivers and streams. However, the extent and prevalence of the disasters that have visited it seems to go over and above its geographic and geologic characteristics involving what seems to me a manifestation of the kind of character, promotion, and hopefulness that is engendered by warm weather, and extensive beachfront and recreational activity.

The author believes that a common characteristic of all these disasters is carelessness, ignorance, negligence, and greed. I would add that an aura of utopian thinking that nothing could go wrong as well as a lack of appreciation that the same disaster can strike twice,and a failure to appreciate that many seemingly improbably events are linked and that their conjunction is much more likely than normal multiplication of independent probabilities might suggest.

Take the Veterans Rescue Train Wipe Out of 1935 as an example, where 600 veterans imported to build a highway paralleling the Flagler East Coast Railway were drowned by a tidal wave hurricane in a rescue train. There was the utopian idea of creating work by building a public structure with inexperienced workers without local knowledge at the heart, faulty weather forecasts of a tropical disturbance that turned out to be 200 mile an hour winds, the event occurring on Labor Day, when the holiday caused hours of delay in gathering workers to get the train to the Ismeralda rescue site, usually reliable equipment that this time turned out to need repairs, a torn cable that held them to a standstill, a crane that got entangled with the train that took another hour away, and then finally a 20 foot tidal wave that did them in.

Many of the disasters seem to have signaled the beginning of real estate disasters shortly thereafter. For example the Great Citrus Freeze of 1895 came when central Florida and Daytona were in a boom stage with the orange crops adding revenues to the vacation homes and farms in the area. Developers Deland and Stetson were so sure of the boom that they guaranteed all the real estate buyers their money back. But a freeze came on Christmas Day in 1894 and ruined the citrus crops, and then when the growers relaxed, as they at least still had the trees and had lost only their income for the year. But two months later they were visited with an even worse freeze that destroyed all the fruits and seems to have cast a pall on the area. As the Tampa Time put it, "The Beauty is all gone from Florida. Everything is dead."

Similar declines in real estate followed the Capsize of the Prince Valdemar in 1926 in Miami, which seems to have had a direct causal link with the real estate bust in Florida in 1927 and then the stock market crash in 1929, and subsequent Depression. The chain of events is eerily similar to those playing out today, at least to the extent that the real estate bust caused the stock market crash. Perhaps the flooding of New Orleans will be seen as playing a similar role in the recent chain to that of the closing of the Miami Port caused by the Prince Valdemar.

The 22 disasters that are recounted in this book provides a good caution for all investors. Utopian visions have time and time again been dashed. Disasters that seem totally impossible occur with astonishing frequency.

Sam Marx explains:

HurricaneI lived through hurricanes Jeanne and Francis, that were 2-3 weeks apart and made landfall within eight miles of each other. This was a highly improbable event. The hurricanes were Category 2 when they passed over my house, but may have been a low Category 3 (130 mph) when they made landfall.

Because of the new building requirements of 1992, (Andrew was the motivator), the damage to my house was minor.  Most of the damage was to the trees. Records indicate that the last Category 3 in this area occurred over 50 years ago in Jupiter, 20 miles south and none ever recorded north of here in the last 90 years.

The heavy damage occurs on beachfront property, which Florida Governor Charlie Crist now wants to be paid for by all US taxpayers. I live 14 miles from the shore, and with the hurricane history of the area and the new building code I feel safe, but who knows. You take the great weather with the hurricanes.

The safest type of construction is a round house made of poured reinforced concrete with reinforced glass windows on raised ground. The roof is the most critical part of a house in a hurricane and it should be firmly secured to the reinforcing rods in the poured concrete.

Jeff Watson adds:

Sam makes some excellent points about the new building codes that are required in Florida. On my key, just south of Sarasota, there is strong evidence of the new codes that are being enacted. Builders are tearing down the existing homes and building new McMansions, employing much reinforced concrete, and adding elevation. From a visual perception, it is obvious that 200+ mph winds are factored into the designs. The new housing on this key is built on such a grand scale that it has changed the whole vibe of the place. Meanwhile, our 1926 cypress wood Conch House stands out as the lone reminder of what once was. Our cottage has survived many hurricanes, tropical storms, and fires without missing a beat. The designers did a good job on our cottage 80 years ago. The floors were built with a slight peak in the middle of the rooms, to allow storm surge water to run out of the house. Living at the beach, one must appreciate the grand forces of nature, the temporary aspect of existence, and man's insignificance in the whole scheme of things.

