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Earthquakes and the stock market

Written by the man who can, on 09-05-2008

Earthquakes and stock markets.

Here's a fun one. I saw a TV documentary once about the impact that a major earthquake in Tokyo would have. Aside from the immediate damage, there was the knock-on effect worldwide due to the losses incurred by a) insurance companies, and b) anyone owning property or shares in companies investing in Tokyo, or based there.

The world's stock markets would probably plunge, and all sorts of things would follow on - most of them pretty predictable. And as the earthquake is considered likely to happen eventually, you would assume that some of the smarter people in the financial world have some kind of contingency plan, for this and other events.

In the modern world most stock trade is carried out by computers, so the contingency plan is probably a program, updated regularly, which sits there waiting for someone to activate it. When the earthquake strikes, somebody somewhere has the responsibility to do the modern equivalent of shouting "scramble, scramble".

But what happens if that person happens to be in the bathroom at the moment the wire services report the news? Or even if he/she is ready to rock and roll, who's to say that someone else isn't busy launching a program of trades designed to capitalise on everyone else's emergency plans?

Clearly, the trick is for the whole process to be automated - and for it to launch ahead of the news breaking so that you get the chance to capitalise on eveyone else's reaction.

Apparently the likely location for the future earthquake is as clearly identified as the San Andreas Fault. It's some distance from Tokyo, under the sea. In theory then, you could have a network of sensors on the seabed which would report the size and location of a quake as it happens, and trigger an appropriate response from your share-dealing computers.

You could then dump all your stock in Sony, and in all major insurance companies, before everyone else does. And put the cash into construction companies, again before anyone else doe. After a few days you could probably sell the construction stock at a massive profit, and buy back your Sony stock at a huge discount. Even after donating some of the remainder to disaster relief funds, you would probably still be left with a big pile of cash that you could then share with me!

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