Author Topic: What will happen to stock market if a major earthquake hit bay area?  (Read 12486 times)

firelight

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I'm heavy on tech stocks and am curious what would happen to our stock market if a major earthquake (think mag 7+) hit right in the middle of silicon valley, ala 1908.

gillstone

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #1 on: June 15, 2015, 04:30:34 PM »
Given the recent influx of "tech bros" into the Bay Area, I imagine the supply of douchebags would drop significantly.

4alpacas

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #2 on: June 15, 2015, 04:52:47 PM »
Given the recent influx of "tech bros" into the Bay Area, I imagine the supply of douchebags would drop significantly.

forummm

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #3 on: June 15, 2015, 05:38:05 PM »
Speculation is not very useful. But it's fun! So here goes...

Tech companies have their servers all over the world, so disruptions in operation would probably be pretty minimal. People can probably telework a lot too. If it were a really, really bad quake, you could lose several weeks of productivity from the workforce. So growth might slow a bit.

And the tech sector is not just based in SF. Some firms are based in other states. Many firms have offices around the country. My guess is the sector would probably fall about as much as the markets would overall, or perhaps a little more.

I think the stocks for other industries like insurance would get hit much harder.

My Own Advisor

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #4 on: June 15, 2015, 07:04:18 PM »
A market crash.

surfhb

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #5 on: June 15, 2015, 09:51:01 PM »
Another pretty good reason to diversify.

hodedofome

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #6 on: June 15, 2015, 09:52:30 PM »
Well if a lot of tech executives got killed, that would be a lot worse than just trying to move some people around for a few weeks.

In any case, most companies have plans in place for stuff like this. You really can't put this kind of stuff in your investment plan unless you have a strategy like what Taleb used to do. Buy lots of really cheap out of the money options and wait for an extreme event where they pay off huge. In the interim you bleed a slow death as all the options expire worthless.

Diversified trend following has historically outperformed in times of stress, but if it's a surprise event like what you're talking about, those strats wouldn't necessarily be positioned correctly except for dumb luck.

Scandium

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #7 on: June 15, 2015, 10:43:51 PM »
Given the recent influx of "tech bros" into the Bay Area, I imagine the supply of douchebags would drop significantly.

NooO! Not the brogrammers!

bryan

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #8 on: June 15, 2015, 11:50:12 PM »
Well what would the damage look like?

I'll just throw out a 42% peak to bottom guess in case it happens soon and I want to be on the record :p
« Last Edit: June 15, 2015, 11:53:36 PM by bryan »

seattlecyclone

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #9 on: June 16, 2015, 12:28:05 AM »
Buildings are constructed a lot better now than they were in 1908. Some buildings would collapse, some roads would become impassible, but few tech companies would experience much more than a short-term disruption. However during that short term, people are likely to overreact and sell their stocks, so it might be a good buying opportunity.

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #10 on: June 16, 2015, 06:38:37 AM »
There was some impact from the last major earthquake in 1989.  A freeway collapsed, the Bay Bridge lost a section of paved roadway and was closed for a month, and there was a lot of disruption in highways and other transportation.

However, a catastrophic earthquake in the Bay Area is not a matter of "if," it's a matter of "when."  Major corporations have contingency plans.  Governments have disaster plans as well. Yes, a relatively large number of people could be killed, but the number of people in tech here and elsewhere outweighs the possible losses.  And who is going to miss Larry Ellison (or any other major tech company figure) when his mansion collapses on top of him anyway?

theoverlook

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #11 on: June 16, 2015, 08:16:25 AM »
Given the recent influx of "tech bros" into the Bay Area, I imagine the supply of douchebags would drop significantly.

NooO! Not the brogrammers!


iamlindoro

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #12 on: June 16, 2015, 10:38:12 AM »
The effect on business is likely to be negligible, if any.  Most people who don't live or didn't grow up in the area don't realize how much thought goes into earthquake safety when building new structures or retrofitting older ones.  Almost everything is built to withstand extremely powerful earthquakes. 

Obviously, there would be some damage to roads and buildings (particularly older structures), and likely some loss of life.  However, the fantastical "San Andreas" movie scenario or "California falling off into the ocean" meme simply cannot occur here.  Our faults aren't actually even capable of a 9.0 magnitude earthquake (The San Andreas fault would max out at about an 8.2).  We have about a 7% chance of seeing an 8.0 in the next 30 years.  If it happens, we'll be fine.  Most of people's fears of California earthquakes are based on historical knowledge of early 20th Century earthquakes and the damage they caused.  It's important to put it in perspective- those structures were largely thrown up in haste during the Gold Rush, with minimal to no oversight.  Comparatively, the 1989 earthquake was barely a blip after a century of learning to handle this stuff.

