Japan and the Capital Markets

Late last night here in the US, 11 am Japanese time, the Prime Minister of Japan, Naoto Kan surprised Japan and much of the world with an announcement of further problems with nuclear reactors, and warned residents near certain reactors to exit the area while others slightly farther away to stay inside for protection purposes.

Prime minister Kan’s announcement was timed at the beginning of a 90 minute lunch break that is standard policy for many foreign capital markets. When the markets re-opened the Nikkei 225, Japan’s version of the S&P 500, sank to an inner day loss of just over 14% closing for the day down about 10%.

As to be expected, given our global interdependency and Japan’s ranking as the 4th largest county in the world ranked by GDP according to the CIA World Factbook, the global capital markets succumbed to Prime Minister Kan’s surprise news including the United States this morning.

This terrible tragic event, that I first became aware of at 4 am on Friday March 11, 2011, with  at the time a possible casualty count of 30 people, has grown dramatically in scope from initial reports, is different from a recession, war, or other type of shock to the financial system.

At this time there are many unknowns and capital markets will most likely be story dependent and thus very volatile in either direction, given the story.  Our best estimate, of course no guarantees, would be continued selling pressure for several days to weeks, with sharp upward spikes in the capital markets on any given day.  Recall, as we posted earlier the US Capital Markets were in the early stages of a much-needed breather, initiated by the Libya conflict as the Japan earthquake hit. As time passes, in our opinion, market participants may take a more positive view of the outlook, a view unthinkable at this time by many.

Diversification has never been more important!

Our sometimes overboard obsession on diversification has paid off again as we always practice “Not too many ducks in one pond” and feel better at times like these.

Now is not a time to let our guard’s down or dramatically increase/decrease risk, and we certainly will not, but we wanted to give you our thoughts given the latest events.

Have A Good Day!


PS On a personal note, a friend named Yasu who is in the money management business in Tokyo has reported to me he, his family, and many friends are in good shape, but the toll is great to his country.  I am sure next time we visit, he will have many stories to share.

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