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Wednesday, March 16, 2011

Japanese Markets Tumble Again

After a decent sized gain yesterday, the Nikkei is down over 2% again as of the time of this posting. As bad as the news is regarding the nuclear situation there, I am surprised it is not worse. I'm not sure that this is the market reflecting better information than we are getting out of the press or if it is simply that, after some serious declines earlier in the week, the market is as low as it will go. I'm not prepared to test that particular proposition yet, but I think it bears watching.

One thing that has surprised me in all of this is that the yen has actually strengthened and not weakened. I saw a couple of articles suggesting that Japanese residents and institutions would start repatriating funds rather than seeking to park their money oversees because they need those funds to pay for damages. Apparently that is at work here. It is what I would call a secondary effect where the primary effect of market weakness pushing the yen down gave way to the actual mechanical action of domestic Japanese investors redeeming oversees assets.

The real economic effects are still being assessed at this point and they are difficult to fully quantify. Obviously, there are the losses to insurers, which are being quoted at around $25 billion. Disruptions for various electronic component manufacturers are another source of significant strain. Of course, Japanese consumer confidence is going to be seriously depressed, and rightfully so, after seeing such horrors unleashed on them by a merciless earth. Similarly, the already clammed up Japanese business community is unlikely to unleash its purchasing power either. Those are all in the short term and are unavoidable. However, I would generally say that nations tend to recover from these sorts of incidents more rapidly and more vigorously than most predict. The one caveat here is that serious nuclear contamination is a different animal and it is very difficult to quantify those economic effects. As long as the situation remains (relatively) contained, it will not seriously hamper the recovery. At this point, all we can do is pray for those working in and near the reactor to subdue the situation there. Those workers are the bravest individuals in the entire world at the moment.

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