However, if you could send us some water, that'd be great.
« Last Edit: June 16, 2015, 10:43:08 AM by iamlindoro »

hodedofome

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #13 on: June 16, 2015, 10:52:28 AM »
**<insert intelligently sounding comment here> can't happen - there's so little chance that it's not even worth talking about.**

Said before every disaster I'm sure. Probably said about the levees in New Orleans before Katrina. Or the tsunami in the Indian Ocean in 2004, or the tsunami/nuclear disaster in Japan in 2011, etc etc. That's the thing about black swans, people say it can't happen until it does.

Look down at your hand and pinch yourself. Did it hurt? That means you're alive. If you're alive you should expect some unexpected disaster to happen in your lifetime.

iamlindoro

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #14 on: June 16, 2015, 11:04:13 AM »
Look down at your hand and pinch yourself. Did it hurt? That means you're alive. If you're alive you should expect some unexpected disaster to happen in your lifetime.

I certainly don't deny that disasters will happen, and will likely affect me.  It's just that this specific disaster scenario (an earthquake striking the Bay Area and causing significant damage to tech sector stock prices) won't be it.  Any number of other things could happen to any of us, and any business.  But as MMM says, that's outside of my sphere of control, and I have no scientific reason to fear that a fantasy-level earthquake is capable of wiping out Californian civilization.   We're good at responding to the level of earthquakes that are physically possible on our fault lines, and we're good at building for them.

NoraLenderbee

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #15 on: June 16, 2015, 11:10:37 AM »
You don't have to go back to 1908--or even 1906, which was the year of the great earthquake and fire in SF. There was a 7+ in 1989. It was disruptive and expensive locally, but tech sector stocks were not greatly affected, nor was the overall US economy.

gillstone

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #16 on: June 16, 2015, 11:24:37 AM »
Building codes, building codes, building codes - If you don't believe me just look at Haiti in 2010 (magnitude 7.0, death toll of approx. 160,000) and Chile 2010 (magnitude 8., death toll of 550).  The Bay Area did significant retrofits, updates and new construction after the 1989 quake.  The roads will suck and there will be a lot of people hurt, but because of good building codes there will be a much smaller loss of life compared to a century prior.

Mr. Green

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #17 on: June 16, 2015, 02:39:36 PM »
What earthquake?

....that's what would happen. I'm all about a reduction in douchebags though.

I'm a red panda

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #18 on: June 17, 2015, 06:05:51 AM »
**<insert intelligently sounding comment here> can't happen - there's so little chance that it's not even worth talking about.**

Said before every disaster I'm sure. Probably said about the levees in New Orleans before Katrina. Or the tsunami in the Indian Ocean in 2004, or the tsunami/nuclear disaster in Japan in 2011, etc etc. That's the thing about black swans, people say it can't happen until it does.


I don't think these are good examples at all. Except Japan, I think people predicted exactly what was going to happen. New Orleans is a city built below sea level; the chance for disaster was definitely there. The areas in the Indian Ocean where the tsunami hit were heavily populated with low building codes, extreme potential for disaster.  I don't think Japan expected quite the disaster it got (with the nuclear plant) but the low building codes of the area hit spelled disaster without a doubt.

San Franscisco is prepared for a heavy earthquake.  It won't be rosy with no causalities, but it is highly unlikey to be truly catastrophic.  Now if one hit an area of the country that wasn't prepared... that could be very very bad.

a1smith

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #19 on: June 17, 2015, 06:38:58 AM »
We're good at responding to the level of earthquakes that are physically possible on our fault lines, and we're good at building for them.

From http://earthquake.usgs.gov/learn/topics/megaqk_facts_fantasy.php - The San Andreas Fault is 800 miles long and only about 10-12 miles deep, so that earthquakes larger than magnitude 8.3 are extremely unlikely.

Well, extremely unlikely does not mean "upper limit."

Further down the webpage you will see that the 1906 San Francisco earthquake was magnitude 7.8.  An 8.3 earthquake is 10^0.5 = 3.2 times stronger than a 7.8 earthquake.  It is a log scale.

I agree that SF Bay area is well prepared and it won't be a big disaster.  But there very well could be pockets of big damage and it could affect individual companies.

