Hurricane Report
The 2016
Hurricane Forecast
An Investor’s Guide to a Turbulent Season
JEFF OPDYKE’S
Precision Profits
The 2016 Hurricane Forecast An Investor’s Guide to a Turbulent Season By Chris Orr, Certified Consulting Meteorologist
T
HOSE of you living in hurricane country should start getting ready…
Typically, the hurricane season begins June 1 and ends November 30. However, we’ve already experienced the first hurricane of 2016: Hurricane Alex formed January 14 over the eastern Atlantic Ocean, dissipating the next day south of the Azores. And it was just one of a number of hurricanes we’ll see in this particularly active year. In fact, this year will be so active that we’ll be going through practically the whole alphabet — there could be as many as 24 named storms! And we’ll start seeing them as early as late May. About 14 of those could become hurricanes, and six could reach Category 3 status or higher. So as you can see, it’s going to be a busy year. That’s why I’m getting my forecast to you as early as I can. Hurricanes are among the most violent weather systems on Earth. They are giant heat engines fueled by warm, humid air above the tropical seas where the water is 82 degrees or warmer. They produce an estimated 600 trillion watts of heat energy and enough rain to fill 22 million Olympic-size swimming pools each day. These summer tyrants of the sea are very powerful! Of course, that means they can make a serious impact on particular industries. And as seasonal traders, that’s something we want to pay close attention to. So let’s take a look at my overview to see what we’re in for…
Is a Hurricane Outlook an Art or a Science? To start, I want to discuss how I come up with my hurricane forecasts. All seasonal and climate forecasts are a mix of science and “art” — the “art” being a skillful use of statistics. Hurricane season outlooks require a bit more of that art. They are far different from forecasting individual storms. See, we know a lot about the dynamics of individual storms, including how they evolve and how they move. So forecasting the track and intensity of individual tropical storms is pure science with a healthy dose of forecaster experience. I’ve forecast nearly 500 Atlantic tropical storms and Pacific Ocean typhoons in my career — and it’s now second nature.
1
However, a seasonal outlook of how many storms will form and what their strength will be is based largely on statistics — and there’s limited historical data. For one, we have spotty information on hurricanes going back to early explorers searching the coast of the Americas.
Hurricane Wind Speeds We have better weather This chart lists the wind speeds for tropical depression, tropical storms and the records dating to the five hurricane categories. Wind speeds are in miles per hour. middle 1800s for storms that approached land and traversed trans-Atlantic shipping routes, but storms that missed ships and coastlines went undetected. The best database dates back to 1950, giving us only 65 years of solid statistics with which to work. Then satellite tracking of hurricanes began in the 1960s. So, as you can see, we don’t have a lot of data to look at when we prepare the seasonal hurricane outlooks, making them more of an art than science. You can see that in the naming process. A storm system in the tropics becomes a tropical storm when the National Hurricane Center gives it a name. It will keep its name when it becomes a hurricane and until it completely decays. It’s a challenge to predict how many storms will be named by the National Hurricane Center. But the farther a storm is from shore, the more likely it will be given a name because there’s very little data to say that it’s not a tropical storm. You see, most of us have this picture in our minds that a tropical storm is a big swirling maelstrom churning across the ocean, piling up huge waves and imperiling any seafarer in its path. That’s not always the case. Occasionally, there will be only one or two reports of thunderstorm gusts of 40 mph — and that’s enough for the system to get a name. That’s why poorly organized tropical storms and hurricanes are often a lot wimpier than their media hype would lead you to believe. However, there is no way for you to know just how strong a storm will be unless you have access to Doppler radar and detailed satellite information. So it is best for you to heed the National Weather Service warnings. As for how these hurricanes impact businesses…
The Economic Impact of Hurricanes Well-organized hurricanes, like Sandy (2012) and Katrina (2005), produce a lot of damage and create a large shock to the economy.