John Tierney marvels:

SurgeVic wrote "Disasters that seem totally impossible occur with astonishing frequency," and someone added "All of this drags down property values in storm prone areas of the USA."

Why is this surprising? By definition, a storm-prone area should have lower property values and higher insurance premia. Storms in areas that have been historically prone to them are neither unusual nor disastrous. "Disaster" is a term we apply to occurrences that result in the loss of human life and, increasingly, the loss of wealth. More properly, these are natural and inevitable phenomena — they are, if you will, part of an unbreakable cycle.The cycle may be ever-changing but it is certain that these periodic maladjustments will continue to occur. And those who are uninsured, under-insured, or who paid too dear a price will be hurt — again and again and again.

As it is in nature, so it is in the market. Bad times are inevitable and as fat tails occur with greater frequency than our probability tables would estimate, we must learn to expect the unexpected. We must also realize that government intervention cannot alter the unalterable. On the contrary, intrusive government in its paternalistic actions, encourages re-building where any building, except by those willing to assume all the risks, is inappropriate; and, in the markets, continued Federal action (reaction?), has encouraged the same groups and individuals to rebuild their castles on sandy soil.

Without this insurance, these occurrences would be just as unexpectedly frequent, but less harmful to the general population: the ultimate guarantors of poor fiscal policy. As Davy Crockett, a noted Tennessean, stated of his fellow  Congressmen: “Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it.”

Steve Leslie writes:

HurricaneI moved to Florida 25 years ago and have lived in the same town since. I live on the Space Coast, equidistant between Jacksonville and Miami and 60 miles southeast of Orlando.When I first moved here, our city had swinging bridges that spanned the intracoastal waterway. They have long since been replaced with modern bridges. US1, a major thoroughfare, was two lanes and now is six lanes and cannot be expanded further. Most of the beachfront property has been developed and great restrictions have been imposed to slow down further building directly on the beach.

Commercialization on A1A is unmistakable and is beginning to look more like Daytona Beach than the sleepy town of Indialantic it once was. Beach erosion is a real problem and threatens property that has been around for decades. Laws have been passed to reduce lighting on the beach to avoid confusing loggerhead turtles who come ashore to lay their eggs.Wetlands have been exploited by real estate developers, and the challenge is to protect wildlife and retard the erosion of the Florida wetlands. The Florida panther, crocodile and alligator have been threatened species as are many other wildlife. Clams which used to thrive in the intracoastal have long since disappeared.

Probably the most profound real estate phenomenon in Brevard County is the largest manufactured home community in the state. Over 5,500 people who live in manufactured homes there. Many more manufactured home communities dot the county. This is a striking point considering the fact that Florida is particularly known for its hurricanes and unpredictable weather, especially lightning and tornadoes.

Florida is now the fourth-largest state in terms of population. Along with this come remarkable challenges. By all accounts, the trend will continue and populations will rise especially in the Latino community. Despite of what many think, not everyone in Florida is rich. There are vast pockets of poverty, especially in the Miami, Jacksonville and Tampa, that will continue to expand.

Yes, lessons have been learned, new building codes have been imposed, insurance laws tightened, yet it is like the horizon that one never reaches, it merely continues onward. There is a human cost to all thus that just can't be quantified. Yet I live here and this is my home and I will probably stay for some time. I hope I will adapt with the times and not become an anachronism.

Ken Smith extends:

LightningLightning strikes are another hazard in Florida. Discovery Channel once aired a story on a lightning belt in Florida. Government and university research people have placed structures in that belt to study lightning.

I am always excited by lightning storms, thunderstorms. I thought Florida would be ideal for living under them. Once my wife and I sat in our car — rubber wheels supporting us — on a lake in Glacier National Park, and watched a terrible, terrific, astounding display of lightning. Stayed until the little woman got nervous. I understand a vehicle should have a strap hanging from car frame to ground, although I have not researched this necessity.