Not tech related -- with the 1989 earthquake there was a big decrease in tourism industry for SF for a while after the earthquake.  I was in SF shortly after that earthquake and saw the damage to the Marina district which suffered the most extensive damage.

iamlindoro

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #20 on: June 17, 2015, 07:14:36 AM »
Further down the webpage you will see that the 1906 San Francisco earthquake was magnitude 7.8.  An 8.3 earthquake is 10^0.5 = 3.2 times stronger than a 7.8 earthquake.  It is a log scale.

For what it's worth, I'm well aware of how the Richter scale works :)

http://www.livescience.com/16673-earthquake-san-francisco-california.html

Quote
The San Andreas Fault, commonly perceived to be more dangerous than the Cascadia Fault because of the proximity of several major California coastal cities including San Francisco, is not actually capable of generating a 9.0-magnitude earthquake. "The biggest one there would be just under 8.0," said Houston.

http://www.smithsonianmag.com/science-nature/what-will-really-happen-california-when-san-andreas-unleashes-big-one-180955432/?no-ist

Quote
While seismologists cant predict exactly when that will happen, every few years they release a forecast for the likelihood of such an event. The latest forecast, published earlier this year by the USGS, estimates a 7 percent chance that a magnitude 8 quake will occur in California within the next 30 years. Thats about as big as earthquakes can get in California, notes Jordana magnitude 8.3 quake might be possible if the entire San Andreas fault were to rupture from the Mexico border up to northern California. We dont think thats likely, he says.

https://news.usc.edu/82166/earthquake-experts-weigh-in-science-in-movie-san-andreas-a-bit-shaky/

Quote
Earthquake size: The earthquakes are too big. They have a 9.1 and a 9.6, and the largest earthquake that the San Andreas Fault can support is about an 8.0, said Thomas Jordan, professor of Earth sciences at the USC Dornsife College of Letters, Arts and Sciences and director of the Southern California Earthquake Center (SCEC).

So anyway, some variation on a theme, but the general consensus is that due to the shallow depth of the SA fault, the maximum is somewhere between 8.0 and 8.3, which I picked the upper end of when writing above.  I think we're in general agreement about the effect, though.

Rural

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #21 on: June 17, 2015, 07:47:31 AM »
**<insert intelligently sounding comment here> can't happen - there's so little chance that it's not even worth talking about.**

Said before every disaster I'm sure. Probably said about the levees in New Orleans before Katrina. Or the tsunami in the Indian Ocean in 2004, or the tsunami/nuclear disaster in Japan in 2011, etc etc. That's the thing about black swans, people say it can't happen until it does.


I don't think these are good examples at all. Except Japan, I think people predicted exactly what was going to happen. New Orleans is a city built below sea level; the chance for disaster was definitely there. The areas in the Indian Ocean where the tsunami hit were heavily populated with low building codes, extreme potential for disaster.  I don't think Japan expected quite the disaster it got (with the nuclear plant) but the low building codes of the area hit spelled disaster without a doubt.

San Franscisco is prepared for a heavy earthquake.  It won't be rosy with no causalities, but it is highly unlikey to be truly catastrophic.  Now if one hit an area of the country that wasn't prepared... that could be very very bad.


Yep. The New Madrid fault.  Probably not a major stock market effect, though, as long as nothing too nasty happens with Watts Bar or Oakridge.

tooqk4u22

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #22 on: June 17, 2015, 08:39:20 AM »
San Franscisco is prepared for a heavy earthquake.  It won't be rosy with no causalities, but it is highly unlikey to be truly catastrophic.  Now if one hit an area of the country that wasn't prepared... that could be very very bad.
Yep. The New Madrid fault.  Probably not a major stock market effect, though, as long as nothing too nasty happens with Watts Bar or Oakridge.

If we are having fun with speculation about earthquakes and economic impact then I am going with one hitting near NYC - major (but not really active fault lines), water, nuclear plants, older highrise buildings not really designed for it, economic center of the world.  That is my flyer.....

brooklynguy

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #23 on: June 17, 2015, 10:18:58 AM »
If we are having fun with speculation about earthquakes and economic impact then I am going with one hitting near NYC - major (but not really active fault lines), water, nuclear plants, older highrise buildings not really designed for it, economic center of the world.  That is my flyer.....