2
The table below shows the top 10 costliest hurricanes in 2010 dollars, excluding Sandy. Number one on the list is a Category 4 storm in 1926 that caused a whopping $164.8 billion in damages, followed by Katrina at $113.4 billion. Hurricane Sandy caused an estimated $75 billion. Stock prices of insurance and oil companies fluctuate from tropical storms and Hurricane Damage These are the 10 costliest hurricanes on record. Amounts are in 2010 dollars hurricanes depending except for Sandy, which is in 2012 dollars. The U.S. began naming tropical on their tracks. Gulf of storms and hurricanes in 1953. Mexico storms can shut down offshore oil rigs and coastal refineries. When storms hit population centers, they create catastrophic damage which insurers have to cover. There can be short-term benefits, too. Store shelves can quickly empty as storms approach and people buy batteries, water and basic food supplies. If the storm comes at the end of a fiscal quarter, it will provide a quick boost to the bottom line of retailers. On the other hand, when storms hit elsewhere in the quarter, the burst of revenue is spread out across the quarter and is barely noticeable. Long-term beneficiaries of hurricanes are home improvement stores and companies that wholesale construction supplies. Even the price of lumber will increase during busy hurricane seasons because wood is used both to rebuild after a hurricane and to cover windows before a hurricane strikes. Each hurricane and hurricane season creates different shock patterns to the economy and equity markets, so we will have to watch to see how the 2016 season will play out.
Quick Fact: Hurricanes Are a Necessary Evil While it would be nice not to have to put up with the damage and disruption hurricanes and tropical storms create, the fact is we can’t live without them. Islands and coastal areas of the western Atlantic Ocean rely on tropical storms and hurricanes for much of their summer rainfall. A typical tropical storm can drop 4 to 15 inches of rain in a short period of time. Some of it is absorbed by the ground, and the rest flows into streams, rivers and reservoirs. The rain provides short-term water requirements for crops. The rainwater stored in lakes and reservoirs provides drinking water during dry years.
3
The 2016 Hurricane Outlook This hurricane season promises to be very active. Ocean temperatures — the main fuel for tropical storms and hurricanes — will be up to 4 degrees warmer than normal across the tropical Atlantic Ocean and the Gulf of Mexico. And that’s great fodder for creating storms. The warmer ocean water injects more moisture into the air through evaporation. And storms need the moisture to maintain the energy needed to keep the tropical storm heat engine pumping.
2015 Storms This map from the National Hurricane Center shows the tracks of all tropical storms and hurricanes in 2015. The legend at the top right also gives the dates of the individual storms. SOURCE: http://www.nhc.noaa.gov/tafb_latest/tws_atl_latest.gif
Hurricanes also need to be surrounded by a large area of light winds so they mature… That’s why we’ve had a quiet season in past years: El Niño produced stronger-than-normal winds (what we meteorologists call wind shear) in 2014 and 2015, which created an environment hostile to tropical weather systems. El Niño’s death this summer means the wind flowing at 15,000 feet above the Earth’s surface will be lighter and more favorable for storm development. Favorable wind fields and warmer-than-normal ocean temperatures are the key to this year’s outlook — and it’s all leading up to a rough season. As for where we’ll be most affected, the map on page 5 shows the greatest risk of tropical storms and hurricanes this summer.
Review of the 2015 Hurricane Season As far as the U.S. coast is concerned, 2015 was a quiet year for tropical weather systems. Tropical storm Ana crossed South Carolina, North Carolina, Virginia and Delaware in May. Tropical storm Bill formed off the coast of Texas in mid-June, looping north near Dallas before falling apart over southeast Oklahoma. The only other storm to impact the U.S. was tropical storm Claudette, which formed near Cape Hatteras in mid-July and quickly headed out to sea. The other eight storms of 2015 were well offshore.