The most spectacular storms I've witnessed were out in the deep ocean where only lone sailors are blessed with these visions. To see these lightning strikes accompanied by thunderous blasts of sound in the sky and 100 foot waves crashing into your home on the sea, these are ultimate experiences.

Dylan Distasio responds:

I've always loved lightning storms myself also. I remember watching a spectacular one when I was out in Arizona crackle across the wide open horizon.

Another time, I was actually caught in one while camping with my brother on a peak along the Appalachian Trail in Massachusetts, which while breathtaking, was also terrifying.

By the way, you should be fine in a car hit by lightning without a strap (or rubber tires for that matter). A car basically behaves as a Faraday cage where the charge is spread along the outer surface. I remember learning that in a physics class at some point, although I wouldn't want to test it out myself.


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5 Comments so far

  1. George Parkanyi on March 23, 2008 1:13 pm

    DISASTERS AND CHAOS

    I’m currently reading a very interesting book on the science of Chaos called “Exploring Chaos - A Guide to the New Science of Disorder”, edited by Nina Hall. (She’s not the author as such - the book is a compilation of articles about Chaos.)

    Chaos deals with the mathematics of of how non-linear systems transition between stable and chaotic states, and the role of feedback. Applying feedback by inputing the last result back into the source equation also shows how certain non-linear systems repeat the same patterns in differerent scales. These recurring patterns are called fractals, and I’m sure everyone has seen some of the stunning images generated by fractal geometry. Many of these types images occur in nature, implying that nature herself may use a combination of relatively simple mathematics and fractal recursiveness with which to generate life itself. (One wonders how strings of just 4 amino acids can create such an explosive diversity of life.)

    The financial markets are a non-linear system. It would appear to have both stable and unstable states and it clearly has a feedback mechanism. It also displays recursive behaviour (similar patterns within patterns). The nature of the feedback appears to be two-fold - re-inforcing, and opposing. An example of strong re-inforcing feedback is rapid final ascent of a market that tends to manifest in a geometric price chart shooting almost straight up at the end. An example of opposing feedback is friction. For example the faster one accelerates in free-fall, the more the countervailing friction from the air, until this process becomes stable at terminal velocity (of about 130 miles per hour.) In the stock market, there is also clearly opposing feedback, because markets do not rise indefinitely, nor do they go to 0.

    As a market rises in a clear trend, it appears to be stable through the re-inforcing feedback (e.g. price momentum and good news), but at some point begins to sow the seeds of its own demise as opposing feedback builds against the re-inforcing feedback, de-stabilizing it for a while into a chaotic state (i.e. market top). Then the opposing feedback eventually becomes re-inforcing feedback and stability returns in the form of a down-trend, with new opposing feedback building against the decline.

    And I believe this process is fractal in the sense that you get sub-trends (and chart patterns) within the major trend (which we all see in price charts).

    If the market is indeed a chaotic system bounded by the parameters of opposing feedback, what does that then reflect? Human psychology as it responds to certain inputs from within the system and from the external environment it would seem.

    The external environment part gets interesting when you consider that non-linear systems are extremely sensitive to initial conditions. What if the external environment is reaching a point where its input is enough to overcome the opposing feedback mechanisms that maintain the balance within the system, and turn the system itself chaotic? (complete systemic breakdown)

    All this has got me to wondering as to whether it would be possible to feed certain market variables (e.g. price, volume, direction, time) into some kind of non-linear equation to perhaps literally paint a fractal picture of the market’s action that might in some way provide indirect clues/markers as to where we are within the system in a way to exploit it (i.e. identify the next significant trend) and/or to determine whether the system itself is healthy.

    To finally tie this to Victor’s point about disasters, although all the cited Florida disasters seriously impacted individuals, the state and its society have been able to quickly (in most cases) recover and regenerate in the aggregate. So human interaction/cooperation has a built-in mechanism to chaotically oppose disorder and strive for stability (and ironically it would seem, in conditions of seeming stability also somehow let up and allow disorder to begin regaining the upper hand - much has been written about the fall of the Roman Empire).

    Time frame is important. In the short run, having one’s house destroyed in a hurricane is a disaster, in the long run however, perhaps this strengthens the community and you rebuild and go on to live a fulfilling life in a new house with more closely-bonded neighbours and friends. In the markets, having your stocks go down 40% in one fell swoop also is (or feels like) a disaster in the short run, but will lose its significance over a long run.