Why limit ourselves to earthquakes?  Speculating about catastrophic events has become a somewhat common pastime in the forum lately (see, e.g., here or here).  For my money, detonation of a nuclear or dirty bomb is much more likely to occur in Manhattan than a major nearby earthquake.

forummm

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #24 on: June 17, 2015, 11:10:03 AM »
If we are having fun with speculation about earthquakes and economic impact then I am going with one hitting near NYC - major (but not really active fault lines), water, nuclear plants, older highrise buildings not really designed for it, economic center of the world.  That is my flyer.....

Why limit ourselves to earthquakes?  Speculating about catastrophic events has become a somewhat common pastime in the forum lately (see, e.g., here or here).  For my money, detonation of a nuclear or dirty bomb is much more likely to occur in Manhattan than a major nearby earthquake.

Or maybe it's the in-progress slow-motion disaster of overspending on military that will crush us like it did with the USSR. We could add in healthcare spending too to make it even more menacing a threat.

Rural

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #25 on: June 17, 2015, 12:50:45 PM »
San Franscisco is prepared for a heavy earthquake.  It won't be rosy with no causalities, but it is highly unlikey to be truly catastrophic.  Now if one hit an area of the country that wasn't prepared... that could be very very bad.
Yep. The New Madrid fault.  Probably not a major stock market effect, though, as long as nothing too nasty happens with Watts Bar or Oakridge.

If we are having fun with speculation about earthquakes and economic impact then I am going with one hitting near NYC - major (but not really active fault lines), water, nuclear plants, older highrise buildings not really designed for it, economic center of the world.  That is my flyer.....


Yeah, but the New Madrid is real and has had a major Big One in historical times.


http://earthquake.usgs.gov/earthquakes/states/events/1811-1812.php

a1smith

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #26 on: June 17, 2015, 04:44:15 PM »
An interesting comparison of the 1989 and 1906 SF earthquakes from USGS looking at shaking intensity.

A Comparison of Two Bay Area Earthquakes: 1989 v. 1906

1989 didn't come anywhere near the 1906 earthquake.  So, I don't think we can make 1-1 comparison and say damage was much less solely due to building codes, etc.

seattlecyclone

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #27 on: June 17, 2015, 06:25:01 PM »
Also I remember reading that the shake-y part of the 1906 earthquake didn't directly cause all that many San Francisco buildings to collapse; the ensuing fires were what really hurt. Better road infrastructure and motorized fire engines really help with this part.

a1smith

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #28 on: June 17, 2015, 08:34:13 PM »
And some trivia - Bank of Italy, owned by Amadeo Giannini, was one of the banks that survived the earthquake.  He made a lot of handshake loans to people so that they could rebuild.  He later merged with the smaller Bank of America and renamed Bank of Italy to Bank of America.  He was chairman until he died in 1949.  That was back when banks really had customer service! 

One Noisy Cat

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #29 on: June 18, 2015, 05:03:31 PM »
     My memory from seeing a History Channel special in 2006 is after the earthquake, the city politicians sought to minimize bad publicity by calling it a "fire" every chance they could. So a lot of construction immediately afterwards was not as earthquake-resistant as it could be. Hopefully they have improved it in recent years.
     When the Twin Towers were hit by two planes before the stock market opened on 9/11/2001, the market didn't not open and remained closed until 9/17. The first day saw a loss of 7.1% and the first week total loss was over 14%.  But a month later, the averages returned to where they were before 9/11.

zoltani

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #30 on: June 18, 2015, 05:12:16 PM »
IDK, but it may be a good time to be invested in large machinery stocks.

ClaycordJCA

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #31 on: June 23, 2015, 12:23:34 AM »
Not "if."  It is just a matter of when. The stock market might drop a bit, go up, drop a bit, go up some more . . . .

Capsu78

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #32 on: June 25, 2015, 08:32:46 AM »

[/quote]
Yeah, but the New Madrid is real and has had a major Big One in historical times.
[/quote]

FWIW- a major event on the New Madrid could have a very significant on Silicon Valley and many more businesses across all sectors.  Say 3 or 4 bridges crossing the Mississippi were destroyed.  Major local traffic problems, right?   Uh, that's a minor problem compared to the loss of the fiber optics networks running through the structures of the bridges.  Anybody here on MMM know what companies they rely on everyday that uses fiber optics that cross the Mississippi under the bridge decks? 


trailrated

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Re: What will happen to stock market if a major earthquake hit bay area?
« Reply #33 on: June 25, 2015, 05:17:04 PM »
I work in concrete in the Bay Area and I can honestly say it would be great for business.