4
I expect the entire coast of the U.S. from New Jersey to Brownsville, Texas to be threatened by at least eight hurricanes. The risk extends well inland, too. The arrows show the general source regions and storm tracks. Each individual storm will travel a unique path, so the arrows are just for visualization and don’t indicate the track of specific storms.
Greatest Risks in 2016 The greatest risk for hurricanes this year extends from Brownsville, Texas to New Jersey. The red shaded area shows the area with the greatest risk of impact. Arrows indicate source regions and generalized tracks.
With all that in mind, here’s my prediction: I expect 24 named storms this year. Ten of those will not grow beyond tropical storm status. That means 14 will become hurricanes. Of those, six will grow strong enough to reach Category 3 or higher. And about two could be as strong as Katrina.
The Bottom Line This year is going to provide a very active hurricane season. The U.S. will likely see considerable damage from the storms as they plow across the coastlines. The exact amount of damage will depend on exactly where they hit. Obviously, landfall near a large population center will create the greatest damage. So, Jeff and I have been combing through the companies that would be most affected — namely landscape, home improvement and insurance businesses. If we see a solid trend, we’ll be recommending a trade. Just keep in mind that these hurricane trades will be short-term, just like our Calpine puts, where we wagered that Calpine would likely follow nat-gas prices lower after some temporarily cold weather (and it handed us a quick 50% gain). There’s a silver lining in every cloud,
How Many Storms Will 2016 Bring? I’m predicting a total of 24 named storms. Ten will not grow beyond tropical storm strength, eight will be hurricanes and another six will become major hurricanes.
Chris Orr Certified Consulting Meteorologist
5
The Sovereign Society 55 NE 5th Avenue, Suite 200 Delray Beach, FL 33483 USA USA Toll Free Tel.: 866-584-4096 Email: http://sovereignsociety.com/contact-us Website: www.sovereignsociety.com Legal Notice: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. (c) 2016 Sovereign Offshore Services LLC. All Rights Reserved; protected by copyright laws of the United States and international treaties. This report may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 55 NE 5th Avenue, Suite 200, Delray Beach FL 33483.
6
Hurricane Forecast
An Investor’s Guide to a Turbulent Season
JEFF OPDYKE’S
Precision Profits
The 2016 Hurricane Forecast An Investor’s Guide to a Turbulent Season By Chris Orr, Certified Consulting Meteorologist
T
HOSE of you living in hurricane country should start getting ready…
Typically, the hurricane season begins June 1 and ends November 30. However, we’ve already experienced the first hurricane of 2016: Hurricane Alex formed January 14 over the eastern Atlantic Ocean, dissipating the next day south of the Azores. And it was just one of a number of hurricanes we’ll see in this particularly active year. In fact, this year will be so active that we’ll be going through practically the whole alphabet — there could be as many as 24 named storms! And we’ll start seeing them as early as late May. About 14 of those could become hurricanes, and six could reach Category 3 status or higher. So as you can see, it’s going to be a busy year. That’s why I’m getting my forecast to you as early as I can. Hurricanes are among the most violent weather systems on Earth. They are giant heat engines fueled by warm, humid air above the tropical seas where the water is 82 degrees or warmer. They produce an estimated 600 trillion watts of heat energy and enough rain to fill 22 million Olympic-size swimming pools each day. These summer tyrants of the sea are very powerful! Of course, that means they can make a serious impact on particular industries. And as seasonal traders, that’s something we want to pay close attention to. So let’s take a look at my overview to see what we’re in for…
Is a Hurricane Outlook an Art or a Science? To start, I want to discuss how I come up with my hurricane forecasts. All seasonal and climate forecasts are a mix of science and “art” — the “art” being a skillful use of statistics. Hurricane season outlooks require a bit more of that art. They are far different from forecasting individual storms. See, we know a lot about the dynamics of individual storms, including how they evolve and how they move. So forecasting the track and intensity of individual tropical storms is pure science with a healthy dose of forecaster experience. I’ve forecast nearly 500 Atlantic tropical storms and Pacific Ocean typhoons in my career — and it’s now second nature.
