Most Expensive Catastrophes in History

10.  Tanker Truck vs. Bridge – $358 million
On 26 August 2004 a car collided with a tanker truck containing 32,000 liters of fuel on the Wiehltal Bridge in Germany.  The tanker crashed through the guardrail and fell 90 feet off the A4 Autobahn resulting in a huge explosion and fire which destroyed the load-bearing ability of the bridge. Temporary repairs cost $40 million and the cost to replace the bridge is estimated at $318 million.

9.   MetroLink Crash – $500 million
On 12 September 2008, in what was one of the worst train crashes in California history, 25 people were killed when a Metrolink commuter train crashed head-on into a Union Pacific freight train in Los Angeles.  It is thought that the Metrolink train may have run through a red signal while the conductor was busy text messaging.  Wrongful death lawsuits are expected to cause $500 million in losses for Metrolink.

8.   B-2 Bomber Crash – $1.4 billion
Here we have our first billion dollar accident (and we're only at 7 on the list). This B-2 stealth bomber crashed shortly after taking off from an air base in Guam on February 23, 2008.  Investigators blamed distorted data in the flight control computers caused by moisture in the system.This resulted in the aircraft making a sudden nose-up move which made the B-2 stall and crash. This was 1 of only 21 ever built and was the most expensive aviation accident in history. Both pilots were able to eject to safety.

7.  Exxon Valdez – $2.5 billion
The Exxon Valdez oil spill was not a large one in relation to the world's biggest oil spills, but it was a costly one due to the remote location of Prince William Sound (accessible only by helicopter and boat). On 24 March 1989 10.8 million gallons of oil was spilled when the ship's master, Joseph Hazelwood, left the controls and the ship crashed into a Reef. The cleanup cost Exxon $2.5 billion.

6.  Piper Alpha Oil Rig – $3.4 billion
The world's worst off-shore oil disaster, which at one time, was the world's single largest oil producer, spewing out 31,000 barrels of oil per day.On 6 July 1988, as part of routine maintenance, technicians removed and checked safety valves, which were essential in preventing dangerous build-up of liquid gas. 100 identical safety valves were checked. Unfortunately, the technicians made a mistake and forgot to replace one of them. At 10:00 pm that same night, a technician pressed a start button for the liquid gas pumps and the world's most expensive oil rig accident was set in motion. Within 2 hours, the 300 foot platform was engulfed in flames. It eventually collapsed, killing 167 workers and resulted in $3.4 billion in damages.

5.  Space Shuttle Challenger – $5.5 billion
The Space Shuttle Challenger was destroyed 73 seconds after takeoff on 28 January 1986, due to a faulty O-ring.  It failed to seal one of the joints, allowing pressurized gas to reach the outside. This in turn caused the external tank to dump its payload of liquid hydrogen causing a massive explosion.

4.   Prestige Oil Spill – $12 billion
On 13 November 2002, the Prestige oil tanker was carrying 77,000 tons of heavy fuel oil when one of its twelve tanks burst during a storm off Galicia, Spain.  Fearing that the ship would sink, the captain called for help from Spanish rescue workers, expecting them to take the ship into harbour. However, pressure from local authorities forced the captain to steer the ship away from the coast. The captain tried to get help from the French and Portuguese authorities, but they too ordered the ship away from their shores also. The storm eventually took its toll on the ship resulting in the tanker splitting in half and releasing 20 million gallons oil into the sea.

3.   Space Shuttle Columbia – $13 billion
The Space Shuttle Columbia was the first space-worthy shuttle in NASA's orbital fleet. It was destroyed during re-entry over Texas on 1 February 2003 after a hole was punctured in one of the wings during launch 16 days earlier.

2.   Chernobyl – $200 billion
On 26 April 1986 the world witnessed the costliest accident in history.  The Chernobyl disaster has been called the biggest socio-economic catastrophe in  peacetime history. 50% of the area of Ukraine is in some way contaminated. More than 200,000 people had to be evacuated and resettled while 1.7 million people were directly affected by the disaster. The death toll attributed to Chernobyl, including people who died from cancer years later, is estimated at 125,000.

And now for Number 1...

1.  George Bush – $11.065 trillion
When GW took office, the US had a $431 billion government budget surplus.  When he left office the budget was a deficit of $10.634 trillion and it's increasing almost $4 billion every day.  And it gets worse - here are more negative issues caused during GW's time as commander and chief:

• 6 million more Americans live below the poverty line than before his presidency
  
  
• 10 million more Americans don’t have insurance and the cost of insurance in the US has doubled
  
  
• Household income dropped by more than 10%
  
  
• Personal savings became negative for the first time in 2 decades
  
  
• The dollar lost more than 50% of its value
  
  
• 6,211 American soldiers have been killed in Iraq and Afghanistan
  
  
• 5 million orphans in Iraq (almost half of the country’s children)

Chinese Whispers

26 November 2009

If there is a consensus view at the moment, it’s that economic power has been shifting from west to east and that the Chinese government has been very effective at stimulating its economy.

So it was refreshing to hear a contrarian view from Diana Choyleva, Lombard Street Research's Bulgarian-born (and British-based) Chinese expert.

She argued that the necessary global adjustment was not occurring in China, “China is not producing less and spending more. Instead, the tremendous credit boost this year has been funneled by state banks into even more domestic investment.  In essence, the Chinese, who already dominate the global market for low value-added manufactured goods, are going to produce even more low value-added manufactured goods. In a world of sluggish demand growth, those Chinese goods can only be sold at the expense of gaining market share from other countries. The result will be a further deflationary shock for the global economy.”

Diana went on to add, “in the US, by contrast, non-financial companies have reacted by slashing costs. With the help of a falling dollar, the result has been import substitution.”

She has some good points and it could be possible that Chinese expansion will eventually hit a wall, having wasted much of its investment.

However, I am not necessarily 100% convinced by her thesis, especially as we still believe China has some strong fundamentals, especially over the mid- and long-term. But I do worry about three things:

1. Emerging markets have historically been prone to excesses and busts, but China’s growth has been suspiciously smooth (China wouldn’t ‘cook the books’, would they?).
   
   
2. Belief in China's ability to drive everything, from commodity prices to the global economic cycle, just doesn’t make sense.
   
   
3. Free markets have shown their flaws over the last couple of years, but it still seems unlikely that bureaucrats can allocate capital efficiently (and effectively).

Expect the unexpected…

Blowing Bubbles

25 November 2009

Gold hit another all-time high on Monday – $1,173 an ounce.  It was just a few weeks ago that it broke the $1,000 barrier and now look how quickly the gold medal is moving up the charts.  Frankly, it makes me a bit nervous – if it’s not one bubble, it’s another.

It seems when people are making a case for gold, it usually begins with taking pot shots at the dollar.  The argument goes that gold is a better (and older) medium of wealth than paper dollars.  If you don’t trust gold, do you trust the logic of taking a pine tree worth $5,000, turning it into paper, putting some ink on it and calling it $1 billion?

I guess there’s some logic in that on a relative level, but you could have said the same thing in 1980, but that statement didn’t save gold from being a bad investment for two decades after gold peaked in 1980.

What is different now is that dollars are being printed at an unprecedented level.  On top of that the Federal Reserve has expanded its balance sheet at a pace never seen before.  Now countries are publicly speaking about the logic in holding so many dollars.

I like gold over a recycled pine tree, but I prefer for it to be based on market fundamentals and not pure speculation.