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Sunday, March 13, 2011

Larry Kudlow Was Right, But Very Wrong

The human toll from the Japanese earthquake is indeed far worse than the economic toll, though we should not be grateful for that. I would have rather $250 billion in property be destroyed and supply chains for global commerce ruined for months than see 10,000+ people die.

That being said, while it is crass to speculate on the effects on Japanese markets, I shall do so anyway. Due to both weakness in the underlying markets and the yen, Japanese stocks will be a poor investment in the short run. However, barring a much worse than expected nuclear incident, Japanese stocks will present a good buying opportunity for those who do not have qualms on speculation in such incidents. The sell-off has been and will continue to be fairly uniform as will be the inevitable short-term recovery and EWJ is a decent way to play that after a few more days. Unfortunately, Japan still has serious long-term structural issues that need resolving and the debt incurred as a necessary expense to rebuild from this disaster will only make matters worse. Hopefully, the international community will not simply leave Japan to its own devices because it is a "rich" country.

I do not endorse this form of speculation as I generally find it distasteful, but in case anyone has the urge to do so, that is my best guess at the moment.

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