1
However, a seasonal outlook of how many storms will form and what their strength will be is based largely on statistics — and there’s limited historical data. For one, we have spotty information on hurricanes going back to early explorers searching the coast of the Americas.
Hurricane Wind Speeds We have better weather This chart lists the wind speeds for tropical depression, tropical storms and the records dating to the five hurricane categories. Wind speeds are in miles per hour. middle 1800s for storms that approached land and traversed trans-Atlantic shipping routes, but storms that missed ships and coastlines went undetected. The best database dates back to 1950, giving us only 65 years of solid statistics with which to work. Then satellite tracking of hurricanes began in the 1960s. So, as you can see, we don’t have a lot of data to look at when we prepare the seasonal hurricane outlooks, making them more of an art than science. You can see that in the naming process. A storm system in the tropics becomes a tropical storm when the National Hurricane Center gives it a name. It will keep its name when it becomes a hurricane and until it completely decays. It’s a challenge to predict how many storms will be named by the National Hurricane Center. But the farther a storm is from shore, the more likely it will be given a name because there’s very little data to say that it’s not a tropical storm. You see, most of us have this picture in our minds that a tropical storm is a big swirling maelstrom churning across the ocean, piling up huge waves and imperiling any seafarer in its path. That’s not always the case. Occasionally, there will be only one or two reports of thunderstorm gusts of 40 mph — and that’s enough for the system to get a name. That’s why poorly organized tropical storms and hurricanes are often a lot wimpier than their media hype would lead you to believe. However, there is no way for you to know just how strong a storm will be unless you have access to Doppler radar and detailed satellite information. So it is best for you to heed the National Weather Service warnings. As for how these hurricanes impact businesses…
The Economic Impact of Hurricanes Well-organized hurricanes, like Sandy (2012) and Katrina (2005), produce a lot of damage and create a large shock to the economy.
2
The table below shows the top 10 costliest hurricanes in 2010 dollars, excluding Sandy. Number one on the list is a Category 4 storm in 1926 that caused a whopping $164.8 billion in damages, followed by Katrina at $113.4 billion. Hurricane Sandy caused an estimated $75 billion. Stock prices of insurance and oil companies fluctuate from tropical storms and Hurricane Damage These are the 10 costliest hurricanes on record. Amounts are in 2010 dollars hurricanes depending except for Sandy, which is in 2012 dollars. The U.S. began naming tropical on their tracks. Gulf of storms and hurricanes in 1953. Mexico storms can shut down offshore oil rigs and coastal refineries. When storms hit population centers, they create catastrophic damage which insurers have to cover. There can be short-term benefits, too. Store shelves can quickly empty as storms approach and people buy batteries, water and basic food supplies. If the storm comes at the end of a fiscal quarter, it will provide a quick boost to the bottom line of retailers. On the other hand, when storms hit elsewhere in the quarter, the burst of revenue is spread out across the quarter and is barely noticeable. Long-term beneficiaries of hurricanes are home improvement stores and companies that wholesale construction supplies. Even the price of lumber will increase during busy hurricane seasons because wood is used both to rebuild after a hurricane and to cover windows before a hurricane strikes. Each hurricane and hurricane season creates different shock patterns to the economy and equity markets, so we will have to watch to see how the 2016 season will play out.
Quick Fact: Hurricanes Are a Necessary Evil While it would be nice not to have to put up with the damage and disruption hurricanes and tropical storms create, the fact is we can’t live without them. Islands and coastal areas of the western Atlantic Ocean rely on tropical storms and hurricanes for much of their summer rainfall. A typical tropical storm can drop 4 to 15 inches of rain in a short period of time. Some of it is absorbed by the ground, and the rest flows into streams, rivers and reservoirs. The rain provides short-term water requirements for crops. The rainwater stored in lakes and reservoirs provides drinking water during dry years.
