In October, two brutal hurricanes hit the US southeast. And last week, Los Angeles went up in flames and is still burning as this is written.
These natural disasters are, obviously, a nightmare for the people directly impacted. But they might be part of something much bigger and far-reaching.
Migration and Inflation
Over the past half-century, tens of millions of Americans have poured into sunny states like Florida and California that are catastrophically unsuited for large populations. Specifically, the former is in hurricane alley and is guaranteed a direct hit from a Cat-5 one of these days, while the latter is a desert prone to droughts and raging wildfires (see today’s news).
While this ill-fated mass migration was happening, the federal government was inflating away the dollar, causing the prices of financial assets like homes — especially in popular coastal cities — to soar to stratospheric highs. Miami, for instance:
Deadly Combination
Combine massive population increase with soaring home prices, then toss in recurring natural disasters, and the result is a doom loop for the insurance companies that have to replace those multi-million dollar houses. In response, insurers are either raising their rates beyond the means of many homeowners or exiting these markets altogether.
Millions of Americans are thus left with much of their net worth tied up in houses that are prohibitively expensive to insure — if insurance is available at any price — and are therefore unsellable.
The resulting “reverse wealth effect,” in which evaporating home equity causes people to reduce spending and/or sell other assets to fill the gap, could begin at the coasts and sweep through the rest of the country, catalyzing the next financial crisis.
(Epoch Times) – Thousands of high-end homes burned in recent fires could lead to losses topping $150 billion, putting further pressure on California’s insurance market.
As Californians already face significant challenges finding home insurance, the fires ravaging Los Angeles County could make it even more difficult and costly to insure properties in the future.
Deadly fires erupted beginning Jan. 7, causing at least 11 deaths, leading to the ongoing ordered evacuation at one point of more than 180,000 individuals, with another 200,000 warned to get ready for possible evacuation.
More than 10,000 buildings are damaged or destroyed across the county, according to the latest estimates, with the number expected to rise as fires are minimally contained, in what some are describing as one of the most costly natural disasters in American history. AccuWeather estimates economic losses from the fires to reach up to $150 billion.
As of the latest tally on Jan. 9, the Pacific Palisades fire destroyed nearly 6,000 structures, including oceanfront mansions in neighborhoods north of Santa Monica, where homes sell for between $7 million and $20 million, with an average price of more than $3 million across the city.
The affluent area is made up of primarily white-collar workers, according to Cal Fire demographics data, which shows slightly fewer than half of the structures affected by the Palisades Fire were built since 1970, and about 12,000 are older.
Videos of the aftermath show businesses and homes leveled by fire, with the blocks of some neighborhoods completely demolished by the inferno.
(Epoch Times) – State Farm non-renewed approximately 1,600 policies in the region in 2024, of approximately 30,000 homeowners and 42,000 apartment policies it dropped statewide, citing rising costs and risks.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a statement.
“State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws. It is necessary to take these actions now.”
Approximately 6,000 structures were lost in the Eaton Fire, as of the most recent count on Jan. 10. The East Altadena and Hasting Heights neighborhoods sustained significant damage.
The average value of homes in the area is approximately $1.4 million, according to the online real estate listing firm Zillow.
Insurance Market Stability in Question
“At this point, it’s not an exaggeration to say the state’s facing an insurance crisis of both affordability and availability,” Ray Mueller, San Mateo County supervisor, said during a board meeting on Oct. 8.
Seven of the 12 largest insurers, including State Farm which represents about 10 percent of the market share, according to Department of Insurance data, paused writing new policies since 2023.
(Charles Hugh Smith) – I ask the question, “is the world becoming uninsurable?” not as an expert on the insurance industry but as a homeowner who can no longer obtain hurricane insurance, and as an observer of long-term trends keenly interested in the way global risks pile up either unseen, denied or misinterpreted until it’s too late to mitigate them.
The probability that we’re entering an era of globally higher risks is increasing, and this awareness is visible in headlines such as these:
This is not an abstraction, though many are treating it as a policy debate. As noted previously here, the insurance industry is not a charity, and insurers bear the costs that are increasing regardless of opinions and policy proposals. Insurers operate in the real world, and their decisions to pull out of entire regions, reduce coverage and increase premiums are all responses to soaring losses, a reality reflected in these charts.
Losses rise with inflation, of course, but the losses are rising far above background inflation.
This raises a point few seem to ponder: the world isn’t simply a political structure, yet virtually all the proposed solutions to every problem are political or technological in nature: we can solve this or that politically, or with AI. That the private-sector can trigger crises that have no political or technological fix is on very few pundits’ radar.
The problems being exposed do not lend themselves to tidy political / policy fixes that magically return the world to a past era of lower risks. Risks and losses cannot be extinguished, they can only be transferred to others. This is the intrinsic limit of political fixes: we take the risks and losses and transfer them to others lacking the political power to contest the transfer.
Or we transfer the risks and losses to the entire system, increasing the potential for a systemic collapse.
The narrative for BTC and other cryptocurrencies is that every government around the world has high debt-to-GDP ratios. It means they are going to print more currency. It means there is a need for alternative currency. In the past, this alternative currency was gold.
Gold is not very portable. It’s a good store of value. It’s not as great of a store of value as BTC in terms of actually storing it. BTC, you can store it on a hard drive or at Coinbase. Gold, if you have bars you have to keep them in a bank or you have to dig a hole in your backyard. And you can’t send gold around the world as easily as you can send BTC.
I still think this rally has legs. If you go back to where the breakout happened, we were really in November of 2024 that was the beginning of this bull market in my mind because that was the first time we hit an all-time high in a couple years. Then we rallied. We pulled back. We tested that level again.
The uptrend, in my mind and with what I’m seeing, is still intact. We’re just in an oversold condition right now.
Nvidia’s $900 billion round-trip this week wasn’t about some revelation in Jensen Huang’s chip factory. The business is firing on all cylinders – and may yet be one more reason for the market to soar higher into 2026.
The culprit was the macro — one gust of wind from the labor market and trillions in valuation shifted like sand dunes.
Nvidia’s earnings lifted the market at the open, but the jobs report’s undertow snapped sentiment like a dry twig. As we pointed out this morning, the S&P notched its biggest intraday reversal since April.
The first half of the move was classic Wall Street choreography: blowout earnings, analysts breathless with adjectives, and every fund manager terrified of underweighting the patron saint of AI.
In April, following the “Liberation Day” low, the indexes took off in the morning only to crash later in the day. The first and only other time in history we have seen a strong bullish opening followed by a sharp bearish close was during the 2020 recovery from the Covid shock.
In both cases, the markets were rebounding from exogenous shocks.
That’s not where we are today. The index-level charts may look composed, but underneath plenty of individual stocks are trading as if they’ve already slipped into a private bear market of their own.
We’ll see how the day unfolds. It’s options-expiration Friday — the monthly opex ritual when traders roll positions forward, unwind old bets, and generally yank prices around like terriers with a chew toy.
Every major tech shift has followed a similar pattern. As information moves faster, the money follows.
The telegraph made news global and opened up a world of investment opportunities. Radio, and then television, ignited a new wave of prosperity for investors. And the internet made communication instant, creating fortunes for those who saw what was coming.
Now standards like x402 are doing the same for AI and digital payments, potentially putting Jamie Dimon’s empire in jeopardy.
If you have Coinbase building the payment rails, Circle handling settlement and projects like Worldcoin and Particle Network solving for identity and wallets — do you really need a bank to validate transactions and keep track of who owns what?
All of these companies are helping to build a new layer of fintech infrastructure. And they’re all working toward an economy that runs continuously, without the need for corporate scaffolding.
