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Busch: Hurricane Basics for Markets

Hurricanes are short-term events that last from two-to-three months at most and they have their biggest impact when they occur in warm water.

For energy, they mainly accentuate positive trends that are in place.

For equities, they only briefly interrupt positive trends, but will accentuate negative trends.

For currencies, the energy related CAD and NOK are generally positively impacted when they are trending positively.

For bonds, they accentuate downward yield trends and briefly interrupt upward yield trends.

Winners: energy, gasoline and lumber.

Losers: insurance companies, property owners, big pharma and the US economy as activity stops.

From my 2007 book "World Event Trading":

"The key takeaways on hurricanes remain that they are unpredictable, they will be anticipated, but they have a big impact on financial markets only when they hit the Gulf where energy production exists."

In this case, the East Coast refineries are being shut down and therefore refined products like gasoline are being hit the hardest. Also, you may get some hits to pharmaceutical companies as they lose production of key additives (organic chemicals, hydrocarbons). Again, this should be a short-term event if energy and electricity production resumes quickly.

Andrew B. Busch Director, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him here and you can follow him on Twitter at http://twitter.com/abusch .

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