3
The 2016 Hurricane Outlook This hurricane season promises to be very active. Ocean temperatures — the main fuel for tropical storms and hurricanes — will be up to 4 degrees warmer than normal across the tropical Atlantic Ocean and the Gulf of Mexico. And that’s great fodder for creating storms. The warmer ocean water injects more moisture into the air through evaporation. And storms need the moisture to maintain the energy needed to keep the tropical storm heat engine pumping.
2015 Storms This map from the National Hurricane Center shows the tracks of all tropical storms and hurricanes in 2015. The legend at the top right also gives the dates of the individual storms. SOURCE: http://www.nhc.noaa.gov/tafb_latest/tws_atl_latest.gif
Hurricanes also need to be surrounded by a large area of light winds so they mature… That’s why we’ve had a quiet season in past years: El Niño produced stronger-than-normal winds (what we meteorologists call wind shear) in 2014 and 2015, which created an environment hostile to tropical weather systems. El Niño’s death this summer means the wind flowing at 15,000 feet above the Earth’s surface will be lighter and more favorable for storm development. Favorable wind fields and warmer-than-normal ocean temperatures are the key to this year’s outlook — and it’s all leading up to a rough season. As for where we’ll be most affected, the map on page 5 shows the greatest risk of tropical storms and hurricanes this summer.
Review of the 2015 Hurricane Season As far as the U.S. coast is concerned, 2015 was a quiet year for tropical weather systems. Tropical storm Ana crossed South Carolina, North Carolina, Virginia and Delaware in May. Tropical storm Bill formed off the coast of Texas in mid-June, looping north near Dallas before falling apart over southeast Oklahoma. The only other storm to impact the U.S. was tropical storm Claudette, which formed near Cape Hatteras in mid-July and quickly headed out to sea. The other eight storms of 2015 were well offshore.
4
I expect the entire coast of the U.S. from New Jersey to Brownsville, Texas to be threatened by at least eight hurricanes. The risk extends well inland, too. The arrows show the general source regions and storm tracks. Each individual storm will travel a unique path, so the arrows are just for visualization and don’t indicate the track of specific storms.
Greatest Risks in 2016 The greatest risk for hurricanes this year extends from Brownsville, Texas to New Jersey. The red shaded area shows the area with the greatest risk of impact. Arrows indicate source regions and generalized tracks.
With all that in mind, here’s my prediction: I expect 24 named storms this year. Ten of those will not grow beyond tropical storm status. That means 14 will become hurricanes. Of those, six will grow strong enough to reach Category 3 or higher. And about two could be as strong as Katrina.
The Bottom Line This year is going to provide a very active hurricane season. The U.S. will likely see considerable damage from the storms as they plow across the coastlines. The exact amount of damage will depend on exactly where they hit. Obviously, landfall near a large population center will create the greatest damage. So, Jeff and I have been combing through the companies that would be most affected — namely landscape, home improvement and insurance businesses. If we see a solid trend, we’ll be recommending a trade. Just keep in mind that these hurricane trades will be short-term, just like our Calpine puts, where we wagered that Calpine would likely follow nat-gas prices lower after some temporarily cold weather (and it handed us a quick 50% gain). There’s a silver lining in every cloud,
How Many Storms Will 2016 Bring? I’m predicting a total of 24 named storms. Ten will not grow beyond tropical storm strength, eight will be hurricanes and another six will become major hurricanes.
Chris Orr Certified Consulting Meteorologist
5
The Sovereign Society 55 NE 5th Avenue, Suite 200 Delray Beach, FL 33483 USA USA Toll Free Tel.: 866-584-4096 Email: http://sovereignsociety.com/contact-us Website: www.sovereignsociety.com Legal Notice: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. (c) 2016 Sovereign Offshore Services LLC. All Rights Reserved; protected by copyright laws of the United States and international treaties. This report may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 55 NE 5th Avenue, Suite 200, Delray Beach FL 33483.
6