    What Florida has to worry about more is systemic risk - full breakdown of the society itself resulting from say, the ice caps melting and permanently flooding half the state. Similarly market participants may have to be concerned with the markets themselves collapsing to the point of shutting down completely. What might cause that? and how could it be prevented?

    The credit markets today clearly seem to be in some sort of chaotic distress - in a transitional (hopefully) period of instability. The re-inforcing feedback that is required to stabilize them is restored confidence in counterparties, and the continuity of the markets. That central banks are desparately trying to overcome this sudden swing toward disorder is probably a good thing. This is much bigger than LTCM ever was in 1998, and would seem to have the potential for true systemic disaster if not contained.

    Cheers,
    George

  2. Disasters, chaos, and the stock market « 0 to IPO in 7 Years on March 23, 2008 1:21 pm

    […] chaos, and the stock market Jump to Comments This is actually a comment in response to Victor Niederhoffer’s post at Daily Speculationsentitled “Disasters of Florida - reviewed by Victor Niederhoffer.” […]

  3. George Parkanyi on March 23, 2008 2:12 pm

    Interesting point about lightning Ken. I wonder - could some of that lightning somehow be captured and stored for later use? That’s a heck of a lot of energy …

  4. steve leslie on March 23, 2008 2:42 pm

    “Perhaps the flooding of New Orleans will be seen as playing a similar role in the recent chain to that of the closing of the Miami Port caused by the Prince Valdemar.”

    Please allow one further thought. New Orleans was nearly destroyed by hurricane in 2005. Hurricane Katrina was the costliest and one of the five deadliest hurricanes in the history of the United States.[1] It was the sixth-strongest Atlantic hurricane ever recorded and the third-strongest hurricane on record that made landfall in the United States.

    The damage is inestimable both in economic damage and in lives lost and/or destroyed. At one time 80% of New Orleans was flooded. Who can forget the stark images of those standing on their roofs waiting for rescuers and the 10s of thousands who evacuated to the Superdome. Estimates are that over 2000 individuals have lost their lives because of Katrina.

    Economically, New Orleans is one of the major port cities in the United States primarily due to its attachment to the Mississippi river. In addition, most of the oil refineries in the U.S. are located in the Gulf coast region in Louisiana.

    I saw an interview with the President of the private company that was contracted by the Army Corp of Engineers to repair the levee system post hurricane Katrina. I remember distinctly the interview and the President of the construction company was asked if the new levee system will be better than the old one and will be able to withstand a major hurricane. I paraphrase, he said no it will be no better. When asked why his comments were because his company built the system 30 years ago and he is rebuilding it today and it is no better now than before. To properly build the levee system some estimates are that it will take 25 to 30 years.

    Final point. There have been no new refineries built in the United States in the past 30 years. It is the old adage that everybody knows that we need them but nobody wants them in their backyards. I liken it to social security, medicare and medicaid. All the politicians know that the system is broken but none of them will do anything to fix it on their watch. to date, there are no plans to build any oil refineries in the United States

    Is it any wonder then that post Katrina gasoline prices rise to record levels. During high demand supplies become constrained and prices rise further. Barack Obama offers that if he is elected President he will release some of the strategic oil reserves into the system to combat the problem. Left wing idealogues fight to protect the ANWR province in Alaska. Al Gore receives the Nobel peace prize for his work on global warming.

    All this and Nero(see Washington D.C.) fiddles while Rome burns.

    SJL.

  5. Jay Nelson on March 23, 2008 5:30 pm

    Vic’s final sentence resounds most deeply. “Disasters that seem totally impossible occur with astonishing frequency.” Nobody would have thought a tsunami in Indonesia could kill a quarter million people. Think about it, a quarter million people!

    And nobody really believed a hurricane could take out New Orleans because it hadn’t happened in their lifetime.

    Memory (or lack of it) seems to be the key here, or our inability to remember things which took place before we were conscious and savvy like we are now. The 30s Depression, few are alive that remember it…anyone reading up on what they were saying about markets and economic growth in 1928?

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