http://www.wbur.org/onpoint/2014/07/...-san-francisco

Let's assume a hypothetical: Southern California, especially the LA area, is shaken by a magnitude 8.0 (or higher) earthquake along the San Andreas fault in the next 5-10 years. (This is not outlandish speculation as a magnitude 9.0 earthquake occurred in Alaska in 1964.) An earthquake of that magnitude, (i.e. the next "Big One"), would create economic disruption not only in California but across the entire United States. Here's just one "little thing" to consider. If California were a country - rather than part of a larger nation - it would be the 6th largest economy in the world. Any major disruption to California will be a major economic disruption to the entire United States. This is a trivial consideration in the overall big picture, but if the aftermath of a big Southern California earthquake is as dire as Ms. Jones is predicting, the U.S. budget deficit will skyrocket due to the loss of tax revenue from the (millions?) of Californians who are suddenly unemployed. The cost (to the rest of the country) of helping California get back on its feet will not be insignificant. This will be a costly economic disaster for the entire country - a disaster that will tally in the hundreds of billions (if not trillions?) of dollars.

I hate to be a ghoul, (well, not really as I consider myself more of a pragmatist and a realist), but in such a scenario there will be winners and losers. In the 2008 financial crisis it is well documented that the winners were the small handful of people who saw the crisis coming and placed their bets accordingly. This is preposterous, but if an investor had incredible psychic abilities and could see a week, a month, (or a year) into the future; that person would "know" when the next Big One will strike California. That clairvoyant could become richer than Bill Gates and Warren Buffett combined. How? By shorting the stocks of all the major American companies headquartered in California! (Of course, that person could also quickly become broke if their crystal ball turns out to be clouded ...)

Disregarding sentiments along the lines of "How can you be such a jerk that you actually consider trying to profit from others misfortune!?" the question boils down to: How do you "play" a sometime-in-the-future catastrophic Southern California earthquake - an event that is almost certain to occur but nobody knows when? (The obvious downside to taking such a bet is that the Big One may not happen for another 50 years ...)

Goldman Sachs (and others) were selling credit default swaps to "idiots" - and anybody else who wanted to buy them - prior to the subprime mortgage crisis. That gamble turned out very well for the astute few who elected to take that risk. Is their a market or a betting exchange (or whatever) that is selling something like an EDS (Earthquake Default Swap) against a devastating Southern California earthquake occurring within a specified time period - like say the next year or the next five years?

If you believe a major natural disaster is inevitable for Southern California during our lifetimes, (I suspect I'll be alive for maybe another ten years as I'm an "old" with health problems), is this an "investment" (or a gamble) you would take? How would an EDS contract be priced?

Ghoulish Former DJ

You might enjoy reading/learning more about Catastrophe Bonds: https://en.wikipedia.org/wiki/Catastrophe_bond

The parameters of what you're looking for (10 year event horizon, easily available to a retail investor) don't exist right now.

I can't buy your thesis. CA gets shaken regularly, and as a result is better prepared for an earthquake than most places on earth... So we're talking about something like Mexico City in 1985. There were 16M residents of Mexico city when an 8.0 earthquake hit and roughly 100k were homeless as a result with roughly 10k dead almost all happening in the poor areas of town and a few taller buildings that it turned out weren't built so well.

I think that you're gravely underestimating how hard of a target CA is. It's a very wealthy state that has routine earthquakes. Seriously there was a 4.5 on the Richter scale quake this morning in Socal and nobody cares. I'm not saying there would be no disruption with a massive quake, but it would be nowhere near as destructive as what happened to Houston last year if Socal took an 8.5 tomorrow.

large institutions (eg insurance cos) would have whats called a catastrophe swap

idk what kind of practical exposure u can get as a layperson. honestly ur best bet might be buy a bunch of equity in the construction company thats doing the rebuilding.

boredsocial's post is correct too

Given that much of tech is situated in Silicon Valley, short (or buy well out of the money LEAPS puts on) technicrap and enjoy the small (2%/year maybe) extra upside of the big one in addition to your regular short. For example, if a big or even moderately big earthquake hits San Fran, Tesla is bankrupt overnight, since that's their only factory. I'm sure you can find more examples.

Fremont is 40+ miles away from San Fran.

