I will preface this post by saying what happened in Japan was a nightmare, and I’m 100% positive that the people of Japan will rebound quickly and efficiently. No doubt in my mind. Anytime a 8.9 magnitude earthquake rattles your land, destruction will ensue no matter how well your buildings are engineered. Seeing as Japan has the third largest economy in the world ($4.3 Trillion GDP), it’s only fitting that we analyze what this will do to the global economy.
I recently brought this point up to a colleague of mine, and he told me that I was being insensitive for even thinking about the economic ramifications. Insensitive? Really? I feel for the entire country and what they’re going through, but there are certain realities we must face in this world. Those realities are that when major “black swan” moments occur, there are domino effects on all aspects of life. How much more devastating would this earthquake be if after all the destruction, Toyota, Honda, and Hitachi laid off a couple hundred thousand employees each? Japan spent the better half of the 1980’s and 1990’s in an economic situation that bordered a depression, and it would be devastating to see their economy regress.
I’ve been analyzing the Nikkei for the past week, and it’s very vulnerable. It ended on a five point rally today, but it was getting slaughtered for most of the week. Hitachi saw a 15% drop the day following the quake, and most of the major Japanese firms saw substantial losses as well. Due to globalization, the activities on the Nikkei almost directly affect trading here in the United States. Not only is Japan a very affluent nation, but it’s also a huge buyer of US debt.
So what does this all mean for investors around the world? It’s simple. The worst thing that people can do right now is sell their stocks in Japanese companies. Consider this. Warren Buffett has preached for over 60 years that when you see a good company’s stock drop, you must empty out your piggy bank and buy as much as you can. Toyota, Honda, Mitsubishi, and Hitachi are all great companies, but the general fear in the marketplace has led them to see drops in their share prices. That being said, you can help out the Japanese economy and yourself by buying these very profitable companies at marginal rates.
This tragedy can be a great opportunity for others to help out the citizens of Japan, and in doing so, help themselves. If Japanese stocks continue to drop, you can bet that they will lay off thousands of people. Donations are great, but sustainability is so much better for any economy. Japan is the focus of the world currently, so let’s try to see some positive opportunities come to fruition. This is what I like to call manufactured growth.
If anything, look at it this way. The world almost fell to its knees when Greece, Spain, Portugal, and Romania had major downturns in 2010. Japan’s economy is several times bigger than all of those countries combined. That’s a scary fact. Now, my honest opinion is that they will recover quite nicely, but the drop off level can be mitigated.
Lastly, every American should have general support for the Japanese. They’re one of the few true allies we have in the world, and they can back us up economically. We show them support in this time of need, who knows, maybe they’ll return the favor in the near future.
Signing off,
Miran Maric
A true friend never gets in your way unless you happen to be going down.
Arnold H. Glasow
Horse Boat 