Fremont is on the Hayward fault zone, which hasn't produced a magnitude 5 in 129 years, and hasn't produced a major quake since 1868.

themoreyouknow.jpeg

Cuck,
themoreyouknow.jpg

P.S. The longer without a quake in active fault zone, generally, the higher the chance of a quake. Pressure building up and all that.
P.P.S. I love how how everyone who disagrees with me is just plain wrong in hilarious ways.

I think there are lots of good reasons to short TSLA, but 'an earthquake could instagib them' is pretty far down the list IMO. I think 2% is generous. I also think it doesn't matter because TS's whole point was that the trade is hard to realize if it's even real, and is actually more of a factor to be considered in other trades at the absolute most.

EDIT: Plus let's not pretend the TSLA factory is going to magically get completely destroyed in an earthquake. They could lose two quarters of production tops. More likely it would be closer to 7-14 days.

The way to play this is short property insurance or smaller reinsurance companies... But for it to be a good trade you basically have to find an insurance company so overextended that they are a good short without the earthquake risk. Multiple big hurricane seasons are a much better thesis to play on these anyway.

Yeah it's low probability. But it's a meaningful risk. If you were going to play this risk, Tesla, which is on the epicenter of the fault most likely to give a highly destructive quake in the near future according to the experts, who would also be destroyed by a big quake since they're near bankrupt and have no other manufacturing facilities except the one sitting right atop the most dangerous fault in California, is the obvious short. Especially since it's a +EV short already.

It wouldn't 'destroy' the factory though. It would damage it somewhat. I agree that any level of disruption at this juncture could undo TSLA though. They really don't have any room to **** up right now. It's deliver on Elon's promise of needing no more cash or start circling the toilet bowl.

I never said the factory would be destroyed. You majorly underestimate the disruption of a large earthquake. Things break and need replacing - it takes weeks to months to ship the parts from Germany or elsewhere - roads can be damaged, employees are unavailable. The prediction from earthquake experts is talking about 6.7 minimum, the threshold at which large scale damage and building/structure/road damage start

Japan had a big earthquake a couple of years ago, a 7.0, which made a mess of their car industry. And these makers have far more resources and resilience than Tesla. Tesla lies right on the most active fault in California, as my friend donfairplay was kind to point out.

https://www.arenasolutions.com/blog/...und-the-globe/

That's a fair point. I hadn't thought about the impact of the tsunami on Japan. I do remember Toyota having a very rough time. TSLA would definitely blow up.

That wasn't a tsunami, that was pure earthquake damage. They make a mess when they get up to 7. This is from the 2016 quakes:

Earthquakes generally aren't covered under homeowners insurance

If the big one hits, Tesla's not the only company looking at dramatic and potentially crippling supply chain issues (admit it TS, in your mind you saw the earth open up and swallow the factory whole before closing again).

http://money.cnn.com/2018/05/09/news...ion/index.html

Ford halts production due to a fire in a supply company's factory. Everything is so interconnected these days, and I have to believe that if there's any disruption to the port facilities (just Googled it - LA & Long Beach are #1 and 2 in the US) then everything goes to ****.

Want ghoulish? Find a medicine that people need, but is produced/shipped via California and stock up on it. Then, after the quake, Craigslist that stuff with a nice markup.

No, but Tesla is the only one with a single factory that it relies on for all its revenue, and the only one with serious liquidity issues. It also happens to sit right on top of the most likely fault to cause the "big one", which means it's at the epicenter of any destruction. Seriously, what more do you want?
Nope, earthquakes don't work like that. Factory buildings come out less damaged, although there would still be widespread damage/disruption to operations. The problem I envisaged was repairs, employees, roads and supporting infrastructure.

But even though the building is fine, the main problem is internal damage to production lines. This is what happened to Sony in Japan:

Pictures show how badly earthquakes damaged Sony’s Kumamoto sensor factory



I like this. What's more, it's highly ethical/almost Mother Theresa level of saintliness (while turning a nice profit).

The only problem with this is that drugs have a shelf life, and 95+% of the time you lose 100%. At least with my way, you're +EV and adding a little more EV.

Do you really think people will pay a large markup for NyQuil or Tylenol?

LOL This is why I'd be talking to my brother (the actuary) at length about any investing thesis I had involving the insurance business. I used to be a health/life insurance agent but I honestly don't know anything about property & casualty.

It seems like solar panels would be a better play doesn't it?

Probably want to check warranty conditions to determine whether long or short is better, but you make a good point.

Screaming Eagle wine. If the apocalypse happens, you can drink the profit.